[Condensed Consolidated Financial Statements](index=1&type=section&id=Condensed%20Consolidated%20Financial%20Statements) [Condensed Consolidated Balance Sheets](index=1&type=section&id=Condensed%20Consolidated%20Balance%20Sheets) As of March 31, 2024, Universe Pharmaceuticals Inc reported a decrease in total assets and shareholders' equity compared to September 30, 2023, primarily driven by a significant reduction in short-term investments and a net loss, while total liabilities increased Key Balance Sheet Figures (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Total Assets | $49,431,114 | $53,287,032 | | Total Current Assets | $33,530,133 | $36,774,354 | | Cash | $8,861,590 | $5,285,247 | | Short-term investments | $2,527,603 | $13,219,005 | | Accounts receivable, net | $14,384,228 | $10,667,603 | | Total Liabilities | $22,687,018 | $13,754,331 | | Total Shareholders' Equity | $26,744,096 | $39,532,701 | - Total assets **decreased by approximately $3.86 million** from September 30, 2023, to March 31, 2024, primarily due to a significant decrease in short-term investments[2](index=2&type=chunk) - Total liabilities **increased by approximately $8.93 million**, largely driven by an increase in 'Due to related parties' and the introduction of 'Long-term bank loans'[2](index=2&type=chunk) - Total shareholders' equity **decreased by approximately $12.79 million**, reflecting the net loss incurred during the period[2](index=2&type=chunk) [Condensed Consolidated Statements of Income and Comprehensive Income](index=2&type=section&id=Condensed%20Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) For the six months ended March 31, 2024, the company reported a significant net loss and comprehensive loss, a substantial decline from the prior year, primarily due to decreased revenue, increased selling expenses, and considerable realized and unrealized losses on short-term investments Key Income Statement Figures (Six Months Ended March 31, 2024 vs. 2023) | Metric | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | | Revenue | $12,884,370 | $18,467,186 | | Gross Profit | $3,369,331 | $6,128,142 | | Selling expenses | $4,054,357 | $2,330,508 | | Research and development expenses | $86,503 | $2,268,335 | | Income (Loss) from Operations | $(1,740,137) | $149,246 | | Realized (loss) gain on short-term investments | $(3,094,084) | $166,931 | | Change in fair value of short-term investments | $(7,617,502) | $- | | Net Loss | $(13,101,457) | $(715,427) | | Comprehensive (Loss) Income | $(12,788,605) | $684,348 | | Earnings per ordinary share - basic and diluted | $(3.59) | $(0.20) | - Revenue **decreased by 30.2%** from $18,467,186 in 2023 to $12,884,370 in 2024[4](index=4&type=chunk) - The company **shifted from an operating income of $149,246 in 2023 to an operating loss of $(1,740,137)** in 2024[4](index=4&type=chunk) - A significant factor contributing to the net loss was a **total of $(10,711,586) in realized and unrealized losses from short-term investments** in 2024, compared to a gain of $166,931 in 2023[4](index=4&type=chunk) [Condensed Consolidated Statements of Changes in Shareholders' Equity](index=3&type=section&id=Condensed%20Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) The company's total shareholders' equity significantly decreased from $39,532,701 as of September 30, 2023, to $26,744,096 as of March 31, 2024, primarily due to a substantial net loss of $(13,101,457) during the period, partially offset by foreign currency translation adjustments Key Shareholders' Equity Changes (Six Months Ended March 31, 2024) | Metric | September 30, 2023 | March 31, 2024 | | :--- | :--- | :--- | | Ordinary Shares (Share Amount) | $67,969 | $68,362 | | Additional Paid in Capital | $29,279,159 | $29,278,766 | | Retained Earnings | $10,159,304 | $(2,942,153) | | Accumulated Other Comprehensive Income | $(2,413,266) | $(2,100,414) | | Total Shareholders' Equity | $39,532,701 | $26,744,096 | - The **net loss of $(13,101,457)** was the primary driver for the decrease in retained earnings and total shareholders' equity[6](index=6&type=chunk) - A reverse share-split adjustment in the period resulted in a minor increase in ordinary share amount and a corresponding decrease in additional paid-in capital[6](index=6&type=chunk) - Foreign currency translation adjustments contributed **$312,852 to comprehensive income** for the six months ended March 31, 2024[6](index=6&type=chunk) [Condensed Consolidated Statements of Cash Flows](index=4&type=section&id=Condensed%20Consolidated%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2024, the company experienced a net cash outflow from operating activities of $(2,429,621), a significant reversal from the prior year's inflow, primarily due to the net loss and changes in working capital; however, cash increased due to substantial cash provided by financing activities Key Cash Flow Figures (Six Months Ended March 31, 2024 vs. 2023) | Metric | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash (used in) provided by operating activities | $(2,429,621) | $4,798,702 | | Net cash used in investing activities | $(67,656) | $(646) | | Net cash provided by financing activities | $6,067,732 | $2,080,918 | | Net increase in cash | $3,576,343 | $7,243,058 | | Cash, end of period | $8,861,590 | $12,954,516 | - Operating activities resulted in a **cash outflow of $(2,429,621) in 2024**, a substantial decrease from the $4,798,702 inflow in 2023, largely driven by the net loss and changes in accounts receivable[8](index=8&type=chunk) - Financing activities **provided $6,067,732 in cash**, primarily from proceeds from bank loans and related party borrowings, significantly higher than the $2,080,918 in 2023[8](index=8&type=chunk) - Despite the operating cash outflow, the company's **cash balance increased by $3,576,343**, reaching $8,861,590 at period-end, due to strong financing inflows[8](index=8&type=chunk) [Notes to Unaudited Condensed Consolidated Financial Statements](index=5&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 — Organization and Business Description](index=5&type=section&id=NOTE%201%20%E2%80%94%20ORGANIZATION%20AND%20BUSINESS%20DESCRIPTION) Universe Pharmaceuticals INC, a Cayman Islands entity, serves as the ultimate holding company for its subsidiaries primarily engaged in the research, development, manufacturing, and sale of modernized traditional Chinese medicines (TCMD) and third-party pharmaceutical products in the PRC - Universe Pharmaceuticals INC was incorporated in the Cayman Islands on December 11, 2019, and became the ultimate holding company after a reorganization[10](index=10&type=chunk)[14](index=14&type=chunk) - The company's primary business involves the development, manufacturing, and sale of modernized traditional Chinese medicines (TCMD) and third-party products (biochemical drugs, medical instruments, dietary supplements) in China[21](index=21&type=chunk) - On July 27, 2023, a **6-for-1 share consolidation** was effected, reducing authorized and outstanding ordinary shares and increasing par value[20](index=20&type=chunk) [Company Structure and Reorganization](index=5&type=section&id=Company%20Structure%20and%20Reorganization) - Universe INC, Universe HK, and Universe Technology are holding companies, with Jiangxi Universe and Universe Trade actively engaged in R&D, manufacturing, and sales of traditional Chinese medicines[12](index=12&type=chunk)[13](index=13&type=chunk)[21](index=21&type=chunk) - A reorganization completed on December 11, 2019, established Universe INC as the ultimate holding company controlling its PRC subsidiaries through Universe HK and Universe Technology[14](index=14&type=chunk) [IPO and Share Capital Changes](index=5&type=section&id=IPO%20and%20Share%20Capital%20Changes) - The company closed its IPO on March 25, 2021, **raising $28.75 million in gross proceeds** from the sale of 5,000,000 ordinary shares at $5.00 per share, plus an over-allotment option[16](index=16&type=chunk) - On July 3, 2023, shareholders approved an increase in authorized share capital and a share consolidation; the board resolved to effect a **6-for-1 share consolidation** on July 27, 2023[19](index=19&type=chunk)[20](index=20&type=chunk) - As of March 31, 2024, there were **3,645,974 ordinary shares issued and outstanding** after the share consolidation[20](index=20&type=chunk) [Principal Activities and Subsidiaries](index=6&type=section&id=Principal%20Activities%20and%20Subsidiaries) - The company's core business is the development, manufacturing, and sale of traditional Chinese medicines derivatives (TCMD) and third-party products (biochemical drugs, medical instruments, dietary supplements) to customers across China[21](index=21&type=chunk) Subsidiary Details as of March 31, 2024 | Name of Entity | Incorporation Date | Incorporation Place | Ownership | Principal Activities | | :--- | :--- | :--- | :--- | :--- | | Universe INC | Dec 11, 2019 | Cayman Islands | Parent | Investment holding | | Universe HK | May 21, 2014 | Hong Kong | 100% | Investment holding | | Universe Technology | April 18, 2019 | PRC | 100% | WFOE, Investment holding | | Jiangxi Universe | March 2, 1998 | PRC | 100% | Research and development and manufacturing of modernized traditional Chinese medicines | | Universe Trade | March 10, 2010 | PRC | 100% | Sales of modernized traditional Chinese medicines | | Universe Hanhe | May 12, 2021 | PRC | 100% | Research and development of new pharmaceutical products | [NOTE 2 — Summary of Significant Accounting Policies](index=7&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) The company's unaudited condensed consolidated financial statements are prepared in accordance with U.S. GAAP, with significant estimates made by management, and key accounting policies cover areas such as revenue recognition, inventory valuation, and fair value measurements - Financial statements are prepared under **U.S. GAAP** for interim information, with management making significant estimates for items like receivables, inventory, and long-lived assets[22](index=22&type=chunk)[24](index=24&type=chunk) - The company's operations are primarily in the PRC, subjecting its business to political, economic, and legal environments in China, as well as competitive pressures in the pharmaceutical industry[25](index=25&type=chunk)[26](index=26&type=chunk) - Revenue from TCMD and third-party products is **recognized at a point in time** when title and risk of loss pass to the customer, typically upon delivery, with no right of return[50](index=50&type=chunk) - Short-term investments, consisting of wealth management products, are measured at **fair value (Level 3 inputs)** with realized gains/losses and changes in fair value recognized in the income statement[33](index=33&type=chunk)[38](index=38&type=chunk) - Research and development expenses, primarily employee costs and study execution, were significantly lower in the six months ended March 31, 2024 **($86,503)** compared to 2023 ($2,268,335)[53](index=53&type=chunk) [Basis of Presentation and Estimates](index=7&type=section&id=Basis%20of%20Presentation%20and%20Estimates) - The unaudited condensed consolidated financial statements adhere to **U.S. GAAP** for interim reporting, with all inter-company balances and transactions eliminated upon consolidation[22](index=22&type=chunk) - Management's estimates, including allowance for doubtful accounts, inventory valuations, and useful lives of assets, are crucial in preparing the financial statements, and actual results may differ[24](index=24&type=chunk) [Assets Accounting Policies (Cash, Receivables, Inventories, Investments, Property, Intangibles)](index=7&type=section&id=Assets%20Accounting%20Policies%20(Cash%2C%20Receivables%2C%20Inventories%2C%20Investments%2C%20Property%2C%20Intangibles)) - Accounts receivable are presented net of an allowance for doubtful accounts, determined by individual account analysis and historical collection trends[30](index=30&type=chunk) - Inventories are valued at **net realizable value** using the weighted average method, with provisions for diminution recognized for obsolete or excess items[31](index=31&type=chunk) - Short-term investments, primarily wealth management products, are classified as **trading securities** and measured at fair value, with changes recognized in the income statement[33](index=33&type=chunk) - Property and equipment are recorded at cost less accumulated depreciation, using the **straight-line method** over their estimated useful lives (e.g., buildings 20 years, machinery 5-10 years)[39](index=39&type=chunk) - Intangible assets, mainly land use rights (50 years) and software (3 years), are amortized using the straight-line method[41](index=41&type=chunk)[42](index=42&type=chunk) [Revenue and Expense Recognition](index=11&type=section&id=Revenue%20and%20Expense%20Recognition) - Revenue is recognized when goods are transferred to customers, with the company acting as a principal, and is reported net of VAT[50](index=50&type=chunk) - Cost of revenue includes raw materials, freight, direct labor, depreciation, warehousing, and production overhead[52](index=52&type=chunk) - Research and development costs are expensed as incurred, totaling **$86,503** for the six months ended March 31, 2024[53](index=53&type=chunk) - Advertising expenses, included in selling expenses, **increased to $2,773,300** for the six months ended March 31, 2024, from $1,340,368 in the prior year[56](index=56&type=chunk) [Taxation and Foreign Currency](index=12&type=section&id=Taxation%20and%20Foreign%20Currency) - The company accounts for income taxes in accordance with PRC laws, recognizing deferred income taxes for temporary differences and establishing valuation allowances when necessary[58](index=58&type=chunk) - The functional currency for the company's active operations in the PRC is the **Chinese Yuan (RMB)**, with financial statements translated into US$ for reporting[64](index=64&type=chunk) Currency Exchange Rates (US$:RMB) | Exchange Rate Type | March 31, 2024 | March 31, 2023 | September 30, 2023 | | :--- | :--- | :--- | :--- | | Period-end US$: RMB | 7.2203 | 6.8676 | 7.2960 | | Period average US$: RMB | 7.2064 | 6.9761 | 7.0533 | [Recent Accounting Pronouncements](index=14&type=section&id=Recent%20Accounting%20Pronouncements) - The company, as an **emerging growth company (EGC)**, has elected the extended transition period for complying with new accounting standards[71](index=71&type=chunk) - The company is evaluating the impact of ASU 2019-12 (Simplifying the Accounting for Income Taxes), ASU 2023-07 (Segment Reporting), and ASU 2023-09 (Income Tax Disclosures) on its financial statements[72](index=72&type=chunk)[74](index=74&type=chunk)[75](index=75&type=chunk) - ASU 2021-08 (Accounting for Contract Assets and Liabilities from Contracts with Customers) is **not expected to have a material effect** on the company's financial statements[73](index=73&type=chunk) [NOTE 3 — Accounts Receivable, Net](index=15&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE%2C%20NET) Accounts receivable, net, increased to $14,384,228 as of March 31, 2024, from $10,667,603 as of September 30, 2023, and the allowance for doubtful accounts significantly decreased due to substantial bad debt recovery Accounts Receivable, Net (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Accounts receivable | $14,470,157 | $11,014,909 | | Less: allowance for doubtful accounts | $(85,929) | $(347,306) | | Accounts receivable, net | $14,384,228 | $10,667,603 | - Approximately **81.0% ($11.7 million)** of the net accounts receivable balance as of March 31, 2024, has been subsequently collected[77](index=77&type=chunk) - The allowance for doubtful accounts decreased from $347,306 to $85,929, primarily due to **$265,530 in bad debt recovery** during the six months ended March 31, 2024[78](index=78&type=chunk) [NOTE 4 — Inventories, Net](index=15&type=section&id=NOTE%204%20%E2%80%94%20INVENTORIES%2C%20NET) Total inventory, net, slightly increased to $3,386,052 as of March 31, 2024, from $3,343,266 as of September 30, 2023, driven by an increase in finished goods, while raw materials decreased and inventory valuation allowance was reduced Inventory, Net (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Raw materials | $551,993 | $635,395 | | Finished goods | $2,870,300 | $2,777,617 | | Inventory valuation allowance | $(36,241) | $(69,746) | | Total inventory, net | $3,386,052 | $3,343,266 | - Finished goods **increased by approximately $92,683**, while raw materials decreased by approximately $83,402[79](index=79&type=chunk) - The inventory valuation allowance **decreased by $33,505**, indicating a recovery or lower provision for obsolete/excess inventory[79](index=79&type=chunk) [NOTE 5 — Advance to Suppliers](index=15&type=section&id=NOTE%205%20%E2%80%94%20ADVANCE%20TO%20SUPPLIERS) Advances to suppliers for raw material purchases significantly increased to $368,960 as of March 31, 2024, from $180,643 as of September 30, 2023, with no allowance for doubtful accounts recorded Advances to Suppliers (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Advances to suppliers for inventory raw material purchase | $368,960 | $180,643 | | Less: allowance for doubtful accounts | $- | $- | | Advances to suppliers | $368,960 | $180,643 | - The company recorded **no allowance for doubtful accounts** for advances to suppliers, believing all advances were fully realizable[80](index=80&type=chunk) [NOTE 6 — Prepayment for Acquisition](index=16&type=section&id=NOTE%206%20%E2%80%94%20PREPAYMENT%20FOR%20ACQUISITION) The company has a prepayment of $3,462,460 for the acquisition of a 51% ownership interest in Yunnan Faxi Pharmaceuticals Co, Ltd, with the acquisition expected to be completed by January 2025 - On September 26, 2022, the company entered a letter of intent to acquire **51% of Yunnan Faxi Pharmaceuticals Co, Ltd** for approximately $10.0 million (RMB72 million)[81](index=81&type=chunk) - A prepayment of **approximately $3.5 million** (RMB25 million) was made, recorded as prepayment for acquisition[81](index=81&type=chunk) - The acquisition is anticipated to be completed, and the remaining balance paid, by **January 2025**[81](index=81&type=chunk) [NOTE 7 — Short-term Investments](index=16&type=section&id=NOTE%207%20%E2%80%94%20SHORT-TERM%20INVESTMENTS) Short-term investments significantly decreased to $2,527,603 as of March 31, 2024, from $13,219,005 as of September 30, 2023, primarily due to substantial realized losses and changes in fair value Short-term Investments Movement (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Beginning balance | $13,219,005 | $13,148,594 | | Realized (loss) gain on short-term investments | $(3,094,084) | $38,530 | | Change in fair value of short-term investments | $(7,617,502) | $- | | Ending balance of short-term investments | $2,527,603 | $13,219,005 | - The company incurred a **realized loss of $(3,094,084)** and a **change in fair value loss of $(7,617,502)** on short-term investments for the six months ended March 31, 2024[82](index=82&type=chunk) [NOTE 8 — Property and Equipment, Net](index=16&type=section&id=NOTE%208%20%E2%80%94%20PROPERTY%20AND%20EQUIPMENT%2C%20NET) Property and equipment, net, decreased to $3,522,997 as of March 31, 2024, from $3,699,965 as of September 30, 2023, primarily due to accumulated depreciation Property and Equipment, Net (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Subtotal (Gross Cost) | $9,882,803 | $9,750,445 | | Less: accumulated depreciation | $(6,359,806) | $(6,050,480) | | Property and equipment, net | $3,522,997 | $3,699,965 | - Depreciation expense for the six months ended March 31, 2024, was **$246,365**[83](index=83&type=chunk) [NOTE 9 — Intangible Assets, Net](index=17&type=section&id=NOTE%209%20%E2%80%94%20INTANGIBLE%20ASSETS%2C%20NET) Intangible assets, net, remained relatively stable at $147,652 as of March 31, 2024, compared to $148,584 as of September 30, 2023, with estimated future amortization expenses provided Intangible Assets, Net (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Total (Gross Cost) | $269,922 | $267,121 | | Less: accumulated amortization | $(122,270) | $(118,537) | | Intangible assets, net | $147,652 | $148,584 | - Amortization expense for the six months ended March 31, 2024, was **$2,495**[85](index=85&type=chunk) Estimated Future Amortization Expense for Intangible Assets | Twelve months ending March 31, | Amortization expense | | :--- | :--- | | 2025 | $4,980 | | 2026 | $4,980 | | 2027 | $4,980 | | 2028 | $4,980 | | 2029 | $4,980 | | Thereafter | $122,752 | | Total | $147,652 | [NOTE 10 — Prepayment for CIP Project](index=17&type=section&id=NOTE%2010%20%E2%80%94%20PREPAYMENT%20FOR%20CIP%20PROJECT) The company has a significant prepayment of $9.2 million for a construction-in-progress (CIP) project for new manufacturing facilities, which has experienced delays due to the COVID-19 pandemic and geological survey issues - The CIP project involves constructing four manufacturing factory buildings and an office building with an estimated budget of **approximately $22.9 million** (RMB165 million)[87](index=87&type=chunk) - Construction has been delayed, with manufacturing facilities now expected by **December 2025** and the office building by **December 2026**, due to COVID-19 and geological survey issues[87](index=87&type=chunk) - As of March 31, 2024, a prepayment of approximately $9.6 million (RMB69.2 million) has been made, with **$9.2 million remaining as prepayment** for the CIP project[87](index=87&type=chunk)[88](index=88&type=chunk) - Future additional capital expenditure on this project is estimated at **approximately $13.3 million** (RMB95.8 million), with $3.5 million required in the next 12 months[89](index=89&type=chunk) [NOTE 11 — Prepayment for Purchase of a Property](index=18&type=section&id=NOTE%2011%20%E2%80%94%20PREPAYMENT%20FOR%20PURCHASE%20OF%20A%20PROPERTY) The company has made a prepayment of $2.2 million for the purchase of residential and commercial office space from a related party, Jiangxi Yueshang, with the remaining balance expected by April 2025 and planned use for offices by June 2025 - On May 6, 2021, the company agreed to purchase 2,749.30 square meters of property for **approximately $4.4 million** (RMB32 million) from Jiangxi Yueshang, a former related party[91](index=91&type=chunk) - As of March 31, 2024, a **prepayment of $2.2 million** (RMB16 million) has been made, with the remaining balance due by April 2025[92](index=92&type=chunk) - The property is intended for office use starting **June 2025**[92](index=92&type=chunk) [NOTE 12 — Short-term Bank Loans](index=18&type=section&id=NOTE%2012%20%E2%80%94%20SHORT-TERM%20BANK%20LOANS) Short-term bank loans decreased to $4,431,949 as of March 31, 2024, from $5,482,456 as of September 30, 2023, with loans obtained from various PRC banks for working capital at interest rates ranging from 3.65% to 4.56% per annum Short-term Bank Loans (March 31, 2024 vs. September 30, 2023) | Bank Name | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Jiangxi Luling Rural Commercial Bank (LRC Bank) | $1,384,984 | $2,467,105 | | Bank of Communications Co, Ltd | $1,246,486 | $1,233,553 | | Zhujiang Rural Bank | $415,495 | $411,184 | | Beijing Bank | $1,384,984 | $1,370,614 | | Total short-term loans | $4,431,949 | $5,482,456 | - Loans from LRC Bank, Bank of Communications, Zhujiang Rural Bank, and Beijing Bank were primarily for **working capital purposes**[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - Guarantees for these loans were provided by Mr Gang Lai (CEO), Universe Trade, Jiangxi Province Financing Guarantee Group Co, Ltd, or by pledging company patents[93](index=93&type=chunk)[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) - All short-term loans mentioned were **subsequently fully repaid** upon maturity[94](index=94&type=chunk)[96](index=96&type=chunk)[97](index=97&type=chunk)[98](index=98&type=chunk) [NOTE 13 — Long-term Bank Loans](index=19&type=section&id=NOTE%2013%20%E2%80%94%20LONG-TERM%20BANK%20LOANS) The company secured a new long-term bank loan of $2,077,476 from LRC Bank as of March 31, 2024, for working capital, maturing in November 2025 and guaranteed by pledged buildings Long-term Bank Loans (March 31, 2024 vs. September 30, 2023) | Bank Name | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | LRC Bank | $2,077,476 | $- | - A new long-term loan of RMB15 million (**approximately $2,077,476**) was obtained from LRC Bank on November 23, 2023, for two years at a 3.95% annual interest rate[99](index=99&type=chunk) - This loan is **guaranteed by pledging buildings** of Jiangxi Universe[99](index=99&type=chunk) - Total interest expense for all loans was **$148,860** for the six months ended March 31, 2024, up from $90,044 in the prior year[100](index=100&type=chunk) [NOTE 14 — Related Party Transactions](index=19&type=section&id=NOTE%2014%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) Related party transactions include advances from the CEO for working capital, loan guarantees provided by the CEO and a subsidiary, and a significant prepayment for a property purchase from a former related party Due from Related Parties (March 31, 2024 vs. September 30, 2023) | Name | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Mr Yajun Hu | $- | $61,678 | | Total due from related parties | $- | $61,678 | - Advances from Mr Yajun Hu (General Manager) were **fully repaid** on October 12, 2023[102](index=102&type=chunk) Due to Related Parties (March 31, 2024 vs. September 30, 2023) | Name | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Mr Gang Lai | $5,515,160 | $540,096 | | Total due to related parties | $5,515,160 | $540,096 | - The balance due to related parties, primarily advances from CEO Mr Gang Lai for working capital, **significantly increased to $5,515,160** and is non-interest bearing and due on demand[103](index=103&type=chunk) - Mr Gang Lai and Universe Trade provided **credit guarantees** for the company's bank loans[104](index=104&type=chunk) - A **$2.2 million prepayment** for a property purchase was made to Jiangxi Yueshang, which ceased to be a related party after January 13, 2022[105](index=105&type=chunk)[106](index=106&type=chunk) [NOTE 15 — Concentrations](index=20&type=section&id=NOTE%2015%20%E2%80%94%20CONCENTRATIONS) The company's operations are highly concentrated in the PRC, with most transactions denominated in RMB and substantial assets located there, and while customer concentration has decreased, significant product and supplier concentration persists - A majority of the company's revenue, expenses, assets, and liabilities are denominated in RMB and located in the PRC, exposing it to **PRC-specific foreign exchange and regulatory risks**[108](index=108&type=chunk)[109](index=109&type=chunk) - For the six months ended March 31, 2024, **no single customer accounted for more than 10% of total revenue**, a change from the prior year where one customer accounted for 14.1%[110](index=110&type=chunk) - The top 10 customers accounted for **23.0% of total revenue** for the six months ended March 31, 2024, down from 32.9% in the prior year[110](index=110&type=chunk) - Sales of **Guben Yanling Pill accounted for 33.5% of total revenue** for the six months ended March 31, 2024, indicating product concentration[111](index=111&type=chunk) - Two suppliers accounted for **29.9% and 10.0% of total purchases**, respectively, for the six months ended March 31, 2024, indicating supplier concentration[112](index=112&type=chunk) [NOTE 16 — Shareholders' Equity](index=21&type=section&id=NOTE%2016%20%E2%80%94%20SHAREHOLDERS'%20EQUITY) Shareholders' equity details include the impact of a 6-for-1 share consolidation in July 2023, which retrospectively restated share numbers and par value, and PRC subsidiaries have restricted net assets, limiting dividend distributions to the parent company - A **6-for-1 share consolidation**, effective July 27, 2023, reduced the number of authorized and outstanding ordinary shares and increased their par value to $0.01875 per share[116](index=116&type=chunk) - As of March 31, 2024, there were **3,645,974 ordinary shares issued and outstanding**[117](index=117&type=chunk) - Underwriter warrants to purchase 300,000 ordinary shares at an exercise price of $5.50 per share remain outstanding but were **antidilutive** for EPS calculation[118](index=118&type=chunk) - PRC subsidiaries have **restricted net assets totaling $31,786,663** as of March 31, 2024, which cannot be transferred to the parent company as loans, advances, or cash dividends without third-party consent[121](index=121&type=chunk) [Ordinary Shares and Share Consolidation](index=21&type=section&id=Ordinary%20Shares%20and%20Share%20Consolidation) - The company's authorized share capital was increased, and a **6-for-1 share consolidation** was approved and effected in July 2023[114](index=114&type=chunk)[116](index=116&type=chunk) - The share consolidation retrospectively restated the financial statements, resulting in **3,645,974 ordinary shares issued and outstanding** as of March 31, 2024[116](index=116&type=chunk)[117](index=117&type=chunk) [Statutory Reserve and Restricted Net Assets](index=22&type=section&id=Statutory%20Reserve%20and%20Restricted%20Net%20Assets) - PRC subsidiaries are required to make appropriations to **statutory surplus reserves**, which are not distributable as cash dividends[120](index=120&type=chunk) - As of March 31, 2024, the total **restricted net assets** of PRC subsidiaries amounted to **$31,786,663**[121](index=121&type=chunk) [NOTE 17 — Commitments and Contingencies](index=22&type=section&id=NOTE%2017%20%E2%80%94%20COMMITMENTS%20AND%20CONTINGENCIES) The company has significant capital expenditure commitments for its CIP project ($13.3 million) and a property purchase ($2.2 million remaining balance), with no material legal claims or litigation identified - Future minimum capital expenditures for the CIP project are estimated at **approximately $13.3 million**, with $3.4 million required within the next 12 months[123](index=123&type=chunk) - A remaining balance of **approximately $2.2 million** is due by April 2025 for a property purchase agreement[124](index=124&type=chunk) - **No material legal claims or litigation** that could adversely impact the company's financial position were identified for the six months ended March 31, 2024 and 2023[122](index=122&type=chunk) [NOTE 18 — Subsequent Events](index=23&type=section&id=NOTE%2018%20%E2%80%94%20SUBSEQUENT%20EVENTS) Subsequent events include several new loan agreements totaling approximately $2.92 million and the closing of a self-underwritten public offering on July 15, 2024, raising $25 million - On April 23, 2024, Jiangxi Universe secured a **$415,495 loan** from Zhujiang Rural Bank, collateralized by trademarks[125](index=125&type=chunk) - On April 26, 2024, Jiangxi Universe signed a **$1,384,984 loan agreement** with LRC Bank, guaranteed by Mr Gang Lai and Universe Trade[126](index=126&type=chunk) - On June 16, 2024, Jiangxi Universe obtained a **$1,121,837 loan** from Bank of Communications, with guarantees from Mr Gang Lai, Universe Trade, and a third party[127](index=127&type=chunk) - On July 15, 2024, the company closed a self-underwritten public offering of 20,000,000 ordinary shares at $1.25 per share, **raising $25 million** before expenses[128](index=128&type=chunk) [Condensed Financial Information of the Parent Company](index=24&type=section&id=Condensed%20Financial%20Information%20of%20the%20Parent%20Company) [Parent Company Balance Sheets](index=24&type=section&id=Parent%20Company%20Balance%20Sheets) The parent company's total assets decreased significantly to $26,936,903 as of March 31, 2024, from $39,532,701 as of September 30, 2023, primarily due to a reduction in short-term investments and investment in subsidiaries Parent Company Balance Sheet Figures (March 31, 2024 vs. September 30, 2023) | Metric | March 31, 2024 (Unaudited) | September 30, 2023 | | :--- | :--- | :--- | | Total Assets | $26,936,903 | $39,532,701 | | Cash | $69,114 | $9,248 | | Short-term investments | $2,527,603 | $13,219,005 | | Investment in subsidiaries | $13,554,925 | $15,426,104 | | Total Current Liabilities | $192,807 | $- | | Total Shareholders' Equity | $26,744,096 | $39,532,701 | - The parent company's total assets **decreased by approximately $12.59 million**, largely driven by a decrease in short-term investments and investment in subsidiaries[134](index=134&type=chunk) - Current liabilities **increased from nil to $192,807**, primarily due to amounts due to related parties[134](index=134&type=chunk) - Total shareholders' equity mirrored the consolidated statements, **decreasing by approximately $12.79 million**[134](index=134&type=chunk) [Parent Company Statements of Income and Comprehensive Income](index=26&type=section&id=Parent%20Company%20Statements%20of%20Income%20and%20Comprehensive%20Income) For the six months ended March 31, 2024, the parent company reported a net loss of $(13,101,457) and a comprehensive loss of $(12,788,605), primarily due to significant realized and unrealized losses on short-term investments and equity in loss of subsidiaries Parent Company Income Statement Figures (Six Months Ended March 31, 2024 vs. 2023) | Metric | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | | General and administrative expenses | $(232,809) | $(116,431) | | Realized (loss) gain on short-term investments | $(3,094,084) | $166,931 | | Change in fair value of short-term investments | $(7,617,502) | $- | | Equity in loss of subsidiaries | $(2,156,771) | $(765,420) | | Net Loss | $(13,101,457) | $(715,427) | | Comprehensive (loss) income attributable to the Company | $(12,788,605) | $684,348 | - The parent company's **net loss significantly increased** from $(715,427) in 2023 to $(13,101,457) in 2024[136](index=136&type=chunk) - Realized and unrealized losses on short-term investments totaled **$(10,711,586)** for the current period, a major contributor to the loss[136](index=136&type=chunk) - Equity in loss of subsidiaries also increased, contributing **$(2,156,771)** to the parent company's loss[136](index=136&type=chunk) [Parent Company Statements of Cash Flows](index=27&type=section&id=Parent%20Company%20Statements%20of%20Cash%20Flows) For the six months ended March 31, 2024, the parent company generated net cash from operating activities of $52,790, a positive shift from the prior year's outflow, and the overall cash balance increased Parent Company Cash Flow Figures (Six Months Ended March 31, 2024 vs. 2023) | Metric | Six Months Ended March 31, 2024 | Six Months Ended March 31, 2023 | | :--- | :--- | :--- | | Net cash provided by (used in) operating activities | $52,790 | $(11,880) | | Net cash provided by investing activities | $- | $- | | Changes in cash | $59,866 | $(11,760) | | Cash, end of period | $69,114 | $17,157 | - Operating activities **provided $52,790 in cash**, a positive change from the $(11,880) outflow in the prior year, despite the net loss, due to non-cash adjustments and changes in working capital[137](index=137&type=chunk) - Investing activities had **no net cash impact**, as purchases and sales of short-term investments offset each other[137](index=137&type=chunk) - The parent company's **cash balance increased by $59,866**, reaching $69,114 at the end of the period[137](index=137&type=chunk)

Core Viewpoint - Universe Pharmaceuticals INC reported a significant decline in revenue and increased net loss for the first six months of fiscal year 2024, primarily due to decreased customer demand amid a global economic slowdown. The company is adapting its business strategy by developing online sales channels to drive future growth [2][3][4]. Financial Performance - Total revenues decreased by 30.2% to $12.9 million for the six months ended March 31, 2024, down from $18.5 million in the same period of 2023 [3][5]. - Loss from operations was $1.7 million for the six months ended March 31, 2024, compared to an income from operations of $0.1 million for the same period in 2023 [3][4]. - Net loss increased to $13.1 million for the six months ended March 31, 2024, from a net loss of $0.7 million in the prior year [3][17]. - Loss per share was $3.59 for the six months ended March 31, 2024, compared to a loss per share of $0.20 for the same period in 2023 [3][17]. Revenue Breakdown - Sales of traditional Chinese medicine derivatives (TCMD) products decreased by 26.7% to $6.87 million, with a sales volume decline of 23.4% [7][8]. - Sales of third-party products fell by 33.9% to $6.01 million, with a sales volume decrease of 29.9% [8][9]. Cost and Profitability - Cost of revenues decreased by 22.9% to $9.52 million, attributed to lower sales volume, despite a 10.8% increase in average cost of TCMD products [9][10]. - Gross profit decreased by $2.76 million to $3.37 million, with a gross margin decline to 26.2% from 33.2% [10][11]. Operating Expenses - Selling expenses increased by 74.0% to $4.05 million, primarily due to higher advertising costs [11]. - General and administrative expenses decreased by 29.8% to $0.97 million, mainly due to reduced bad debt expenses [12]. - Research and development expenses plummeted by 96.2% to $86,503, reflecting the completion of prior development activities [13]. Other Income and Losses - Total other expenses netted $10.70 million for the six months ended March 31, 2024, compared to total other income of $0.11 million in the previous year [14][15]. - The company recorded a realized loss on short-term investments of $3.09 million, contrasting with a gain of $0.17 million in the prior year [14]. Cash Flow and Balance Sheet - Net cash used in operating activities was $2.43 million for the six months ended March 31, 2024, compared to cash provided of $4.80 million in the same period of 2023 [19]. - As of March 31, 2024, the company had cash of $8.86 million, an increase from $5.29 million as of September 30, 2023 [18][19]. Subsequent Events - On July 15, 2024, the company closed a public offering of 20 million ordinary shares, raising $25 million before expenses [20].

As filed with the U.S. Securities and Exchange Commission on May 14, 2024. Registration No. 333-278914 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 AMENDMENT NO. 1 TO FORM F-1 REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 Universe Pharmaceuticals INC (Exact name of registrant as specified in its charter) Cayman Islands 2834 Not Applicable (State or other jurisdiction of incorporation or organization) (Primary Standard Industrial Classification Code Number) (I.R.S. Employ ...

Universe Pharmaceuticals INC REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 As filed with the U.S. Securities and Exchange Commission on April 24, 2024. Registration No. 333- UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM F-1 (Exact name of registrant as specified in its charter) Cayman Islands 2834 Not Applicable (Primary Standard Industrial Classification Code Number) (I.R.S. Employer Identification No.) 265 Jingjiu Avenue Jinggangshan Economic and Technological Deve ...

Group 1 - Universe Pharmaceuticals (UPC) stock experienced a significant rally, closing up 43.9% on Friday, with over 716,000 shares traded, far exceeding its average daily volume of approximately 95,000 shares [1] - The stock is currently down 28.5% as of Tuesday morning, trading at about $1.81 per share, compared to $1.72 per share before the rally [2] - Year-to-date, UPC stock was up 30.9% when markets closed on Friday [2] Group 2 - The volatility in Chinese stocks may have influenced UPC's stock movement, and there are indications that some traders may be engaging in pump and dump strategies [1] - The company's float is approximately 1.55 million shares, which may contribute to the stock's volatility [1]

Company Structure and Operations - The Cayman Islands holding company does not conduct any operations; all operations are carried out by its PRC subsidiaries[14]. - The company is not currently required to file with the CSRC under the new Overseas Listings Rules, but future offerings may trigger filing requirements[17]. - The company operates primarily in the PRC, with most assets located outside the United States, making it difficult for U.S. authorities to enforce actions against its directors or officers[158]. Financial Performance and Cash Flow - The company received cash transfers of $127,827 and $303,746 from its Hong Kong subsidiary for the years ended September 30, 2023, and 2022, respectively[20]. - No cash transfers occurred from the Cayman Islands holding company to its PRC subsidiaries for the years ended September 30, 2021, 2022, and 2023[20]. - The company transferred $6,807,507 from its initial public offering to Jiangxi Universe and its subsidiaries for general corporate purposes in the fiscal year ended September 30, 2021[20]. - PRC regulations restrict the ability of PRC subsidiaries to pay dividends, which may affect the company's cash flow[21]. - Dividends from PRC subsidiaries can only be paid out of accumulated profits and are subject to a withholding tax rate of up to 10%[25]. - The company may face difficulties in obtaining foreign currency for dividend payments due to PRC government controls[24]. - The company does not expect to pay dividends in the foreseeable future, focusing instead on retaining earnings for business development[192]. Regulatory Environment - The PRC government has significant authority to influence the company's operations, which could materially affect its business and securities value[15]. - Regulatory changes in China could impact the company's ability to operate and offer securities, posing a risk to business operations[30]. - The company is subject to evolving regulatory requirements, and failure to comply could adversely affect business prospects[30]. - The approval of the China Securities Regulatory Commission may be required for offerings, with uncertain timelines for obtaining such approvals[114]. - The M&A Rules necessitate CSRC approval for offshore special purpose vehicles seeking public listings through acquisitions of PRC companies, with unclear interpretation and application[115]. - The CSRC issued the Overseas Listing Regulations effective March 31, 2023, requiring companies in mainland China to file with the CSRC within three business days after submitting listing application documents[117]. - The newly enacted PRC Foreign Investment Law may impact the company’s corporate structure and business operations, particularly if its subsidiaries are recognized as "foreign investment enterprises"[172]. Market and Competitive Landscape - The competitive landscape in the Chinese patent medicine industry is intense, with pricing pressures and the risk of competitors developing superior products[40]. - The company faces significant risks related to price increases in raw materials, which could adversely impact financial results[33]. - High-quality materials may be difficult to obtain, potentially increasing production costs and affecting the ability to meet customer demands[34]. - The company must respond effectively to changing consumer preferences to avoid harming customer relationships and product sales[42]. Internal Controls and Compliance - As of September 30, 2023, the company identified material weaknesses in its internal control over financial reporting, primarily due to a lack of qualified accounting staff with knowledge of U.S. GAAP[210]. - The company plans to recruit qualified accounting personnel and implement continuous U.S. GAAP training programs to address identified weaknesses in financial reporting[211]. - The company has not conducted an audit of its internal control over financial reporting, which may lead to inaccuracies in financial statements and regulatory compliance issues[209]. - The company has implemented measures to improve internal control procedures and corporate governance, obtaining board approval for all material business transactions in the fiscal year ended September 30, 2022[52]. Risks and Challenges - The company may face significant expenses and resource diversion due to potential intellectual property infringement claims[71]. - Future acquisitions may pose risks related to integration, unforeseen liabilities, and resource diversion[80]. - The company may face challenges in expanding its distribution network due to competition and the need to manage an increasing customer base[60]. - The ongoing COVID-19 pandemic has led to significant market volatility and a decline in general economic activities in China, affecting the company's business operations[61]. - The company may face challenges in obtaining necessary approvals for capital contributions or loans to PRC subsidiaries, affecting liquidity and expansion[127]. Intellectual Property and Brand Management - The company has 73 patents and 99 trademarks in China, which are critical for its success and protection against competitors[66]. - The inability to maintain or enhance brand image could lead to a decline in customer transactions and adversely affect financial results[41]. - The company has invested substantially in advertising to enhance brand awareness, which may not yield successful results[46]. Labor and Employment - The company is in substantial compliance with labor-related laws and regulations in China, but there is a risk of future noncompliance which could adversely affect business operations[137]. - The company incurred significant costs related to compliance with evolving labor laws and regulations in China[83][84]. - Increased labor costs in China are expected to continue, impacting profitability unless passed on to customers[82]. Currency and Financial Reporting - The company's financial statements are presented in U.S. dollars, while its business is conducted in RMB, exposing it to risks from currency conversion rate fluctuations[165]. - The PRC government imposes controls on the convertibility of RMB into foreign currencies, which may affect the company's ability to remit dividends and its overall financial condition[166]. - Under current regulations, the company can pay dividends in foreign currencies without prior approval from SAFE, but future policies may change this[168]. Audit and Inspection - The PCAOB determined it is unable to inspect or investigate PCAOB-registered public accounting firms in China and Hong Kong due to local authorities' positions[98]. - The auditor, YCM CPA INC., is headquartered in California and is subject to PCAOB inspections, mitigating risks associated with the HFCA Act[102]. - The company has faced challenges in identifying qualified accounting candidates in its primary operating region, prompting a search in other regions of China[211].

Financial Performance - Total revenue for the six months ended March 31, 2023, was $18,467,186, a decrease of 23.5% compared to $24,202,340 for the same period in 2022[4] - Gross profit for the six months ended March 31, 2023, was $6,128,142, down from $13,756,434 in the prior year, reflecting a gross margin decline[4] - The net loss for the six months ended March 31, 2023, was $715,427, contrasting with a net income of $1,731,735 for the same period in 2022[4] - Earnings per share for the six months ended March 31, 2023, was $(0.20), down from $0.48 in the same period of 2022[4] - Net income for the quarter ended March 31, 2023, was a loss of $715,427 compared to a net income of $1,731,735 for the same period in 2022[12] - Net income for the six months ended March 31, 2023, was $(715,427), compared to $1,731,735 for the same period in 2022[141] Expenses and Costs - Operating expenses totaled $5,978,896 for the six months ended March 31, 2023, compared to $11,055,155 in the same period of 2022, indicating a reduction in costs[4] - Total research and development expenses for the six months ended March 31, 2023, were approximately $2,268,335, a significant increase from $144,461 in the same period of 2022[53] - Advertising expenses for the six months ended March 31, 2023, amounted to $1,340,368, compared to $8,219,488 for the same period in 2022, reflecting a decrease in marketing expenditure[55] - The company recorded total interest expense of $90,044 for the six months ended March 31, 2023, compared to $103,765 for the same period in 2022[99] Assets and Liabilities - Total current assets increased to $52,515,213 as of March 31, 2023, from $41,505,680 as of September 30, 2022, representing a growth of 26.5%[2] - Total liabilities increased to $23,241,660 as of March 31, 2023, compared to $13,097,552 as of September 30, 2022, reflecting a rise of 77.5%[2] - Shareholders' equity rose to $47,126,671 as of March 31, 2023, up from $46,442,323 as of September 30, 2022, indicating a slight increase of 1.5%[2] - Cash and short-term investments totaled $26,269,418 as of March 31, 2023, compared to $18,860,052 as of September 30, 2022, reflecting an increase of 39.0%[2] - The company recorded an allowance for uncollectible accounts of $820,177 as of March 31, 2023, up from $791,827 in the previous period[28] - The allowance for doubtful accounts increased to $820,177 as of March 31, 2023, from $791,827 as of September 30, 2022, reflecting a rise of approximately 3.6%[75] Cash Flow - Net cash provided by operating activities was $4,798,702, a decrease from $6,118,203 in the prior year[12] - Net cash used in operating activities was $(116,938) compared to $(358,026) in the previous year[143] - Cash repayment from subsidiaries provided $105,058 in financing activities, down from $299,592 in the prior year[143] - Cash at the end of the period was $12,954,516, down from $14,236,300 at the end of the previous year[12] - Cash at the end of the period decreased to $17,157 from $51,585 a year earlier[143] Revenue Recognition and Sales - The Company recognizes revenue when goods are transferred to customers, with no right of return, ensuring revenue is reported net of all value-added taxes[49] - There were no contract assets or liabilities reported as of March 31, 2023, indicating a straightforward revenue recognition process[50] - Sales of the Guben Yanling Pill represented 30.4% of total revenue for the six months ended March 31, 2023, down from 43.6% in the same period of 2022[109] - Sales of TCMD products manufactured by the Company decreased to $9,374,312, down 38.8% from $15,354,635 in the prior year[126] - Sales of third-party products increased to $9,092,874, up 2.8% from $8,847,705 in the previous year[126] Investments and Acquisitions - The company established a new subsidiary, Guangzhou Universe Hanhe Medical Research Co., Ltd., for R&D of new pharmaceutical products[19] - The prepayment for acquisition of Yunnan Faxi Pharmaceuticals Co., Ltd. is recorded at approximately $3.6 million, with the total acquisition price set at RMB72 million (approximately $10.5 million)[79] - The company has made a prepayment of approximately RMB69.2 million (approximately $10.1 million) for the construction of manufacturing facilities, with completion expected by December 2024[88] - The Company’s investment in Jiangxi Jian Rural Commercial Bank was valued at $728,055 as of March 31, 2023, compared to $702,890 as of September 30, 2022[46] Shareholder Information - A share consolidation of 6 ordinary shares into 1 was completed on July 27, 2023, affecting the company's share capital[20] - The company completed a share consolidation on July 27, 2023, converting six ordinary shares into one ordinary share, resulting in 3,625,000 shares issued and outstanding as of March 31, 2023[113] - The company has not declared or paid dividends during the six months ended March 31, 2023, and may not choose to make additional distributions in the future[116][117] Market and Customer Concentration - One customer accounted for 14.1% of total revenue for the six months ended March 31, 2023, compared to no single customer exceeding 10% in the same period of 2022[108] - As of March 31, 2023, three suppliers accounted for 59.4%, 22.5%, and 12.5% of total advance to supplier balance, indicating a significant concentration risk[109] Foreign Currency and Translation - The company reported a foreign currency translation adjustment of $1,399,775 for the six months ended March 31, 2023, compared to $492,194 in the prior year[4] - The effect of changes in foreign exchange rates on cash was $120, contrasting with $(374) in the previous year[143]

PART I [Item 3. Key Information](index=7&type=section&id=ITEM%203.%20KEY%20INFORMATION) This section outlines significant investment risks, including business and industry challenges, operational risks in China, and risks related to the company's ordinary shares [Risk Factors](index=7&type=section&id=D.%20Risk%20Factors) The company faces substantial risks across its business, China operations, and publicly traded shares, including supply chain reliance, regulatory uncertainties, and potential delisting - Key business risks include **price increases in raw materials**, reliance on a **complex supply chain**, and operating in a **highly competitive industry**[13](index=13&type=chunk)[19](index=19&type=chunk)[25](index=25&type=chunk) - The company faces significant risks related to doing business in China, including potential **government intervention**, uncertainties in the **legal system**, and the possibility of **delisting under the Holding Foreign Companies Accountable Act (HFCA Act)** if the PCAOB cannot inspect its auditors[15](index=15&type=chunk)[72](index=72&type=chunk)[76](index=76&type=chunk) - The company's auditor is headquartered in California and has not been inspected by the PCAOB, but is expected to be inspected on a regular basis, and is not subject to the PCAOB's December 2021 determination regarding firms in China and Hong Kong[78](index=78&type=chunk)[82](index=82&type=chunk) - Risks related to the company's ordinary shares include **significant price volatility** and a potential delisting from Nasdaq, though it regained compliance with the minimum bid price requirement in November 2022 after a July 2022 notification[18](index=18&type=chunk)[170](index=170&type=chunk)[171](index=171&type=chunk) - The company is a **'controlled company'** as its CEO, Mr. Gang Lai, holds more than **50% of the voting power**, allowing reliance on exemptions from certain corporate governance requirements[178](index=178&type=chunk) - A **material weakness in internal control over financial reporting** was identified as of September 30, 2022, related to a lack of accounting staff with appropriate knowledge of U.S. GAAP and SEC reporting requirements[191](index=191&type=chunk) [Item 4. Information on the Company](index=49&type=section&id=ITEM%204.%20INFORMATION%20ON%20THE%20COMPANY) This section details the company's history, corporate structure, and business operations, focusing on its PRC subsidiaries' manufacturing and distribution of Traditional Chinese Medicine Derivatives [History and Development of the Company](index=49&type=section&id=A.%20History%20and%20Development%20of%20the%20Company) Universe Pharmaceuticals INC is a Cayman Islands holding company operating solely through PRC subsidiaries, facing significant legal and operational risks in China, with limited cash transfers to the holding company and dividend restrictions - The company is a Cayman Islands holding company with no operations of its own; all business is conducted by its PRC subsidiaries, and it does not utilize a VIE structure[208](index=208&type=chunk) - For the year ended September 30, 2022, the Cayman holding company received a cash transfer of **$303,746** from its Hong Kong subsidiary for director compensation and professional fees, with no dividends or distributions from PRC subsidiaries[214](index=214&type=chunk) - The company's ability to pay dividends is restricted by PRC regulations, which require PRC subsidiaries to set aside at least **10% of after-tax profits** into a statutory reserve until it reaches **50% of registered capital**, and these reserves are not distributable as cash dividends[216](index=216&type=chunk)[115](index=115&type=chunk) [Business Overview](index=55&type=section&id=B.%20Business%20Overview) The company manufactures and distributes 13 Traditional Chinese Medicine Derivative (TCMD) products, with Guben Yanling Pill as its signature product, and also distributes approximately 2,785 third-party medical products across China - The company manufactures **13 types of TCMD products**, categorized as chronic condition treatments and cold/flu medications, and also distributes around **2,785 third-party products**, including biomedical drugs and medical instruments[231](index=231&type=chunk)[233](index=233&type=chunk) Revenue Contribution by Product Type (FY2020-2022) | Product Category | FY2022 Revenue Share | FY2021 Revenue Share | FY2020 Revenue Share | | :--- | :--- | :--- | :--- | | Guben Yanling Pill | 42.5% | 40.3% | 38.2% | | Other Manufactured Products | 17.3% | 21.3% | 21.6% | | Third-Party Products | 40.2% | 38.4% | 40.2% | - The company's customer base decreased slightly from **2,708** as of Sep 30, 2021, to **2,651** as of Sep 30, 2022, due to delivery issues caused by COVID-19 resurgence[234](index=234&type=chunk)[265](index=265&type=chunk) - Key growth strategies include building a strong national brand image for 'Bai Nian Dan (百年丹)', enhancing the distribution network, integrating manufacturing capabilities, and growing R&D capacity for products targeting the elderly[242](index=242&type=chunk)[243](index=243&type=chunk)[244](index=244&type=chunk)[245](index=245&type=chunk) - As of September 30, 2022, the company had **224 employees**, with the largest departments being Manufacturing (**38%**) and Marketing (**25%**)[280](index=280&type=chunk)[281](index=281&type=chunk) [Item 5. Operating and Financial Review and Prospects](index=78&type=section&id=ITEM%205.%20OPERATING%20AND%20FINANCIAL%20REVIEW%20AND%20PROSPECTS) This section analyzes the company's financial performance, noting a significant revenue decrease and net loss in FY2022 due to increased selling expenses, contrasting with strong growth in FY2021, while assessing liquidity for future capital commitments [Operating Results](index=78&type=section&id=A.%20Operating%20Results) The company experienced a significant downturn in FY2022, with revenue falling 16.3% and a net loss of $8.7 million due to a massive increase in advertising expenses, contrasting sharply with FY2021's 56.3% revenue growth and $11.3 million net income Consolidated Results of Operations (FY2022 vs FY2021) | Metric | FY 2022 | FY 2021 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $40,143,151 | $47,982,031 | (16.3)% | | **Gross Profit** | $21,891,336 | $25,326,177 | (13.6)% | | Gross Margin | 54.5% | 52.8% | +1.7 p.p. | | **Operating Expenses** | $29,330,134 | $11,736,037 | 149.9% | | **Net (Loss) Income** | $(8,736,566) | $11,319,952 | (177.2)% | - The decrease in FY2022 revenue was driven by a **37.2% drop in sales volume** of self-manufactured TCMD products due to COVID-19 disruptions, partially offset by a **29.1% increase in their average selling price**[365](index=365&type=chunk)[380](index=380&type=chunk)[382](index=382&type=chunk) - Selling expenses surged by **541.8% in FY2022 to $19.1 million**, primarily due to a **$16.2 million increase in advertising expenses** related to new TV and media campaigns[400](index=400&type=chunk) - Research and development expenses increased by **39.9% in FY2022 to $7.6 million**, mainly for the development and testing of eight new Chinese medicine products[404](index=404&type=chunk) Consolidated Results of Operations (FY2021 vs FY2020) | Metric | FY 2021 | FY 2020 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenue** | $47,982,031 | $30,703,960 | 56.3% | | **Gross Profit** | $25,326,177 | $14,093,820 | 79.7% | | Gross Margin | 52.8% | 45.9% | +6.9 p.p. | | **Operating Expenses** | $11,736,037 | $3,842,095 | 205.5% | | **Net Income** | $11,319,952 | $7,558,222 | 49.8% | - The **56.3% revenue growth in FY2021** was driven by a **22.6% increase in customers**, higher sales volume of TCMD products, and significant price increases for both self-manufactured (**46.3%**) and third-party (**79.6%**) products[412](index=412&type=chunk)[366](index=366&type=chunk) [Liquidity and Capital Resources](index=102&type=section&id=B.%20Liquidity%20and%20Capital%20Resources) As of September 30, 2022, the company had $28.4 million in working capital, deemed sufficient for short-term needs, despite significant future capital commitments for construction and a potential acquisition, with net cash used in operating activities improving to $1.3 million Cash Flow Summary (FY2020-2022) | Cash Flow Activity | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Operating Activities** | $(1,312,346) | $(2,055,847) | $6,115,157 | | **Investing Activities** | $(3,908,105) | $(27,059,958) | $(51,798) | | **Financing Activities** | $3,317,943 | $26,581,809 | $470,136 | | **Net Change in Cash** | $(2,366,450) | $(1,980,294) | $6,880,881 | - As of September 30, 2022, the company had **$5.7 million in cash** and **$13.1 million in liquid short-term investments**, with a total working capital of **$28.4 million**[445](index=445&type=chunk)[451](index=451&type=chunk) - The company has significant capital commitments, including an estimated **$13.5 million remaining for a construction-in-progress (CIP) project** expected to be completed in December 2024, and a **$10.1 million letter of intent for a 51% equity acquisition** of Yunnan Faxi[447](index=447&type=chunk)[450](index=450&type=chunk)[472](index=472&type=chunk) - Net cash used in operating activities in FY2022 was **$1.3 million**, primarily due to a net loss of **$8.7 million**, offset by non-cash charges and a **$7.4 million decrease in prepaid advertising**[454](index=454&type=chunk)[455](index=455&type=chunk) - Net cash used in investing activities in FY2021 was **$27.1 million**, largely due to the purchase of **$15.3 million in short-term investments** and **$10.6 million in prepayments for the CIP project**[462](index=462&type=chunk) - Net cash from financing activities in FY2021 was **$26.6 million**, primarily from the **$25.6 million net proceeds of its IPO**[463](index=463&type=chunk)[464](index=464&type=chunk) [Item 6. Directors, Senior Management and Employees](index=112&type=section&id=ITEM%206.%20DIRECTORS,%20SENIOR%20MANAGEMENT%20AND%20EMPLOYEES) This section provides information on the company's leadership and governance, including its five-member board with three independent directors, CEO Gang Lai's controlling shareholder status, and aggregate executive compensation - The board of directors consists of five members: Gang Lai (Chairman & CEO), Lin Yang (CFO & Director), and three independent directors (Jiawen Pang, H. David Sherman, Ding Zheng)[501](index=501&type=chunk)[502](index=502&type=chunk)[503](index=503&type=chunk) - The company is a **'controlled company'** under Nasdaq rules because CEO Gang Lai beneficially owns approximately **57.38% of the aggregate voting power**[512](index=512&type=chunk)[534](index=534&type=chunk) - Aggregate compensation paid to executive officers and directors for the fiscal year ended September 30, 2022, was **$121,000**[514](index=514&type=chunk) - The company has established an Audit Committee, a Compensation Committee, and a Nominating and Corporate Governance Committee, each composed of the three independent directors[517](index=517&type=chunk)[518](index=518&type=chunk)[519](index=519&type=chunk) [Item 7. Major Shareholders and Related Party Transactions](index=118&type=section&id=ITEM%207.%20MAJOR%20SHAREHOLDERS%20AND%20RELATED%20PARTY%20TRANSACTIONS) This section details CEO Gang Lai's controlling shareholder status and significant related party transactions, including working capital advances, loan guarantees, and a property purchase prepayment from an entity previously linked to the CEO - Mr. Gang Lai is the controlling shareholder, beneficially owning **12,480,000 ordinary shares**, which represents **57.38% of the voting power**[534](index=534&type=chunk)[535](index=535&type=chunk) - As of September 30, 2022, the company had a balance of **$3,379,263 due to related parties**, primarily consisting of non-interest-bearing working capital advances from CEO Mr. Gang Lai[539](index=539&type=chunk) - In May 2021, the company entered an agreement to purchase property from Jiangxi Yueshang, an entity in which CEO Mr. Gang Lai owned a **5% interest**, making a prepayment of **RMB 16 million (approx. $2.25 million)**, with Mr. Lai divesting his interest in January 2022[540](index=540&type=chunk)[541](index=541&type=chunk) - The company's controlling shareholder, Mr. Gang Lai, and other related parties have provided personal and corporate guarantees for the company's bank loans[542](index=542&type=chunk) [Item 8. Financial Information](index=119&type=section&id=ITEM%208.%20FINANCIAL%20INFORMATION) This section confirms no material legal proceedings and outlines the company's dividend policy, which currently involves no payouts due to a focus on business expansion and significant PRC regulatory restrictions on profit repatriation - The company has not declared or paid any dividends since its IPO and does not plan to in the foreseeable future, intending to retain earnings for business expansion[546](index=546&type=chunk) - The ability to pay dividends is heavily restricted by PRC regulations, which only permit dividends to be paid out of accumulated profits determined under Chinese accounting standards and require setting aside funds for a statutory reserve[549](index=549&type=chunk) - The PRC government imposes controls on the conversion of RMB into foreign currencies and remittance out of China, which could hinder the company's ability to pay dividends to foreign shareholders[550](index=550&type=chunk) [Item 10. Additional Information](index=122&type=section&id=ITEM%2010.%20ADDITIONAL%20INFORMATION) This section details the company's share capital structure, memorandum and articles of association, and a comprehensive overview of tax implications in the PRC, Hong Kong, and the United States, including potential PFIC status for U.S. investors - The company's authorized share capital is **$312,500**, divided into **90,000,000 ordinary shares** and **10,000,000 preferred shares**, with a par value of **$0.003125 per share**[562](index=562&type=chunk) - Under PRC's Enterprise Income Tax (EIT) Law, the company's PRC subsidiaries are generally subject to a **25% tax rate**, but key subsidiaries Jiangxi Universe and Universe Trade qualify as High and New Technology Enterprises (HNTEs) and enjoy a reduced rate of **15%**[845](index=845&type=chunk)[343](index=343&type=chunk) - Dividends paid from PRC subsidiaries to the Hong Kong holding company are subject to a **10% withholding tax**, which may be reduced to **5%** under the China-Hong Kong tax treaty if certain conditions are met[624](index=624&type=chunk) - The company believes it is not currently a Passive Foreign Investment Company (PFIC) for U.S. federal income tax purposes, but its status is determined annually and could change depending on the composition of its income and assets, as well as its market capitalization[643](index=643&type=chunk)[185](index=185&type=chunk) [Item 11. Quantitative and Qualitative Disclosures About Market Risk](index=140&type=section&id=ITEM%2011.%20QUANTITATIVE%20AND%20QUALITATIVE%20DISCLOSURES%20ABOUT%20MARKET%20RISK) The company is exposed to foreign exchange risk due to RMB-denominated revenues and USD-quoted shares, with a hypothetical 10% USD depreciation impacting cash by RMB 4.05 million, alongside credit and interest rate risks - The company's primary market risk is **foreign exchange risk**, as revenues are denominated in RMB while financial statements are reported in USD, and the RMB is not freely convertible[661](index=661&type=chunk) - As of September 30, 2022, the company held **US$5.7 million in USD-denominated cash**; a hypothetical **10% depreciation of the USD against the RMB** would result in a decrease of **RMB 4.05 million in cash**[663](index=663&type=chunk) - The company is exposed to **credit risk** from its unsecured accounts receivable, which it mitigates through creditworthiness assessments and monitoring[664](index=664&type=chunk) PART II [Item 14. Material Modifications to the Rights of Security Holders and Use of Proceeds](index=142&type=section&id=ITEM%2014.%20MATERIAL%20MODIFICATIONS%20TO%20THE%20RIGHTS%20OF%20SECURITY%20HOLDERS%20AND%20USE%20OF%20PROCEEDS) This section details the use of the company's March 2021 IPO net proceeds of $25.6 million, with approximately $9.5 million allocated to R&D, manufacturing upgrades, and brand marketing as of September 30, 2022 - The company's IPO in March 2021 raised net proceeds of approximately **$25.6 million**[672](index=672&type=chunk) Use of IPO Proceeds as of September 30, 2022 | Use Category | Amount Used (Approx.) | | :--- | :--- | | Research and Development | $3.2 million | | Upgrading Manufacturing Facilities | $3.4 million | | Brand Marketing | $2.9 million | [Item 15. Controls and Procedures](index=142&type=section&id=ITEM%2015.%20CONTROLS%20AND%20PROCEDURES) Management concluded that as of September 30, 2022, the company's disclosure controls and procedures were ineffective due to a material weakness in internal control over financial reporting, stemming from a lack of adequately knowledgeable accounting staff - Management concluded that disclosure controls and procedures were **ineffective** as of September 30, 2022[673](index=673&type=chunk) - A **material weakness** was identified in internal control over financial reporting due to a lack of accounting staff with adequate U.S. GAAP and SEC reporting knowledge[676](index=676&type=chunk) - The company's remediation plan includes recruiting qualified accounting personnel, implementing U.S. GAAP training, and setting up an internal audit function[677](index=677&type=chunk) [Item 16. Corporate Governance and Accountant Services](index=143&type=section&id=ITEM%2016.%20Corporate%20Governance%20and%20Accountant%20Services) This section covers corporate governance, including the audit committee financial expert, code of ethics, principal accountant fees, and the December 2021 change in certifying accountant, noting the company's adherence to Cayman Islands home country practices as a foreign private issuer - Mr. H. David Sherman is designated as the **'audit committee financial expert'**[680](index=680&type=chunk) Principal Accountant Fees (YCM CPA INC.) | Fee Category | FY 2022 | FY 2021 | | :--- | :--- | :--- | | Audit fees | $210,000 | $200,000 | | Audit-related fees | - | - | | Tax fees | - | - | | All other fees | - | - | | **Total** | **$210,000** | **$200,000** | - On December 7, 2021, the company appointed YCM CPA INC. as its independent registered public accounting firm, replacing Friedman LLP, a change not due to any disagreement on accounting principles or practices[687](index=687&type=chunk) - As a foreign private issuer, the company follows its home country (Cayman Islands) practice in lieu of certain Nasdaq corporate governance standards, such as the requirement for shareholder approval for certain equity issuances[690](index=690&type=chunk)[691](index=691&type=chunk) PART III [Item 18. Financial Statements](index=147&type=section&id=ITEM%2018.%20FINANCIAL%20STATEMENTS) This section presents the audited consolidated financial statements for Universe Pharmaceuticals INC. and its subsidiaries for fiscal years 2020-2022, including balance sheets, income statements, cash flow statements, and accompanying notes, along with independent auditor reports Consolidated Balance Sheet Highlights | Metric | As of Sep 30, 2022 | As of Sep 30, 2021 | | :--- | :--- | :--- | | **Total Assets** | $59,539,875 | $70,144,781 | | Total Current Assets | $41,505,680 | $50,481,064 | | **Total Liabilities** | $13,097,552 | $11,210,428 | | Total Current Liabilities | $13,097,552 | $11,210,428 | | **Total Shareholders' Equity** | $46,442,323 | $58,934,353 | Consolidated Income Statement Highlights | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Revenue** | $40,143,151 | $47,982,031 | $30,703,960 | | **Gross Profit** | $21,891,336 | $25,326,177 | $14,093,820 | | **Income from Operations** | $(7,438,798) | $13,590,140 | $10,251,725 | | **Net (Loss) Income** | $(8,736,566) | $11,319,952 | $7,558,222 | | **EPS (Basic & Diluted)** | $(0.40) | $0.60 | $0.47 | Consolidated Cash Flow Highlights | Metric | FY 2022 | FY 2021 | FY 2020 | | :--- | :--- | :--- | :--- | | **Net Cash from Operations** | $(1,312,346) | $(2,055,847) | $6,115,157 | | **Net Cash from Investing** | $(3,908,105) | $(27,059,958) | $(51,798) | | **Net Cash from Financing** | $3,317,943 | $26,581,809 | $470,136 | | **Cash at End of Year** | $5,711,458 | $8,077,908 | $10,058,202 |

[Consolidated Financial Statements](index=2&type=section&id=Consolidated%20Financial%20Statements) [Consolidated Balance Sheets](index=2&type=section&id=Consolidated%20Balance%20Sheets) Total assets slightly increased to **$71.4 million** as of March 31, 2022, driven by cash and receivables, while liabilities decreased and equity grew Consolidated Balance Sheets Summary (in USD) | Account | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | **Total Current Assets** | $51,660,783 | $50,481,064 | | **Total Noncurrent Assets** | $19,705,378 | $19,663,717 | | **Total Assets** | **$71,366,161** | **$70,144,781** | | **Total Current Liabilities** | $10,207,879 | $11,210,428 | | **Total Shareholders' Equity** | $61,158,282 | $58,934,353 | | **Total Liabilities and Shareholders' Equity** | **$71,366,161** | **$70,144,781** | [Consolidated Statements of Income and Comprehensive Income](index=3&type=section&id=Consolidated%20Statements%20of%20Income%20and%20Comprehensive%20Income) Revenue remained flat at **$24.2 million**, but a surge in selling expenses from **$1.1 million to $9.1 million** drastically reduced operating and net income Statement of Income Summary (in USD) | Metric | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Revenue** | $24,202,340 | $24,292,948 | | **Gross Profit** | $13,756,434 | $11,988,270 | | **Total Operating Expenses** | $11,055,155 | $2,405,453 | | **Income from Operations** | $2,701,279 | $9,582,817 | | **Net Income** | $1,731,735 | $7,147,798 | | **EPS (basic and diluted)** | $0.08 | $0.44 | - Selling expenses increased dramatically by over **700%** year-over-year, from **$1.1 million to $9.1 million**, which was the primary driver for the significant drop in profitability[6](index=6&type=chunk) [Consolidated Statements of Changes in Shareholders' Equity](index=4&type=section&id=Consolidated%20Statements%20of%20Changes%20in%20Shareholders'%20Equity) Shareholders' equity grew from **$58.9 million to $61.2 million**, primarily due to **$1.7 million** net income and a **$0.5 million** currency adjustment, with prior year reflecting IPO impact - In the six months ended March 31, 2022, total equity grew by **$2.2 million**, resulting from net income of **$1.73 million** and a foreign currency translation adjustment of **$0.49 million**[13](index=13&type=chunk) - The comparative period ending March 31, 2021, shows a substantial increase in equity from **$20.8 million to $50.7 million**, primarily due to net proceeds of over **$21.9 million** from the company's IPO[9](index=9&type=chunk)[10](index=10&type=chunk)[11](index=11&type=chunk) [Consolidated Statements of Cash Flows](index=5&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) Operating cash flow significantly increased to **$6.1 million**, despite lower net income, due to expensed advertising prepayment; cash balance rose to **$14.2 million** Statement of Cash Flows Summary (in USD) | Cash Flow Category | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :--- | :--- | :--- | | **Net cash provided by operating activities** | $6,118,203 | $1,058,129 | | **Net cash used in investing activities** | ($55,091) | ($50,875) | | **Net cash provided by (used in) financing activities** | ($19,991) | $24,136,556 | | **Net increase in cash** | $6,158,392 | $25,940,927 | | **Cash, end of period** | $14,236,300 | $35,999,129 | [Notes to Unaudited Condensed Consolidated Financial Statements](index=6&type=section&id=Notes%20to%20Unaudited%20Condensed%20Consolidated%20Financial%20Statements) [NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION](index=6&type=section&id=NOTE%201%20%E2%80%94%20ORGANIZATION%20AND%20BUSINESS%20DESCRIPTION) Universe Pharmaceuticals Inc. is a Cayman Islands holding company focused on developing, manufacturing, and selling TCMD products for the elderly in China, completing its Nasdaq IPO in March 2021 - The company's primary business is the development, manufacturing, and sale of TCMD products for the elderly, along with the sale of third-party biochemical drugs and medical instruments throughout China[27](index=27&type=chunk) - The company completed its IPO on March 25, 2021, raising gross proceeds of **$28.75 million**. Its shares trade on the Nasdaq under the symbol 'UPC'[22](index=22&type=chunk) [NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES](index=7&type=section&id=NOTE%202%20%E2%80%94%20SUMMARY%20OF%20SIGNIFICANT%20ACCOUNTING%20POLICIES) This section details significant US GAAP accounting policies, including consolidation, estimates, revenue recognition, foreign currency, and risks from PRC operations and COVID-19 - The company's operations are primarily in the PRC, making it subject to political, economic, and legal risks specific to China[32](index=32&type=chunk) - Revenue is recognized when goods are transferred to customers, which generally occurs upon delivery. The company acts as a principal in these transactions[63](index=63&type=chunk) - Advertising expenses surged to **$8,219,488** for the six months ended March 31, 2022, compared to **$266,884** in the prior year period[71](index=71&type=chunk) [Risks and Uncertainties](index=8&type=section&id=Risks%20and%20Uncertainties) Operations face risks from PRC environment, competition, and epidemics; COVID-19 in 2022 caused supply delays, a **~5%** price increase, and extended customer payment terms - The resurgence of COVID-19 in China in 2022 led to operational disruptions, including: - Delays in raw material purchases and product deliveries due to travel restrictions - A **~5%** increase in raw material prices from January to May 2022 compared to the prior year - Extended payment terms of **30-120 days** granted to some customers[34](index=34&type=chunk) [NOTE 3 — ACCOUNTS RECEIVABLE, NET](index=17&type=section&id=NOTE%203%20%E2%80%94%20ACCOUNTS%20RECEIVABLE%2C%20NET) Net accounts receivable increased to **$18.8 million**, with **64.9%** of the March 31, 2022 balance subsequently collected Accounts Receivable Aging and Subsequent Collection (as of March 31, 2022) | Aging Bucket | Balance | Subsequent Collection | % Collected | | :--- | :--- | :--- | :--- | | Less than 3 months | $13,615,648 | $7,841,418 | 57.6% | | 4 to 6 months | $4,967,823 | $4,102,633 | 82.6% | | 7 to 9 months | $425,163 | $244,185 | 57.4% | | Over 1 year | $270,461 | $5,453 | 2.0% | | **Total Gross A/R** | **$19,371,511** | **$12,210,373** | **63.0%** | [NOTE 4 — INVENTORY, NET](index=18&type=section&id=NOTE%204%20%E2%80%94%20INVENTORY%2C%20NET) Net inventory increased to **$3.4 million**, primarily due to a rise in raw materials and the introduction of work-in-progress inventory Inventory Composition (in USD) | Category | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Raw materials | $1,389,119 | $607,661 | | Work-in-progress | $256,282 | $0 | | Finished goods | $1,842,385 | $1,971,334 | | **Total inventory, net** | **$3,385,872** | **$2,462,542** | [NOTE 6 — PREPAYMENT FOR ADVERTISING](index=19&type=section&id=NOTE%206%20%E2%80%94%20PREPAYMENT%20FOR%20ADVERTISTING) A **$8.5 million** advertising agreement with Fengyang Legend resulted in a **$7.5 million** prepayment fully expensed in the six months ended March 31, 2022 - The company committed to a significant advertising campaign with a total contract value of approximately **$8.5 million** to promote its Bainian Pill and Guben Yanling Pill products[108](index=108&type=chunk) - A prepayment of approximately **$7.5 million** made in fiscal 2021 was fully expensed in the six months ended March 31, 2022, explaining the large increase in selling expenses for the period[108](index=108&type=chunk) [NOTE 10 — PREPAYMENT FOR CIP PROJECT](index=21&type=section&id=NOTE%2010%20%E2%80%94%20PREPAYMENT%20FOR%20CIP%20PROJECT) A **$26.0 million** CIP project for new manufacturing facilities is delayed to December 2024 due to COVID-19, with **$10.9 million** prepaid and **$15.1 million** in future commitments - The company has a significant capital project to construct four manufacturing plant buildings and an office building, with an estimated completion in December 2024[120](index=120&type=chunk) - Future minimum capital expenditures for the CIP project are estimated at **$15.1 million**, with **$3.9 million** required in the next 12 months[122](index=122&type=chunk)[123](index=123&type=chunk) [NOTE 12 — SHORT-TERM BANK LOANS](index=22&type=section&id=NOTE%2012%20%E2%80%94%20SHORT-TERM%20BANK%20LOANS) Short-term bank loans totaled **$4.41 million** at March 31, 2022, with interest rates from **4.5% to 4.81%**, and some guaranteed by related parties including the CEO Short-Term Bank Loans (in USD) | Balance | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Total short-term bank loans | $4,410,000 | $4,334,400 | - Certain loans are guaranteed by related parties, including CEO Mr. Gang Lai and his spouse[129](index=129&type=chunk) [NOTE 13 — RELATED PARTY TRANSACTIONS](index=23&type=section&id=NOTE%2013%20%E2%80%94%20RELATED%20PARTY%20TRANSACTIONS) The company engages in related party transactions, including CEO guarantees for bank loans and a **$2.52 million** prepayment to an affiliated entity for property purchase - The company made a prepayment of **$2.52 million** to Jiangxi Yueshang, an entity in which the CEO has a **5%** equity interest, for the purchase of office space[125](index=125&type=chunk)[140](index=140&type=chunk) - CEO Mr. Gang Lai and his spouse provided personal guarantees for some of the company's bank loans[137](index=137&type=chunk) [NOTE 14 — TAXES](index=24&type=section&id=NOTE%2014%20%E2%80%94%20TAXES) PRC subsidiaries benefit from a reduced **15%** tax rate due to HNTE status, though the effective tax rate for the period was **47.7%**, significantly higher than the prior year - The company's main operating subsidiaries, Jiangxi Universe and Universe Trade, are approved as HNTEs, entitling them to a reduced income tax rate of **15%**[143](index=143&type=chunk) Effective Tax Rate Reconciliation | Item | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :--- | :--- | :--- | | Statutory PRC income tax rate | 25.0% | 25.0% | | **Effective Tax Rate** | **47.7%** | **25.2%** | [NOTE 15 — CONCENTRATIONS](index=26&type=section&id=NOTE%2015%20%E2%80%94%20CONCENTRATIONS) Operations, assets, and revenue are concentrated in the PRC, with **$13.7 million** cash uninsured; Guben Yanling Pill accounted for **43.6%** of revenue - Sales of the Guben Yanling Pill product constituted **43.6%** of total revenue for the six months ended March 31, 2022, up from **34.8%** in the prior year period, indicating significant product concentration[155](index=155&type=chunk) - As of March 31, 2022, **$13.7 million** of the company's cash was held in PRC financial institutions, which are not covered by deposit insurance[155](index=155&type=chunk) [NOTE 16 — SHAREHOLDERS' EQUITY](index=27&type=section&id=NOTE%2016%20%E2%80%94%20SHAREHOLDERS'%20EQUITY) The company had **21,750,000** shares outstanding, with **$31.8 million** of subsidiary net assets restricted from transfer to the parent due to PRC regulations - The company completed its IPO in March 2021, issuing **5,750,000** ordinary shares (including over-allotment) and raising net proceeds of approximately **$25.6 million**[159](index=159&type=chunk) - PRC regulations restrict the company's subsidiaries from transferring net assets totaling **$31.8 million** to the parent company in the form of loans, advances, or cash dividends[167](index=167&type=chunk) [NOTE 18 — SEGMENT REPORTING](index=29&type=section&id=NOTE%2018%20%E2%80%94%20SEGMENT%20REPORTING) Operating as a single segment, the company saw TCMD product revenue increase to **$15.4 million**, while third-party product sales decreased to **$8.8 million** Revenue by Product Source (in USD) | Source | Six Months Ended March 31, 2022 | Six Months Ended March 31, 2021 | | :--- | :--- | :--- | | Sales of TCMD products (own) | $15,354,635 | $13,318,921 | | Sales of third-party products | $8,847,705 | $10,974,027 | | **Total revenue** | **$24,202,340** | **$24,292,948** | - Within third-party products, sales of biochemical drugs saw a sharp decline from **$9.4 million to $1.4 million**, while sales of traditional Chinese medicine pieces increased significantly from **$20,570 to $7.4 million**[176](index=176&type=chunk) [NOTE 19 — SUBSEQUENT EVENTS](index=30&type=section&id=NOTE%2019%20%E2%80%94%20SUBSEQUENT%20EVENTS) In June 2022, the subsidiary Jiangxi Universe secured two new loan agreements totaling **RMB 20 million** (approximately **$3.15 million**) for working capital - In June 2022, the company secured two new loans totaling **RMB 20 million** (approximately **$3.15 million**) for working capital purposes[179](index=179&type=chunk)[180](index=180&type=chunk) [NOTE 20 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY](index=30&type=section&id=NOTE%2020%20%E2%80%94%20CONDENSED%20FINANCIAL%20INFORMATION%20OF%20THE%20PARENT%20COMPANY) Condensed financial statements for the parent company are provided due to restricted subsidiary net assets exceeding **25%** of consolidated net assets, with assets primarily in subsidiary investments and no liabilities [Parent Company Balance Sheets](index=31&type=section&id=Parent%20Company%20Balance%20Sheets) Parent company total assets were **$61.2 million**, mainly from **$46.8 million** in subsidiary investments and **$14.3 million** in short-term investments, with no liabilities Parent Company Balance Sheet Summary (in USD) | Account | March 31, 2022 | September 30, 2021 | | :--- | :--- | :--- | | Cash | $51,585 | $110,393 | | Short-term investments | $14,344,092 | $13,725,204 | | Investment in subsidiaries | $46,762,605 | $45,098,756 | | **Total assets** | **$61,158,282** | **$58,934,353** | | **Total liabilities** | **$0** | **$0** | [Parent Company Statements of Income](index=32&type=section&id=Parent%20Company%20Statements%20of%20Income) Parent company net income was **$1.73 million**, primarily from **$1.39 million** in subsidiary equity earnings and **$0.70 million** from short-term investments - The parent company's income is primarily generated from equity in earnings of its subsidiaries (**$1.39 million**) and income from its own short-term investments (**$0.70 million**)[188](index=188&type=chunk) [Parent Company Statements of Cash Flows](index=32&type=section&id=Parent%20Company%20Statements%20of%20Cash%20Flows) Parent company operations used **$358k** cash, offset by a **$300k** subsidiary repayment, resulting in a **$59k** net cash decrease, contrasting with prior year's IPO inflow - The parent company's financing activities for the period consisted of a **$299,592** cash repayment received from its subsidiaries[190](index=190&type=chunk)