TDH Holdings, Inc. — FY2021 Form 20-F
Reporting period: Fiscal year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter filing. Financial amounts below are in U.S. dollars unless stated otherwise.
Business context
TDH is a British Virgin Islands holding company whose principal historical business is developing, manufacturing, and selling pet food through subsidiaries in China. In October 2021, it acquired 51% of Far Ling’s Inc. and 100% of Bo Ling’s Chinese Restaurant, Inc., adding a restaurant business in the Kansas City area. The filing reports two operating segments: pet food and restaurants.
Financial performance and liquidity
| Metric | FY2021 | FY2020 |
|---|---|---|
| Total revenue | $1.092 million | $0.815 million |
| Gross loss | $20,574 | $41,835 |
| Gross margin | (1.88%) | (5.13%) |
| Operating loss | $4.614 million | $1.926 million |
| Consolidated net loss | $6.716 million | $0.875 million |
| Cash used in operating activities | $3.446 million | $2.628 million |
| Cash and cash equivalents | $18.027 million | $6.567 million |
| Restricted cash | $1.484 million | $0.183 million |
| Short-term investments | $4.428 million | $3.139 million |
| Short-term loans | $5.440 million | $8.391 million |
- Revenue increased 34% year over year, principally because the acquired restaurants contributed $606,463 for the final two months of 2021. Pet-food revenue fell to $485,426 from $815,225; overseas and domestic pet-food sales declined, while e-commerce sales increased from a small base.
- The restaurant segment generated $606,463 of revenue and a $1.216 million net loss from acquisition through year-end. Pet food generated a $5.500 million segment net loss.
- Gross margin improved but remained negative: cost of revenue exceeded revenue. Operating expenses rose to $4.593 million from $1.884 million, including higher general and administrative costs, legal and consulting expenses, and impairment charges. The company recorded $355,570 of goodwill impairment and $217,257 of long-lived asset impairment.
- Net loss widened substantially. In addition to operating losses, FY2021 included $1.636 million of other expense and $0.958 million of interest expense; investment income fell to $276,000 from $2.120 million.
- Financing activities provided $18.098 million, primarily from share issuances. The company also reported approximately $20.2 million of net proceeds from equity issuances during the year. Operating and investing activities used $3.446 million and $1.643 million, respectively.
- At year-end, current assets were $25.247 million and current liabilities $13.830 million. However, cash availability is qualified by $1.484 million of court-frozen cash, foreign-exchange restrictions, and the location of balances. The filing reports $19.511 million of cash, cash equivalents, and restricted cash combined.
- The filing reports approximately $5.440 million of short-term loans, $555,096 of short-term related-party loans, and $5.115 million of operating lease liabilities. It separately states that approximately $9.14 million of indebtedness was in default; the filing text does not clearly reconcile that figure with the loan balances shown.
Material changes versus prior period
- Revenue recovered from the exceptionally low 2020 level, but remained far below 2019, when total revenue was $12.648 million. The 2021 increase reflects the restaurant acquisition, not recovery in the pet-food business.
- Pet-food production and sales remained constrained by COVID-related disruption, order losses, higher raw-material costs, and the decision to stop accepting unprofitable orders. Pet-food revenue declined approximately 40% from 2020.
- The company issued 34.1 million common shares in 2021 and reported 104.374 million shares outstanding at year-end, compared with 45.850 million a year earlier. By April 29, 2022, 126.260 million shares were outstanding. Registered offerings also included warrants exercisable for up to 50 million shares; many were exercised cashlessly, generating no exercise proceeds.
- The court auctioned the Qingdao factory land-use right and building for $5.098 million in March 2021; approximately $3.193 million of proceeds repaid China Construction Bank. Property, plant, and equipment declined to $1.543 million from $6.637 million.
Outlook, risks, and unusual items
- Going concern: The auditor’s report expresses substantial doubt about the company’s ability to continue as a going concern. Management cited losses, operating cash outflows, insufficient revenue, and uncertainty about future financing. Plans include improving profitability and cash generation and seeking debt or equity financing, but no third-party financing commitments were reported.
- Bankruptcy and legal claims: On March 16, 2022, a PRC court accepted a creditor’s application for bankruptcy liquidation of Qingdao Tiandihui Foodstuffs Co., Ltd. and the subsidiary entered bankruptcy proceedings. Vendor, lender, and other claims are subject to those proceedings. Several court-ordered loan repayments remained unpaid at December 31, 2021. Former-employee arbitration payments of RMB3.73 million were made during 2021; $80,000 of severance payables remained at year-end.
- Operations and COVID-19: Management said facilities and business activities had resumed, but cautioned that further pandemic disruption could affect orders, collections, restaurants, and supply chains. After ending the Jiaozhou facility lease, reported daily pet-food capacity was 4.6 tons.
- Financing and dilution: The September and November 2021 registered offerings raised approximately $8.2 million and $8.9 million net, respectively. Associated warrants have exercise prices of $2.06 and $1.47 and can be exercised cashlessly; subsequent cashless exercises produced no cash proceeds.
- Listing: Nasdaq notified the company in February 2022 that it failed the $1.00 minimum bid-price requirement, with an initial cure deadline of August 22, 2022. The filing gives no assurance of continued listing.
- Controls: Management concluded disclosure controls and internal control over financial reporting were ineffective at year-end due to a material weakness involving inadequate procedures to maintain management and operational continuity. Remediation efforts were planned, with completion targeted by the end of 2022.
- Other risks: The filing highlights PRC regulatory and data-security uncertainty, currency and cash-transfer restrictions, customer and supplier concentration, commodity-price exposure, and possible U.S. trading restrictions under the Holding Foreign Companies Accountable Act. No specific earnings or revenue guidance is provided.
Important facts for investors to verify
- Current status and expected effect of the PRC subsidiary’s bankruptcy liquidation, creditor claims, guarantees, and remaining defaulted debt.
- How much reported cash and short-term investments is unrestricted, accessible to the parent, and available to fund operations; reconcile the stated $9.14 million defaulted indebtedness with balance-sheet debt.
- Whether the acquired restaurants can improve results: FY2021 restaurant revenue was $606,463, but the segment reported a $1.216 million net loss.
- Actual progress toward restoring profitable pet-food production, sales, and positive gross margins, and the status of Nasdaq bid-price compliance.
- Share and warrant dilution, including subsequent cashless exercises, and the effectiveness of the promised internal-control remediation.