Dogness (International) Corp

Dogness (International) Corporation operates in the pet products industry, designing, developing, and manufacturing a broad range of traditional and intelligent pet products. The industry is characterized by intense competition, with the U.S. market being large, stable, and continuously growing but highly competitive, while the Chinese market is experiencing rapid growth with rising consumer spending and increasing demand for pet products. The company's success depends on adapting to varying consumer preferences, economic conditions, and competitive pressures in both markets. The industry is also subject to disruptions in international supply chains, trade tensions, and government regulations that can impact manufacturing costs, product competitiveness, and market access.

The company faces competition from a variety of competitors in the smart pet products segment, including more well-known products like the Whistle GPS Pet Tracker and Tractive, as well as products from more established, better capitalized companies in the United States such as Garmin, which produces dog training and tracking devices. Companies such as PetSafe, Petzi, Petcube, Arf Pets, and Furbo market food and treat dispensers with functionalities that in some cases are similar to the company's products. The company's competitive position is supported by its intellectual property portfolio, with its mainland China subsidiaries owning 129 patents and 174 trademarks in China and 86 patents and 51 trademarks outside China. The company also competes based on price, quality, and reliability, and has made a strategic decision to vertically integrate production to control costs.

The company generates revenue through the sale of traditional pet products, intelligent pet products, and climbing hooks and others, as well as dyeing services. Revenue is derived from product sales to customers, which are principally retail pet specialty stores and mass merchandisers, and through distributors and trading companies. The company also generates revenue from cellular service subscriptions related to its smart collars and harnesses. The business model includes a mix of transactional product sales and recurring service revenue from cellular subscriptions, with a significant portion of revenues derived from a small number of key customers, including Mid Ocean Brands B.V and Dongguan Anyi Trading Co., Ltd.

The company's traditional pet products segment includes a range of items such as leashes, collars, harnesses, and other pet accessories. The intelligent pet products segment includes smart collars, harnesses, feeders, and robots, which have recently entered distribution. Revenues for all smart products were approximately $4.1 million, $6.3 million and $4.4 million during the years ended June 30, 2026, 2025 and 2024, respectively. The company has launched the C9 smart collar which relies on 5G network and C5 mini which relies on NB network, and has commenced initial sales of these products together with related cellular service subscriptions. The Dogness CAM feeder, App feeder, and App mini feeder work with Amazon Alexa.

The company has made significant operational developments, including the launch of next-generation smart collars and harnesses, the C9 and C5 mini, which operate on 5G and NB networks respectively. The company has also been increasingly producing its products in-house as part of a vertical integration strategy. In fiscal 2024, Dogness transferred $5.3 million to HK Dogness for working capital loan purpose, and in fiscal 2025, transferred $6.0 million to HK Dogness for the same purpose. There was no cash transfer between Dogness and the Subsidiaries in fiscal 2026. The company has also entered into an equity investment agreement with Dogness Intelligent Technology Co., Ltd. and has been developing its smartphone App with this entity.

The company's financial performance in fiscal 2026 showed a significant decline, with revenues of $15,884,243 compared to $20,707,707 in fiscal 2025, and a net loss of $27,629,171 compared to a net loss of $5,101,237 in the prior year. Gross profit decreased to $2,549,025 from $5,025,494, and operating expenses increased substantially to $31,358,253 from $11,820,142. The loss per share, basic and diluted, was $1.55 compared to $0.38 in the prior year. Total assets decreased to $94,122,057 from $116,846,586, and total equity decreased to $75,024,268 from $97,752,825.

A key growth vector is the development and introduction of next-generation smart collars and harnesses, including the C9 which relies on 5G network and C5 mini which relies on NB network. The company has commenced initial sales of these products, together with related cellular service subscriptions, and expects such sales to remain nominal until these products are more fully brought to market. The company is optimistic that its smart products, such as collars, harnesses, feeders and robots, will be important products for the company in the future, and has exhibited these products at expos in multiple countries.

Another growth vector is the expansion in the Chinese market, which is experiencing rapid growth in the pet industry with rising consumer spending and increasing demand for pet products. The company also aims to increase market penetration of its existing products, develop new products, and increase the number and size of customers it serves. The company's growth strategy includes vertical integration of production to control costs, which is particularly important given the low per-unit sales price in the industry.

The company's margin and cost outlook is influenced by raw material price volatility and inflationary pressures, as its primary raw materials are plastic, leather, nylon, polyester, chemical fiber blended fabric, metal, GPPS and HIPS, most of which are extracted from crude oil. The company aims to reduce its exposure to increases in these costs through sales price adjustments based on adjustments in raw material costs, while maintaining and improving margins and market share. The company also relies on third-party manufacturers for a minor portion of components, which are subject to price volatility and labor cost pressures.

The company's operational outlook includes a focus on vertical integration of production, with plans to produce more components in-house to control costs. The company invests in infrastructure for such production, such as buying machines and leasing additional facility space. The company relies on third-party logistics providers to ship products from China to customers, and supply chain disruptions could delay production, increase costs, and adversely affect operations. The company also relies on third-party cellular telephone companies and application developers for the functionality of its smart collars.

The company's capital allocation strategy includes retaining earnings to support operations and finance the growth and development of its business. The company does not expect to pay cash dividends in the foreseeable future. The company may need to obtain additional debt or equity financing to fund future capital expenditures and initiatives. As of June 30, 2026, the company had approximately $3.6 million in outstanding bank loans, with expected repayment of approximately $3.2 million in one year, $0.4 million in two years and $1,137 in three years.

A significant headwind is the escalating trade tensions between the United States and China, including the imposition of tariffs, export restrictions, and other trade protection measures, which can increase shipping, logistics, warehousing and input costs, and reduce demand for products in affected markets, particularly the United States, where a substantial portion of products are sold. The regulatory environment remains uncertain, and future actions by the U.S. or Chinese governments could have a material adverse effect on sales in the U.S. market.

Another constraint is the potential for disruptions to the international supply chain systems, which could be caused by public health emergencies, geopolitical conflicts, trade restrictions, transportation constraints, natural disasters, and other events beyond the company's control. These disruptions could delay production, increase costs, and adversely affect operations. The company's ability to mitigate these risks is limited, and there is no guarantee of success in doing so.

The company faces significant risks related to its operations in China, including potential government intervention and regulatory changes that could limit its ability to offer securities on Nasdaq, with fines ranging from RMB1,000,000 to RMB10,000,000 ¹ for failure to comply with the Listing Records Rules. The company also faces risks from customer concentration, as two customers accounted for 26.3% and 19.5% ² of total revenue in fiscal 2026, and the loss of any key customer could materially affect revenues. The company's smart products face intense competition from more well-known brands, and the company's smart collars and harnesses are currently between generations, with the C2 and H2 products operating on outdated 2G technology. The company has approximately $3.6 million ³ in outstanding bank loans, which are guaranteed by fixed assets and personally guaranteed by the CEO, and failure to repay could result in foreclosure. Additionally, the company's mainland China subsidiaries lease a production facility from a village cooperative that may not have obtained prior government approval for construction, which could impair the company's ability to use its facilities.

Management's message to shareholders emphasizes the company's position as a British Virgin Islands holding company with operations conducted by subsidiaries in mainland China, Hong Kong, and other jurisdictions, and highlights the unique and high degree of risk involved in investing in the company's securities. Management acknowledges the company's reliance on its Chief Executive Officer, Mr. Silong Chen, and the importance of its research and development personnel. The strategic priorities emphasized include the development and introduction of next-generation smart collars and harnesses, vertical integration of production to control costs, and expansion in both the U.S. and Chinese markets. Management also focuses on compliance with PRC regulations, including the Listing Records Rules and Confidentiality Provisions, and the potential impact of these regulations on the company's ability to offer securities on Nasdaq.