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Dogness (International) Corporation Announces Unaudited Financial Results for the First Six Months of Fiscal Year 2018

DONGGUAN, China, June 07, 2018 (GLOBE NEWSWIRE) -- Dogness (International) Corporation (“Dogness” or the “Company”) (NASDAQ:DOGZ), a developer and manufacturer of pet products, including leashes, accessories, and collars and harnesses that incorporate smart technology in China, today announced its unaudited financial results for the first six months of fiscal year 2018 ended December 31, 2017.

First Half of Fiscal Year 2018 Financial Highlights (compared to prior year period unless stated otherwise)

  • Total sales in the first half of fiscal 2018 increased by 66.0% to $14.8 million from $8.9 million.
  • Gross profit increased by 79.5% to $6.0 million from $3.3 million in 2017. Gross margin increased to 40.5% in the first half of fiscal 2018 from 37.5%.
  • Income from operations increased by 71.7% to $3.7 million from $2.2 million. Operating margin increased to 25.1% in the first half of fiscal 2018 from 24.3%.
  • Net income increased by 53.8% to $2.9 million from $1.9 million. Fully diluted net income per share increased to $0.18 from $0.13.

Mr. Aaron (Silong) Chen, Chairman and Chief Executive Officer of Dogness, commented, “We are pleased to announce a strong start to our fiscal year 2018. Our top line grew by 66.0%, driven by increases in sales volumes and is a testament to our growing customer base. This growth also shows the success of our strategy to improve the visibility of the Dogness brand worldwide by increasing our attendance at trade shows such as the 20th Pet Fair Asia in August 2017 and the 21st China International Pet Show in November 2017. Furthermore, we were able to implement efficiencies that improved both gross and operating margins as well as our net income.”

Summary Financial Results

  Six Months Ended December 31,    
(USD, except for %)   2017       2016     % Change
Sales $ 14,832,705     $ 8,936,767     66.0 %
Cost of sales   (8,818,550 )     (5,587,142 )   57.8 %
Gross profit   6,014,155       3,349,625     79.5 %
Operating expenses                    
Selling expenses   532,287       357,939     48.7 %
General and administrative expenses   1,583,049       754,823     109.7 %
R&D expense   170,387       64,820     162.9 %
Total operating expenses   2,285,723       1,177,582     94.1 %
Income from operations   3,728,432       2,172,043     71.7 %
Other income (expenses)                    
Interest expense, net   (153,154 )     (181,708 )   (15.7 )%
Foreign exchange gain (loss)   (175,053 )     144,953     (220.8 )%
Other income   1,506       79,915     (98.1 )%
Total other income (expenses)   (326,701 )     43,160     (857.0 )%
Income before income taxes   3,401,731       2,215,203     53.6 %
Provision for income taxes   511,010       336,274     52.0 %
Net income $ 2,890,721     $ 1,878,929     53.8 %
                     
                     

Financial Results for Six Months Ended December 31, 2017

Revenues 

Revenues increased by approximately $5.9 million, or 66.0%, to $14.8 million for the six months ended December 31, 2017 from approximately $8.9 million for the same period of the prior fiscal year. The increase in revenue was primarily attributable to a sales volume increase of 59.4% and an increase in average selling price of 10% compared to the same period of fiscal 2017. Sales growth was most significant in the pet collar, pet leash, and pet harness product categories due to improved production efficiency, fewer outsourced charges, competitive pricing, and increases in sales volumes. Total sales volume increased by approximately 5.2 million units, and overall average unit selling price increased by approximately 10%, for the six months ended December 31, 2017, compared to the same period of the prior fiscal year.

Pet collars, pet leashes, and pet harnesses continued to account for the greatest percentages of total sales at 37.1%, 22.4%, and 17.6% of total sales, respectively, during the first half of fiscal 2018, compared to 39.8%, 21.8%, and 16.4% of total sales, respectively, in the first half of fiscal 2017.

    Revenue by Product Type
    For the six months ended December 31,        
    2017   2016        
Product category   Revenue    % of total
Revenue
  Revenue   % of total
Revenue
  Variance   Variance
%
Pet leashes   $ 3,328,950   22.4 %   $ 1,950,622   21.8 %   $ 1,378,329   70.7 %
Pet collars     5,504,792   37.1 %     3,556,654   39.8 %     1,948,137   54.8 %
Pet harnesses     2,610,480   17.6 %     1,467,496   16.4 %     1,142,983   77.9 %
Gift suspenders     1,726,310   11.6 %     1,066,238   11.9 %     660,072   61.9 %
Retractable dog leashes     919,254   6.2 %     611,805   6.8 %     307,449   50.3 %
Other pet accessories     742,920   5.0 %     283,952   3.2 %     458,968   161.6 %
Total   $ 14,832,705   100.0 %   $ 8,936,767   100.0 %   $ 5,895,939   66.0 %
                                     


  Revenue for six months
ended December 31,
  Quantity sold for six months
ended December 31,
          Average unit price for
six months ended
December 31,
   
  2017   2016   2017   2016   Quantity
variance
  % of
Quantity
variance
  2017   2016   Price
Difference
Pet leashes $ 3,328,950   $ 1,950,622   2,072,485   985,304   1,087,181   110.3 %   $ 1.6   $ 2.0   $ (0.4 )
Pet collars   5,504,792     3,556,654   4,062,335   2,696,946   1,365,389   50.6 %     1.4     1.3     0.1  
Pet Harnesses   2,610,480     1,467,496   1,198,133   665,830   532,303   79.9 %     2.2     2.2     -  
Gift suspenders   1,726,310     1,066,238   5,255,411   3,662,925   1,592,486   43.5 %     0.3     0.3     -  
Retractable dog leashes   919,254     611,805   199,622   149,489   50,133   33.5 %     4.6     4.1     0.5  
Other pet accessories   742,920     283,952   1,043,814   515,259   528,555   102.6 %     0.7     0.6     0.1  
Total $ 14,832,705   $ 8,936,767   13,831,800   8,675,753   5,156,047   59.4 %   $ 1.1   $ 1.0   $ 0.1  
                                                 

Pet leashes

Revenue from pet leashes increased by approximately $1.4 million, or 70.7%, from $2.0 million in the six months ended December 31, 2016, to $3.3 million in the six months ended December 31, 2017. The revenue growth was mainly driven by a 110.3% increase in sales volume during the period compared to the same period of the prior fiscal year, which compensated for a decrease in average unit price. During the six months ended December 31, 2017, due to improved production efficiency and fewer outsourced charges, the Company reduced its production cost for pet leash products, which allowed the Company to market certain pet leash products at a lower price to promote sales. The average selling price on pet leashes decreased by approximately 20% from $2.0 per unit in the six months ended December 31, 2016, to $1.6 per unit for the six months ended December 31, 2017. The Company’s competitive selling price enabled it to obtain increased sales orders from its customers, and sales volume of its pet leash products increased by approximately 1.1 million units, or 110.3%, compared to the same period of the prior fiscal year.

Pet collars

Revenue from pet collars increased by approximately $1.9 million, or 54.8%, from $3.6 million in the six months ended December 31, 2016, to $5.5 million in the six months ended December 31, 2017. The increase in revenue was due to a 50.6% increase in sales volume during the six months ended December 31, 2017. The average selling price for pet collars slightly increased by 7.7% compared to the same period of the prior fiscal year because customers ordered products using more expensive materials such as leather (instead of fabric or nylon).

Pet harnesses

Revenue from pet harnesses increased by approximately $1.1 million, or 77.9%, from $1.5 million in the six months ended December 31, 2016, to $2.6 million in the six months ended December 31, 2017. The increase in revenue was due to a 79.9% increase in sales volume during the six months ended December 31, 2017. The average selling price for pet harnesses was consistent with that of the same period of the prior fiscal year. 

Cost of goods sold   

Cost of goods sold increased by approximately $3.2 million, or 57.8%, to $8.8 million in the six months ended December 31, 2017, from approximately $5.6 million in the same period of the prior fiscal year, which was consistent with revenue growth in the current period. As a percentage of revenues, the cost of goods sold decreased by approximately 3.0% to 59.5% in the current period from 62.5% in the same period of the prior fiscal year. Due to improvements in production efficiency and less outsourced processing, the Company was able to reduce production cost. Accordingly, cost of goods sold as a percentage of revenue slightly decreased in the current period.

Gross profit  

During the six months ended December 31, 2017, gross profit increased by approximately $2.7 million, or 79.5%, to approximately $6.0 million from approximately $3.3 million in the same period of the prior fiscal year, primarily attributable to higher sales volume. Overall gross profit margin was 40.5%, an increase of 3.0%, compared to 37.5% in the same period of the prior fiscal year. Gross margins for pet collars, pet harnesses, and pet leashes products increased compared to those of the same period of the prior fiscal year, mainly due to the improvements in production efficiency and fewer outsourced processing charges, which resulted in lower unit costs for the six months ended December 31, 2017. Due to the higher leather and other raw material costs, the gross margins for retractable dog leashes and other pet accessories decreased compared to the same period of the prior fiscal year.   

Gross profits by product type were as follows:

    For the six months ended December 31,
    2017   2016        
Product category   Gross
profit
  Gross
profit %
  Gross
profit
  Gross profit
%
  Variance in
Gross profit
  Variance
in Gross
profit %
Pet leashes   $ 1,285,758   38.6 %   $ 723,549   37.1 %   $ 562,209   1.5 %
                                     
Pet collars     2,282,617   41.5 %     1,326,693   37.3 %     955,924   4.2 %
                                     
Pet harnesses     112,320   42.6 %     526,274   35.9 %     586,046   6.7 %
                                     
Gift suspenders     699,399   40.5 %     415,506   39.0 %     283,896   1.5 %
                                     
Retractable dog leashes     342,809   37.3 %     237,404   38.8 %     105,405   (1.5 )%
                                     
Other pet accessories     291,252   39.2 %     120,202   42.3 %     171,049   (3.1 )%
                                     
Total   $ 6,014,155   40.5 %   $ 3,349,625   37.5 %   $ 2,664,530   3.1 %
                                     

Selling expenses 

Selling expenses primarily included expenses incurred for participating in various trade shows to promote product sales, salary and sales commission expenses paid to the Company’s sales personnel, customs clearance charges for product exports, and shipping and delivery expenses. Selling expenses increased by 48.7% from $0.4 million in the six months ended December 31, 2016, to $0.5 million in the six months ended December 31, 2017. The increase in selling expense was primarily due to increased trade show and related marketing expenses, an increased advertising expense, and an increased sales commission expense, offset by a decreased vehicle usage expense and a decreased duty and customs declaration expense during the period compared to the same period of the prior fiscal year

General and administrative expenses

General and administrative expenses increased by approximately $0.8 million, or 109.7%, from approximately $0.8 million in the six months ended December 31, 2016, to approximately $1.6 million in the six months ended December 31, 2017. The higher general and administrative expense was primarily attributable to an increase in salary expenses for newly hired management team members, an increase in depreciation expenses and an increase in NASDAQ listing related marketing and consulting expenses.

Research and development expenses

Research and development expenses increased by approximately $0.1 million in six months ended December 31, 2017, compared to that of the same period of the prior fiscal year. The increase was due to the Company’s efforts to improve some of the functions and exterior designs of our existing products in order to meet customer demands. We expect R&D expenses to continue to increase, as we continue to conduct research and development activities, seek to increase the use of environmentally-friendly materials, and develop more new products to meet customer demands.

Other income (expense) 

Other income (expense) primarily included interest expense and foreign exchange gain or loss. For the six months ended December 31, 2017, the Company had other expense of approximately $0.3 million and had other income of $0.04 million for the same period of the prior fiscal year. The other expense was mainly attributable to the foreign exchange loss of $0.2 million in the current period due to the unfavorable USD, Euro, and other currency exchange rates against RMB on our foreign currency denominated account receivables.

Net income  

Net income was approximately $2.9 million for the first half of fiscal 2018, an increase of $1.0 million from $1.9 million in the same period of the prior fiscal year. The increase in net income was in line with the increased sales and gross profit as discussed above.

Cash and cash flow

As of December 31, 2017, the Company had cash and working capital of approximately $53.4 million and $51.4 million, respectively.

Net cash provided by operating activities was $4.1 million for the six months ended December 31, 2017, an increase of $0.8 million from $3.3 million net cash provided by operating activities for the six months ended December 31, 2016. The increase in operating cash flow was mainly due to increased net income during the current period, increased accounts payable, increased accrued expense and other liabilities to vendors related to accrued fees and expenses in connection with the IPO, offset by increased accounts receivable and increased inventory stockpile.

Recent developments

On December 18, 2017, the Company completed its initial public offering (“IPO”) of 10,913,631 Class A common shares at a public offering price of $5.00 per share. The gross proceeds were approximately $54.6 million before deducting placement agents' commissions and other offering expenses, resulting in net proceeds of approximately $50.2 million. In connection with the offering, the Company's Class A common shares began trading on the NASDAQ Global Market on December 20, 2017 under the symbol "DOGZ."

As of the date of this press release, the Company has an aggregate of 25,913,631 common shares outstanding, consisting of 16,844,631 Class A and 9,069,000 Class B common shares.

In January 2018, the Company formed a Delaware limited liability company, Dogness Group LLC, with its operation focusing primarily on product sales and sales-related services in the U.S. In February 2018, Dogness Overseas Ltd was established in the British Virgin Islands as a holding company, which owns all of the interests in Dogness Group LLC. On March 14, 2018, Dogness Group LLC purchased an office property in Plano, Texas, for a total cash consideration of approximately $1.4 million. The property purchase was funded with proceeds from the IPO. 

On March 16, 2018 (the “Acquisition Date”), the Company entered into a share purchase agreement to acquire 100% of the equity interests in Zhangzhou Meijia Metal Product Co., Ltd (“Meijia”) from its original shareholder, Long Kai (Shenzheng) Industrial Co., Ltd (“Longkai”), for a total cash consideration of approximately $11.2 million (or RMB 71.0 million) (the “Acquisition”). Meijia owns the land use right to a land parcel of 19,144.54 square meters and four factory and office buildings of an aggregate of 18,912.38 square meters. Except for holding the land use right and the buildings, Meijia has no substantial business operations, nor has it had any production or sales activities since its inception. As a result, the Company believes that the Acquisition constituted an acquisition of assets for the financial statement purposes, rather than an acquisition of a business. As of the date of this press release, the Company has made a partial payment of the purchase price of approximately $8.5 million (or RMB 54 million) and has obtained the legal title to all of the Meijia shares. The Company plans to pay the remaining unpaid amount of the purchase price in June 2018. The purchase price was allocated to the land use right and the buildings based on the estimated fair values of those assets as of the Acquisition Date in accordance with the valuation report of an independent appraisal firm. The Acquisition was funded from our IPO proceeds.

About Dogness

Dogness (International) Corporation was born in 2003 from the belief that pet dogs and cats are important, well-loved family members. Through its products – traditional and smart collars and harnesses, traditional and retractable leashes, gift suspenders, and other accessories – Dogness makes pet ownership easier, more scientific, and more fun. The Company ensures industry-leading quality through its fully integrated vertical supply chain and world-class research and development capabilities, which has resulted in over 100 patents and patents pending. Dogness products reach families worldwide through global chain stores and distributors. For more information, please visit: ir.dognesspet.com.

Forward Looking Statements

No statement made in this press release should be interpreted as an offer to purchase or sell any security. Such an offer can only be made in accordance with the Securities Act of 1933, as amended, and applicable state securities laws. Certain statements in this press release concerning our future growth prospects are forward-looking statements regarding our future business expectations intended to qualify for the “safe harbor” under the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding our ability to raise capital on any particular terms,  fluctuations in earnings, fluctuations in foreign exchange rates, our ability to manage growth, our ability to realize revenue from expanded operation and acquired assets in China and the U.S., our ability to attract and retain highly skilled professionals, client concentration, industry segment concentration, reduced demand for technology in our key focus areas, our ability to successfully complete and integrate potential acquisitions, and unauthorized use of our intellectual property and general economic conditions affecting our industry. Additional risks that could affect our future operating results are more fully described in our United States Securities and Exchange Commission filings. These filings are available at www.sec.gov. Dogness may, from time to time, make additional written and oral forward-looking statements, including statements contained in the Company's filings with the Securities and Exchange Commission and our reports to shareholders. In addition, please note that any forward-looking statements contained herein are based on assumptions that we believe to be reasonable as of the date of this press release. The Company does not undertake to update any forward-looking statements that may be made from time to time by or on behalf of the Company unless it is required by law.

Contacts:

ICR, Inc.

Rose Zu

Tel: +1-646-588-0383

Email: ir@dognesspet.com

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL DATA

Summary of Unaudited Condensed Consolidated Balance Sheets Data 
(In USD)

    As of
    December 31, 2017     June 30, 2017
ASSETS              
CURRENT ASSETS              
Cash   $ 53,353,910     $ 1,504,596  
Accounts receivable, net     4,980,118       4,001,156  
Inventories, net     5,362,362       2,856,578  
Prepayments and other current assets     448,058       307,133  
Total current assets     64,144,448       8,669,463  
               
Property, plant and equipment, net     9,372,915       8,753,040  
Intangible assets, net     82,917       86,014  
Deferred tax assets     11       9,543  
TOTAL ASSETS   $ 73,600,291     $ 17,518,060  
               
LIABILITIES AND STOCKHOLDERS’ EQUITY              
CURRENT LIABILITIES              
Short-term bank loans   $ 5,179,690     $ 5,871,973  
Accounts payable     1,807,845       647,867  
Due to related party     669,955       1,330,127  
Advance from customers     242,493       425,283  
Accrued liabilities and other payable     2,844,710       367,151  
Taxes payable     2,043,408       1,518,518  
Total current liabilities     12,788,101       10,160,919  
               
Commitments              
               
STOCKHOLDERS’ EQUITY              
               
Common Shares, $0.002 par value, 100,0000,0000 shares
authorized, 25,913,631 and 15,000,0000 issued and outstanding
at December 31, 2017 and June 30, 2017, respectively
             
Class A Common Shares     33,689       11,862  
Class B Common Shares     18,138       18,138  
Additional paid-in capital     51,803,764       1,625,306  
Statutory reserves     67,151       67,151  
Retained earnings     8,647,428       5,756,706  
Accumulated other comprehensive income (deficit)     242,020       (122,022 )
Total stockholders’ equity     60,812,190       7,357,141  
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY   $ 73,600,291     $ 17,518,060  
                 
                 

Summary of Unaudited Condensed Consolidated Statement of Income and Other Comprehensive
Income Data

(In USD)

    For the Six Months Ended December 31, 
    2017       2016  
           
Revenues   $ 14,832,705       $ 8,936,767  
Cost of revenues     (8,818,550 )       (5,587,142 )
Gross Profit     6,014,155         3,349,625  
                   
                   
Operating expenses:                  
Selling expenses     532,287         357,939  
General and administrative expenses     1,583,049         754,823  
Research and development expenses     170,387         64,820  
Total operating expenses     2,285,723         1,177,582  
                   
Income from operations     3,728,432         2,172,043  
Other income (expenses):                  
Interest expenses, net     (153,154 )       (181,708 )
Foreign exchange (loss) gain     (175,053 )       144,953  
Other income, net     1,506         79,915  
Total other income (expense)     (326,701 )       43,160  
                   
Income before income taxes     3,401,731         2,215,203  
Provision for income taxes     511,010         336,274  
Net income     2,890,721         1,878,929  
                   
Other comprehensive income:                  
Foreign currency translation gain     364,042         7,623  
Comprehensive income   $ 3,254,763       $ 1,886,552  
                   
Earnings Per share - Basic and Diluted   $ 0.18       $ 0.13  
                   
Weighted Average Shares Outstanding - Basic and diluted     15,775,285         15,000,000  
                   
                   

Summary of Unaudited Condensed Consolidated Statements of Cash Flows Data
(In USD)

    For the Six Months Ended December 31,
    2017     2016  
                 
Cash flows from operating activities:                
Net income   $ 2,890,721     $ 1,878,929  
Adjustments to reconcile net income to net cash                
provided by operating activities:                
Depreciation and amortization     576,755       384,519  
Changes in inventory reserve     (18,735 )     -  
Recovery of doubtful account     (33,593 )     -  
Deferred tax expenses     9,730       -  
Unrealized foreign exchange gain (loss)     123,823       (75,637 )
Changes in operating assets and liabilities:                
Accounts receivable     (885,680 )     916,685  
Inventories     (2,319,591 )     (85,340 )
Prepayments and other assets     (28,083 )     (354,637 )
Accounts payables     1,110,063       226,897  
Accrued expenses and other liabilities     2,461,702       36,114  
Advance from customers     (196,510 )     39,898  
Taxes payable     452,151       343,219  
Net cash provided by operating activities     4,142,753       3,310,647  
                 
Cash flows from investing activities:                
Additions to property, plant and equipment     (819,309 )     (528,686 )
                 
Net cash used in investing activities     (819,309 )     (528,686 )
                 
Cash flows from financing activities:                
Cash dividend paid     -       (2,725,883 )
Net Proceeds from initial public offering     50,200,285       -  
Proceeds from short-term bank loans     -       3,851,796  
Repayment of short-term bank loans     (918,660 )     (3,851,796 )
Proceeds from related party loans     -       227,469  
Repayment of related party loans     (736,894 )     -  
                 
Net cash provided by (used in) financing activities     48,544,731       (2,498,414 )
                 
Effect of exchange rate changes on cash     (18,861 )     133,294  
Net increase in cash     51,849,314       416,841  
Cash, beginning of period     1,504,596       1,384,235  
Cash, end of period   $ 53,353,910     $ 1,801,076  
                 
Supplemental disclosure information:                
Cash paid for income tax   $ 40,624     $ 1,524  
Cash paid for interest   $ 154,479     $ 182,251  
             

Dogness (International) Corporation