Exhibit 99.1
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
| As of | ||||||||
| March 31, 2023 | September 30, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Advance to suppliers | ||||||||
| Prepayment for acquisition | ||||||||
| Prepaid expenses and other current assets | ||||||||
| TOTAL CURRENT ASSETS | ||||||||
| Property, plant and equipment, net | ||||||||
| Prepayments made to a related party for purchase of property | ||||||||
| Prepayments for construction in progress | ||||||||
| Intangible assets, net | ||||||||
| Investment in equity securities | ||||||||
| Deferred tax assets | ||||||||
| TOTAL NONCURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Accounts payable | ||||||||
| Taxes payable | ||||||||
| Due to related parties | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $ | ||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
| For the Six Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE AND RELATED TAX | | | ||||||
| GROSS PROFIT | ||||||||
| OPERATING EXPENSES |
| |||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | | |||||||
| INCOME (LOSS) FROM OPERATIONS | | |||||||
| OTHER INCOME (EXPENSES) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Other income, net | ||||||||
| Short-term investment income | ||||||||
| Total other income, net | | |||||||
| INCOME (LOSS) BEFORE INCOME TAX PROVISION | ||||||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET INCOME (LOSS) | ( | ) | | |||||
| OTHER COMPREHENSIVE INCOME | ||||||||
| Foreign currency translation adjustment | | |||||||
| COMPREHENSIVE INCOME | $ | $ | ||||||
| $ | ( | ) | $ | |||||
| $ | | $ | | |||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Ordinary Share | Paid in | Statutory | Retained | Comprehensive | ||||||||||||||||||||||||
| Shares * | Amount | Capital | Reserve | Earnings | Income | Total | ||||||||||||||||||||||
| Balance at September 30, 2021 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Net income | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||
| Balance at September 30, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| Net income | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | ( | ) | $ | ||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Loss from disposal of fixed assets | ( | ) | ||||||
| Changes in allowance for doubtful accounts | ||||||||
| Changes in inventory reserve | ( | ) | ( | ) | ||||
| Deferred income tax provision (benefit) | ( | ) | ||||||
| Short-term investment income | ( | ) | ( | ) | ||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ( | ) | ||||
| Inventories | ( | ) | ( | ) | ||||
| Advance to suppliers, net | ( | ) | ||||||
| Prepayment for advertising | ||||||||
| Advances to related parties | ( | ) | ||||||
| Prepaid expenses and other current assets | ( | ) | ( | ) | ||||
| Accounts payable | ( | ) | ||||||
| Taxes payable | ( | ) | ||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash provided by operating activities | ||||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property and equipment | ( | ) | ( | ) | ||||
| Proceeds from disposal of equipment | ||||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Proceeds from short-term bank loans | ||||||||
| Repayment of bank loans | ( | ) | ( | ) | ||||
| Proceeds from (repayment of) related party borrowings | ( | ) | ||||||
| Net cash provided by (used in) financing activities | ( | ) | ||||||
| Effect of changes of foreign exchange rates on cash | ||||||||
| Net increase in cash | ||||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosure of cash flow information | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental non-cash financing activity: | ||||||||
| Cost of construction in progress paid in prior years | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Universe
INC owns
Jiangxi Universe Pharmaceuticals Technology Co., Ltd. (“Universe Technology”) was formed on April 8, 2019, as a wholly foreign-owned enterprise (“WFOE”) in the People’s Republic of China (“PRC” or “China”).
Universe INC, Universe HK and Universe Technology are currently not engaging in any active business operations and are merely acting as holding companies.
Jiangxi
Universe Pharmaceuticals Co., Ltd.
Reorganization
A reorganization
of the Company’s legal structure (the “Reorganization”) was completed on December 11, 2019. The Reorganization involved
the incorporation of Universe INC and Universe Technology, and the transfer of
The Reorganization has been accounted for as a recapitalization among entities under common control, since the same controlling shareholders controlled all these entities before and after the Reorganization. The consolidation of the Company and its subsidiaries has been accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the periods presented comprise those of the previously separate entities combined from the beginning of the period to the end of the period, eliminating the effects of intra-entity transactions.
On March
25, 2021, the Company closed its initial public offering (the “IPO”) of
5
On May 12, 2021, through the Company’s PRC subsidiary, Jiangxi Universe, the Company established a wholly controlled subsidiary, Guangzhou Universe Hanhe Medical Research Co., Ltd. (“Universe Hanhe”) in Guangzhou City, China, for the business purpose of conducting research and development of new pharmaceutical products in order to diversify the Company’s product offerings in the near future. As of March 31, 2023 and as of the date of this report, Universe Hanhe has no active business operations.
On July 27, 2023, the
Company completed a share consolidation of six (6) ordinary shares with par value of $
| Date of | Place of | % of | ||||||
| Name of Entity | Incorporation | Incorporation | Ownership | Principal Activities | ||||
| Universe INC | Parent, |
|||||||
| Universe HK | ||||||||
| Universe Technology | ||||||||
| Jiangxi Universe | ||||||||
| Universe Trade | ||||||||
| Universe Hanhe |
The Company, through its wholly-owned subsidiaries, is primarily engaged in the development, manufacturing and sale of traditional Chinese medicines derivatives (“TCMD”) products targeted to the elderly to address their physical conditions in the aging process and to promote their general well-being. In addition, the Company also sells biochemical drugs, medical instruments, traditional Chinese medicine pieces products and dietary supplements (collectively, “third-party products”). All of these TCMD and third-party products are currently sold to customers including pharmaceutical companies, hospitals, clinics and drugstore chains throughout China.
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NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of consolidation
The accompanying unaudited condensed consolidated financial statements include the financial statements of Universe INC, Universe HK, Universe Technology, Jiangxi Universe, Universe Trade and Universe Hanhe. All inter-company balances and transactions are eliminated upon consolidation.
Uses of estimates
In preparing the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, the realizability of advance to suppliers, inventory valuations, useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates.
Risks and Uncertainties
The business operations of the Company are mainly located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
The development and commercialization of new pharmaceutical products is highly competitive, and the industry currently is characterized by rapidly changing technologies, significant competition and a strong emphasis on intellectual property. The Company may face competition with respect to its current and future pharmaceutical product candidates from major pharmaceutical companies in China.
The Company’s business, financial condition and results of operations may also be negatively impacted by risks related to natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could significantly disrupt the Company’s operations.
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Cash
Cash includes currency on hand and deposits held by banks that can be added or withdrawn without limitation. The Company maintains most of its bank accounts in the PRC. Cash balances in bank accounts in the PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Accounts receivable, net
Accounts
receivable are presented net of allowance for doubtful accounts. The Company determines the adequacy of reserves for doubtful accounts
based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when
there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best
estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. Actual amounts received
may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off
against the allowance for doubtful accounts after management has determined that collection is not probable. Allowance for uncollectable
balances amounted to $
Inventories, net
Inventories
are stated at net realizable value using weighted average method. Costs include the cost of raw materials, freight, direct labor and related
production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for
diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any
costs to complete and sell products. The Company evaluates inventories on a quarterly basis for its net realizable value adjustments,
and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable
value based on various factors including aging, expiration dates, as applicable, taking into consideration historical and expected future
product sales. The Company recorded inventory reserve of $
Advances to suppliers, net
Advances to suppliers represent prepayments made to ensure continuous high-quality supplies and favorable purchase prices of raw materials. These advances are directly related to the purchases of raw materials used to fulfill sales orders. The Company is required from time to time to make cash advances when placing its purchase orders. These advances are settled upon suppliers delivering raw materials to the Company when the transfer of ownership occurs. The Company reviews its advances to suppliers on a periodic basis and makes general and specific allowances when there is doubt as to the ability of a supplier to provide supplies to the Company or refund an advance. As of March 31, 2023 and September 30, 2022, no allowance for doubtful accounts was deemed necessary, as the Company believes that all advances to suppliers are fully realizable.
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Short-term investments
The Company’s short-term investments consist of wealth management financial products purchased from a financial institution, which can be redeemed anytime. The financial institution invests the Company’s fund in certain financial instruments including money market funds and bonds to generate investment income. The short-term investments are deemed to be trading securities and are measured subsequently at fair value in the statement of financial position. Unrealized holding gains and losses for investment are included in the condensed unaudited consolidated statements of operations and comprehensive income over the investment period (see Note 7).
Fair value of financial instruments
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 — | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| ● | Level 2 — | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data. |
| ● | Level 3 — | inputs to the valuation methodology are unobservable. |
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, inventories, short-term investments, advances to suppliers, prepaid expenses and other current assets, accounts payable, short-term bank loans, accrued expenses and other current liabilities, taxes payable and due to related parties, approximate the fair value of the respective assets and liabilities as of March 31, 2023 and September 30, 2022 based upon the short-term nature of the assets and liabilities. The Company’s investment in equity securities is accounted for using the measurement alternative in accordance with Accounting Standards Codification (“ASC”) 321, “Investments—Equity Securities” (“ASC 321”), which also approximates its recorded value.
9
Property, plant and equipment
| Useful life | ||
| Buildings | ||
| Machinery and equipment | ||
| Automobiles | ||
| Office and electric equipment |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.
The Company reviews the carrying value of property, plant, and equipment for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment expenses for property, plant, and equipment were recorded in operating expenses for the six months ended March 31, 2023 and 2022.
Intangible Assets
Intangible
assets consist primarily of land use rights and software. Under the PRC law, all land in the PRC is owned by the government and cannot
be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods
of time.
| Useful life | ||
| Land use rights | ||
| Software |
The Company reviews the carrying value of land use rights for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment of land use rights was deemed necessary for the six months ended March 31, 2023 and 2022.
10
Construction-in-Progress (“CIP”)
CIP represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. CIP is not depreciated. Upon completion and ready for intended use, CIP is reclassified to the appropriate category within property, plant and equipment.
Impairment of long-lived Assets
Long-lived assets with finite lives, primarily property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated undiscounted cash flows from the use of the asset and its eventual disposition below are the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of March 31, 2023 and September 30, 2022.
Investments in Equity Securities
The Company
accounts for its equity investments in accordance with ASC 321. In accordance with ASC 321, equity investment which the Company has no
significant influence (generally less than a
From March
2009 to September 2017, the Company invested approximately $
The Company
initially recorded the investments at historical cost and subsequently records any dividends received from the net accumulated earnings
of the investee as income. As of March 31, 2023 and September 30, 2022, the Company’s investment in JX RBC Bank amounted to $
11
The investments in equity securities are evaluated for impairment when facts or circumstances indicate that the fair value of the investment is less than its carrying value. An impairment is recognized when a decline in fair value is determined to be other-than-temporary. The Company reviews several factors to determine whether a loss is other-than-temporary. These factors include, but are not limited to, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investments; and (v) ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. There was no impairment for the Company’s investments in equity securities as of March 31, 2023 and September 30, 2022.
Revenue recognition
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales of its TCMD and third-party products on a gross basis, as the Company is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods, which the Company has control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. All of the Company’s contracts have one single performance obligation, namely, the promise is to transfer the individual goods to customers, and there is no separately identifiable other promise in the contracts. The Company’s revenue streams are recognized at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. The Company’s products are sold with no right of return and the Company does not provide other credits or sales incentive to customers. Revenue is reported net of all value added taxes (“VAT”).
Contract Assets and Liabilities
Payment terms are established on the Company’s pre-established credit requirements based upon an evaluation of customers’ credit quality. Contract assets are recognized for in related accounts receivable. Contract liabilities are recognized for contracts where payment has been received in advance of delivery. The contract liability balance can vary significantly depending on the timing when an order is placed and when shipment or delivery occurs. As of March 31, 2023 and September 30, 2022, the Company did not have contract assets and contract liabilities.
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Disaggregation of Revenues
The Company disaggregates its revenue from contracts by product types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors. The Company’s disaggregation of revenues for the six months ended March 31, 2023 and 2022 are disclosed in Note 17 of these unaudited condensed consolidated financial statements.
Cost of revenue
Cost of revenue consists primarily of the costs of raw materials, freight charges, direct labor, depreciation of plants and machinery, warehousing and overhead associated with the manufacturing process.
Research and development expenses
The Company
expenses all internal research and development costs as incurred, which primarily comprise of employee costs, internal and external costs
related to execution of studies, manufacturing costs, facility costs of the research center, and amortization and depreciation to intangible
assets and property, plant and equipment used in the research and development activities. For the six months ended March 31, 2023
and 2022, total research and development expenses were approximately $
Shipping and handling costs
Shipping and handling costs are expensed as incurred. Inbound shipping and handling cost associated with bringing the purchased raw materials and third-party products from suppliers to the Company’s warehouse are included in cost of revenue. Outbound shipping and handling costs associated with shipping and delivery the products to customers are included in selling expenses.
Advertising expense
Advertising
expenses primarily relate to promotion of the Company’s brand name and products through outdoor billboards, social media such as
Weibo and WeChat, and TV advertisement. Advertising costs is expensed as incurred or deferred and then expensed the first time the advertising
takes place. Advertising expenses are included in selling expenses in the unaudited condensed consolidated statements of income and comprehensive
income. Advertising expenses amounted to $
Segment Reporting
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal reporting used by the Company’s chief operating decision maker for making operating decisions about the allocation of resources of the segment and the assessment of its performance in determining the Company’s reportable operating segments. Management has determined that the Company has one operating segment (See Note 17).
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Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain
tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination.
The amount recognized is the largest amount of tax benefit that is greater than
The Company’s operating subsidiaries in China are subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the six months ended March 31, 2023 and 2022. As of March 31, 2023 and September 30, 2022, all of the tax returns of the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities.
Value added tax (“VAT”)
Sales revenue
represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to
Earnings per Share
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income divided by the weighted average common shares outstanding for the period. Diluted presents the dilutive effect on a per share basis of potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per share or decrease loss per share) are excluded from the calculation of diluted EPS. For the six months ended March 31, 2023 and 2022, there were no dilutive shares.
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Foreign currency translation
The functional currency for Universe INC is the U.S Dollar (“US$”). Universe HK uses Hong Kong dollar as its functional currency. However, Universe INC and Universe HK currently only serve as holding companies and did not have active operations as of the date of this report. The Company operates only in the PRC and the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$.
Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
| For the Six Months Ended March 31, |
For the Year Ended September 30, |
||||||
| 2023 | 2022 | 2022 | |||||
| Period/Year-end spot rate | |||||||
| Average rate | |||||||
Comprehensive income
Comprehensive income consists of two components, net income and other comprehensive income. The foreign currency translation gain resulting from translation of the financial statements expressed in RMB to US$ is reported in other comprehensive income in the unaudited condensed consolidated statements of income and comprehensive income.
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
15
Employee Defined Contribution Plan
The Company’s
subsidiaries in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which pension, work-related
injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund are provided to eligible full-time employees.
The relevant labor regulations require the Company’s subsidiaries in the PRC to pay the local labor and social welfare authorities
monthly contributions based on the applicable benchmarks and rates stipulated by the local government. The contributions to the plan are
expensed as incurred. Employee social security and welfare benefits included as expenses in the accompanying statements of income and
comprehensive income amounted to $
Recent Accounting Pronouncements
In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments — Credit Losses” (Topic 326), which will require the measurement of all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. Subsequently, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, to clarify that receivables arising from operating leases are within the scope of lease accounting standards. Further, the FASB issued ASU No. 2019-04, ASU 2019-05, ASU 2019-10, ASU 2019-11 and ASU 2020-02 to provide additional guidance on the credit losses standard. For all other entities, the amendments for ASU 2016-13 are effective for fiscal years beginning after December 15, 2022, including interim periods within those fiscal years, with early adoption permitted. Adoption of the ASUs is on a modified retrospective basis. The Company adopted ASU 326 effective October 1, 2022, the first day of the Company’s fiscal year ending September 30, 2023. The adoption of ASU 326 did not have a material impact on the Company’s financial position, results of operations or cash flows.
Other accounting standards that have been issued by FASB that do not require adoption until a future date are not expected to have a material impact on the unaudited condensed consolidated financial statements upon adoption. The Company does not discuss recent standards that are not anticipated to have an impact on or are unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 3 — ACCOUNTS RECEIVABLE, NET
| March 31, 2023 | September 30, 2022 | |||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The Company’s
accounts receivable primarily includes the balance due from customers when the Company’s pharmaceutical products are sold and delivered
to customers. As of date of this report, approximately
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| March 31, 2023 | September 30, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Additions | ||||||||
| Bad debt recovery | ||||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 4 — INVENTORY, NET
| March 31, 2023 | September 30, 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work-in-progress | ||||||||
| Finished goods | ||||||||
| Inventory valuation allowance | ( | ) | ( | ) | ||||
| Total inventory, net | $ | $ | ||||||
Impairment
of inventories is recorded in cost of goods sold. For the six months ended March 31, 2023 and 2022, recovery of previously accrued inventory
allowance amounted to $
NOTE 5 — ADVANCE TO SUPPLIERS
| March 31, 2023 | September 30, 2022 | |||||||
| Advances to suppliers for inventory raw material purchase | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Advances to suppliers | $ | $ | ||||||
Advances to suppliers represent prepayments made to suppliers to ensure continuous high-quality supplies and favorable purchase prices of raw materials.
17
NOTE 6 — PREPAYMENT FOR ACQUISITION
On
September 26, 2022, the Company entered into a letter of intent for an equity transfer with an individual, Mr. Xibo Liu, pursuant to
which, Mr. Xibo Liu transfers his
NOTE 7 — SHORT-TERM INVESTMENTS
The
Company’s short-term investments consist of wealth management financial products purchased from financial institution, which can
be redeemed anytime at the Company’s discretion.
| March 31, 2023 | September 30, 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Accrued investment income (loss) | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ( | ) | ||||
| Ending balance of short-term investments | $ | $ | ||||||
Investment
income generated from such short-term investments amounted to $
NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET
| Useful life | March 31, 2023 | September 30, 2022 | ||||||||
| Buildings | $ | $ | ||||||||
| Machinery and equipment | ||||||||||
| Automobiles | ||||||||||
| Office and electric equipment | ||||||||||
| Subtotal | ||||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||||
| Property and equipment, net | $ | $ | ||||||||
Depreciation
expense was $
18
NOTE 9 — INTANGIBLE ASSETS, NET
| Useful life | March 31, 2023 | September 30, 2022 | ||||||||
| Land use rights | $ | $ | ||||||||
| Software | ||||||||||
| Total | ||||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||||
| Intangible assets, net | $ | $ | ||||||||
Amortization
expense was $
| Twelve months ending March 31, | Amortization expense | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
NOTE 10 — PREPAYMENT FOR CIP PROJECT
CIP
represents direct costs of construction incurred for the Company’s manufacturing facilities. On June 25, 2021, the Company
signed a construction sub-contract with sub-contractor Jiangxi Chenyuan Construction Project Co., Ltd. (“Chenyuan”),
pursuant to which, Chenyuan agreed to help the Company construct four manufacturing plant buildings and an office building with a
total estimated budget of RMB
As
of March 31, 2023 and September 30, 2022, $
As
of March 31, 2023, future additional capital expenditure on this CIP project is estimated to be approximately RMB
19
| Twelve months ending March 31, | Capital on CIP | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| Total | $ | |||
NOTE 11 — PREPAYMENT FOR PURCHASE OF A PROPERTY
On
May 6, 2021, the Company entered into a real estate property purchase agreement with related party Jiangxi Yueshang Investment Co., Ltd.
(“Jiangxi Yueshang”), an entity in which the Company’s chief executive officer, Mr. Gang Lai, owned
As
of March 31, 2023, the Company had made a prepayment of RMB
NOTE 12 — SHORT-TERM BANK LOANS
| Note | March 31, 2023 | September 30, 2022 | ||||||||
| Short-term bank loans: | ||||||||||
| Loans payable to Jiangxi Luling Rural Commercial Bank (“LRC Bank”): | ||||||||||
| Maturity date on | (1) | |||||||||
| Maturity date on | (2) | |||||||||
| Loan payable to Bank of Communications Co., Ltd | ||||||||||
| Maturity date on | (3) | |||||||||
| Total short-term loans | $ | $ | ||||||||
| (1) |
| (2) |
| (3) |
For
the above-mentioned loans, the Company recorded a total interest expense of $
20
NOTE 13 — RELATED PARTY TRANSACTIONS
(a)
| Name | Relationship with the Company | |
| Mr. Gang Lai | ||
| Ms. Lin Yang | ||
| Ms. Xing Wu | ||
| Foshan Shangyu Investment Holding Co., Ltd (“Foshan Shangyu”) |
(b)
| Name | March 31, 2023 | September 30, 2022 | ||||||
| Mr. Gang Lai | $ | $ | ||||||
| Total due to related parties | $ | $ | ||||||
As of March 31, 2023 and September 30, 2022, the balance due to related parties mainly consisted of advances from the Company’s officers for working capital purposes during the Company’s normal course of business. These advances are non-interest bearing and due on demand.
(c) Loan guarantee provided by related parties
In connection with the Company’s bank borrowings from LRC Bank, certain related parties of the Company, including Mr. Gang Lai, the Company’s controlling shareholder, chairman of the board of directors, and chief executive officer, Ms. Lin Yang, the Company’s chief financial officer, Ms. Xing Wu, Mr. Gang Lai’s spouse, and the Company’s WFOE, Universe Technology, jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. (see Note 12).
21
(d) Prepayment to related party for property purchase
On
January 13, 2022, Mr. Gang Lai transferred the
NOTE 14 — CONCENTRATIONS
A majority of the Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company’s and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
As
of March 31, 2023 and September 30, 2022, $
For
the six months ended March 31, 2023, one customer accounted for
Sales
of one of the Company’s major products, Guben Yanling Pill, accounted for
As
of March 31, 2023, one customer accounted for
As
of March 31, 2023, three suppliers accounted for
For
the six months ended March 31, 2023, one supplier accounted for
22
NOTE 15 — SHAREHOLDERS’ EQUITY
Ordinary Shares
Universe
INC was incorporated under the laws of the Cayman Islands on December 11, 2019. The original authorized number of ordinary shares upon
incorporation was
Initial Public Offering
On
March 25, 2021, the Company closed its IPO of
Share consolidation
On
July 27, 2023, the Company completed a share consolidation of
As
of March 31, 2023 and September 30, 2022, the Company had a total of
Underwriter warrants
In
connection with the Company’s IPO, the Company also agreed to issue warrants to the underwriter, for a nominal consideration of
$
23
Cash dividends
On
September 21, 2016, September 13, 2017, February 2, 2018, September 20, 2018 and February 21, 2019, the board of directors of Jiangxi
Universe approved resolutions to pay cash dividends of RMB
Except for the dividends declared mentioned above, the Company has not declared or paid dividends to its shareholders in the past, and may not choose to make additional distributions in the future. Any decision as to the payment of dividends will depend on the available earnings, the capital requirements of the Company, the Company’s general financial condition and other factors deemed pertinent by the board of directors.
Statutory reserve and restricted net assets
The Company’s PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to the Company. The payment of dividends by entities organized in China is subject to limitations, procedures and formalities. Regulations in the PRC currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China.
The
Company is required to make appropriations to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus
reserve, based on after-tax net income determined in accordance with generally accepted accounting principles of the PRC (“PRC
GAAP”). Appropriations to the statutory surplus reserve are required to be at least
Relevant
PRC laws and regulations restrict the Company’s PRC subsidiaries from transferring a portion of their net assets, equivalent to
their statutory reserves and their share capital, to the Company in the form of loans, advances or cash dividends. Only PRC entities’
accumulated profits may be distributed as dividends to the Company without the consent of a third party. As of March 31, 2023 and September
30, 2022, the restricted amounts as determined pursuant to PRC statutory laws totaled $
NOTE 16 — COMMITMENTS AND CONTINGENCIES
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. For the six months ended March 31, 2023 and 2022, the Company did not have any material legal claims or litigation that, individually or in aggregate, could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
The
Company has an ongoing CIP project associated with the construction of a new manufacturing facility. As of March 31, 2023, future minimum
capital expenditures on the Company’s CIP project amounted to approximately $
24
On
May 6, 2021, the Company entered into a real estate property purchase agreement with Jiangxi Yueshang, an entity in which the Company’s
chief executive officer, Mr. Gang Lai, owned
NOTE 17 — SEGMENT REPORTING
An operating segment is a component of the Company that engages in business activities from which it may earn revenues and incur expenses, and is identified on the basis of the internal financial reports that are provided to, and regularly reviewed by, the Company’s chief operating decision maker in order to allocate resources and assess performance of the segment.
The management of the Company concludes that it has only one reporting segment. The Company develops, manufactures and sells TCMD products targeted to the elderly to address their physical conditions in the aging process and to promote their general well-being. In addition, the Company also sells biochemical drugs, medical instruments, Traditional Chinese Medicine Pieces products and dietary supplements manufactured by third-party pharmaceutical companies. All of these products are currently sold in China.
The Company’s products have similar economic characteristics with respect to raw materials, vendors, marketing and promotions, customers and methods of distribution. The Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews consolidated results when making decisions about allocating resources and assessing performance of the Company, rather than by product types or geographic area; hence the Company has only one reporting segment.
| For the six months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Sales of TCMD products manufactured by the Company | $ | $ | ||||||
| Sales of third-party products | ||||||||
| Total revenue | $ | $ | ||||||
Revenue by product categories
| For the six months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Sales of TCMD products: | ||||||||
| Medicinal liquor products | $ | $ | ||||||
| Other chronic condition treatment products | ||||||||
| Cold and flu medicines | ||||||||
| Sub-total of TCMD products sales | ||||||||
| Sales of third-party products | ||||||||
| Biochemical drugs | ||||||||
| Traditional Chinese medicine pieces | - | |||||||
| Medical instruments | ||||||||
| Subtotal of third-party products sales | ||||||||
| Total revenue | $ | $ | ||||||
25
NOTE 18 — SUBSEQUENT EVENTS
On April 24, 2023, Mr. David Sherman, a director of the Company, notified the Company of his resignation as a director of the Company and the chairman of the audit committee of the board of directors, effective May 2, 2023.
On May 3, 2023, the Company’s board of directors appointed Mr. Yongping Yu as a director of the Company and the chairman of the nominating and corporate governance committee.
On May 5, 2023, a subsidiary
of the Company, Jiangxi Universe, entered into a loan agreement with Zhujiang Rural Bank to borrow RMB
On July 18, 2023, a subsidiary
of the Company, Jiangxi Universe, entered into a loan agreement with Beijing Bank to borrow RMB
On
August 8, 2023, the Company issued
NOTE 19 — CONDENSED FINANCIAL INFORMATION OF THE PARENT COMPANY
Pursuant
to the requirements of Rule 12-04(a), 5-04(c) and 4-08(e)(3) of Regulation S-X, the condensed financial information of the parent company
shall be filed when the restricted net assets of consolidated subsidiaries exceed 25 percent of consolidated net assets as of the end
of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in
accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s
subsidiaries exceeded
For purposes of the above test, restricted net assets of consolidated subsidiaries shall mean that amount of the Company’s proportionate share of net assets of consolidated subsidiaries (after intercompany eliminations) which as of the end of the most recent fiscal year may not be transferred to the parent company by subsidiaries in the form of loans, advances or cash dividends without the consent of a third party.
The condensed financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s consolidated financial statements except that the parent company used the equity method to account for investment in its subsidiaries. Such investment is presented on the condensed balance sheets as “Investment in subsidiaries” and the respective profit or loss as “Equity in earnings of subsidiaries” on the condensed statements of income.
The footnote disclosures contain supplemental information relating to the operations of the Company and, as such, these statements should be read in conjunction with the notes to the unaudited condensed consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been condensed or omitted.
As of March 31, 2023 and September 30, 2022, there were no material contingencies, significant provisions for long-term obligations, or guarantees of the Company, except for those which have been separately disclosed in the unaudited condensed consolidated financial statements, if any.
26
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
PARENT COMPANY BALANCE SHEETS
(UNAUDITED)
| March 31, 2023 | September 30, 2022 | |||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Total current assets | ||||||||
| Non-current assets | ||||||||
| Investment in subsidiaries | $ | $ | ||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| LIABILITIES | $ | $ | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Retained earnings | ||||||||
| Accumulated other comprehensive income | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * |
27
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
| For the six months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| Operating costs and expenses: | ||||||||
| General and administrative expenses | $ | ( | ) | $ | ( | ) | ||
| Other income (expenses): | ||||||||
| Income from short-term investments | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Equity in earnings of subsidiaries | ( | ) | ||||||
| Net income | ( | ) | ||||||
| Foreign currency translation adjustments | ||||||||
| Comprehensive income attributable to the Company | $ | $ | ||||||
28
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the six months ended March 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income | $ | ( | ) | $ | ||||
| Adjustments to reconcile net cash flows from operating activities: | ||||||||
| Equity in earnings of subsidiary | ) | ( | ) | |||||
| Short-term investment income | ( | ) | ( | ) | ||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Cash repayment from subsidiaries | ||||||||
| Net cash provided by financing activities | ||||||||
| EFFECT OF CHANGES OF FOREIGN EXCHANGE RATES ON CASH | ( | ) | ||||||
| CHANGES IN CASH | ( | ) | ( | ) | ||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
29