Universe Pharmaceuticals INC 6-K, filed Jul 29, 2026
Universe Pharmaceuticals INC (UPC)
About this 6-K
Universe Pharmaceuticals INC filed this 6-K on July 29, 2026.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
REPORT OF FOREIGN PRIVATE ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the month of July 2026
Commission file number:
265 Jingjiu Avenue
Jinggangshan Economic and Technological Development Zone
Ji’an, Jiangxi, China 343100
+86-0796-8403309
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Explanatory Note
Universe Pharmaceuticals INC (the “Company”) is filing this current report on Form 6-K to report its financial results as of and for the six months ended March 31, 2026 and to discuss its recent corporate developments.
Attached as exhibits to this current report on Form 6-K are:
| (1) | the unaudited condensed interim consolidated financial statements and related notes as Exhibit 99.1; | |
| (2) | Management’s Discussion and Analysis of Financial Condition and Results of Operations as Exhibit 99.2; | |
| (3) | Interactive Data Files as Exhibit 101, in accordance with Rule 405 of Regulation S-T. |
1
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
Statements in this current report with respect to the Company’s current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of the Company. Forward-looking statements include, but are not limited to, those statements using words such as “believe,” “expect,” “plans,” “strategy,” “prospects,” “forecast,” “estimate,” “project,” “anticipate,” “aim,” “intend,” “seek,” “may,” “might,” “could” or “should,” and words of similar meaning in connection with a discussion of future operations, financial performance, events or conditions. From time to time, oral or written forward-looking statements may also be included in other materials released to the public. These statements are based on management’s assumptions, judgments and beliefs in light of the information currently available to it. The Company cautions investors that a number of important risks and uncertainties could cause actual results to differ materially from those discussed in the forward-looking statements, including but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the Company with the U.S. Securities and Exchange Commission. Therefore, investors should not place undue reliance on such forward-looking statements. Actual results may differ significantly from those set forth in the forward-looking statements.
All such forward-looking statements, whether written or oral, and whether made by or on behalf of the Company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the Company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.
2
EXHIBIT INDEX
| Exhibit No. | Description | |
| 99.1 | Unaudited Consolidated Financial Statements and Related Notes as of March 31, 2026 and for the Six Months Ended March 31, 2026 and 2025 | |
| 99.2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | |
| 101.INS | Inline XBRL Instance Document (the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document). | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document. | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document. | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document. | |
| 101.LAB | Inline XBRL Taxonomy Extension Labels Linkbase Document. | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document. | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101). |
3
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| Universe Pharmaceuticals INC. | ||
| Date: July 29, 2026 | By: | /s/ Gang Lai |
| Gang Lai | ||
| Chief Executive Officer | ||
4
Exhibit 99.1
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In U.S. dollars, except share and per share data)
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | (Audited) | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Short-term investments | ||||||||
| Accounts receivable, net | ||||||||
| Inventories, net | ||||||||
| Advance to suppliers | ||||||||
| Other receivable | ||||||||
| 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 | ||||||||
| TOTAL NON-CURRENT ASSETS | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term bank loans | $ | $ | ||||||
| Current portion of long-term bank loans | ||||||||
| Accounts payable | ||||||||
| Contract liabilities | ||||||||
| Taxes payable | ||||||||
| Due to related parties | ||||||||
| Other payable | ||||||||
| Accrued expenses and other current liabilities | ||||||||
| TOTAL CURRENT LIABILITIES | ||||||||
| Long-term bank loans | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Class A ordinary shares, $ |
||||||||
| Class B ordinary shares, $ |
||||||||
| Additional paid in capital | ||||||||
| Statutory reserve | ||||||||
| Accumulated deficit | ( |
) | ( |
) | ||||
| 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.
F-1
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(UNAUDITED)
(In U.S. dollars, except share and per share data)
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenue | $ | $ | ||||||
| Cost of revenue and related tax | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling expenses | ||||||||
| General and administrative expenses | ||||||||
| Research and development expenses | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ( | ) | ||||
| Other income (expenses) | ||||||||
| Interest expense, net | ( | ) | ( | ) | ||||
| Other income (expense), net | ( | ) | ||||||
| Total other expense, net | ( | ) | ( | ) | ||||
| Loss before income tax expense | ( | ) | ( | ) | ||||
| Income tax expense | ||||||||
| Net loss | ( | ) | ( | ) | ||||
| Other comprehensive loss | ||||||||
| Foreign currency translation adjustment | ( | ) | ||||||
| Comprehensive loss | $ | ( | ) | $ | ( | ) | ||
| Net loss per share - Basic and diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted average number of shares outstanding used in calculating basic and diluted loss per share | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-2
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE SIX MONTHS ENDED MARCH 31, 2026 AND 2025
(UNAUDITED)
(In U.S. dollars, except share and per share data)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | Other | |||||||||||||||||||||||||||
| Ordinary Share | Paid in | Statutory | Accumulated | Comprehensive | ||||||||||||||||||||||||
| Shares | Amount | Capital | Reserve | Deficit | Loss | Total | ||||||||||||||||||||||
| Balance as of September 30, 2024 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Issuance of ordinary shares | ||||||||||||||||||||||||||||
| Reverse share-split adjustment | ( | ) | ||||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance as of March 31, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| Ordinary Share | Additional Paid in | Statutory | Accumulated | Accumulated Other Comprehensive | ||||||||||||||||||||||||
| Shares * | Amount | Capital | Reserve | Deficit | Loss | Total | ||||||||||||||||||||||
| Balance as of September 30, 2025 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
| The effect of adoption dual-class chare structure | - | ( | ) | |||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||
| Balance as of March 31, 2026 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-3
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In U.S. dollars, except share and per share data)
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Cash flows from operating activities: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||
| Depreciation and amortization | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Accounts receivable | ( | ) | ||||||
| Inventories | ( | ) | ||||||
| Advance to suppliers, net | ( | ) | ||||||
| Other receivable | ( | ) | ||||||
| Prepaid expenses and other current assets | ||||||||
| Accounts payable | ||||||||
| Taxes payable | ( | ) | ( | ) | ||||
| Other payable | ||||||||
| Accrued expenses and other current liabilities | ( | ) | ||||||
| Net cash (used in) provided by operating activities | ( | ) | ||||||
| Cash flows from investing activities: | ||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ||||
| Prepayments for construction in progress | ( | ) | ||||||
| Purchase of intangible asset | ( | ) | ( | ) | ||||
| Purchase of short-term investments | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Net proceeds from issuance of ordinary shares | ||||||||
| Proceeds from bank loans | ||||||||
| Repayment of bank loans | ( | ) | ( | ) | ||||
| Proceeds from related party borrowings | ||||||||
| Repayment of related party borrowings | ( | ) | ||||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| Effect of changes of foreign exchange rates on cash | ( | ) | ||||||
| Net (decrease) 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 | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
F-4
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 — ORGANIZATION AND BUSINESS DESCRIPTION
Universe Pharmaceuticals INC (“Universe
INC” or the “Company”) was incorporated under the laws of the Cayman Islands on
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 (the “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. (“Jiangxi
Universe”) was incorporated on
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. Results of operations for the periods presented eliminate the effects of intra-entity transactions.
On March 25, 2021, the Company closed its initial
public offering (the “IPO”) of
On May 12, 2021, through the Company’s PRC subsidiary, Jiangxi Universe, the Company established an indirect 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. As of September 30, 2025 and as of the date of this report, Universe Hanhe has no active business operations.
On July 3, 2023, the Company held an annual general meeting of shareholders at which shareholders, among other things, resolved:
| (a) | with immediate effect, to increase the Company’s authorized share capital from US$ |
| (b) | that, conditional upon the approval of the board of directors of the Company in its sole discretion, with effect as of the date the board of directors of the Company may determine, the authorized, issued and outstanding shares of the Company be consolidated by consolidating each 10 shares of the Company, or such lesser whole share amount as the board of directors may determine in its sole discretion, such amount not to be less than 2, into 1 share of the Company, with such consolidated shares having the same rights and being subject to the same restrictions (save as to nominal value) as the then existing shares of par value US$ |
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| (c) | that, upon the effectiveness of the 2023 Share Consolidation, the Company adopt amended and restated articles of association, in substantially the form set out in Annex B in the proxy statement dated May 24, 2023, in substitution for and to the exclusion of, the memorandum of association of the Company in effect immediately prior to effectiveness of the Share Consolidation. |
The board of directors
of the Company resolved to effect the 2023 Share Consolidation on July 27, 2023 with the authorized, issued and outstanding shares to
be consolidated on a six (6) for one (1) ratio, which had the effect of reducing the number of: (a) authorized ordinary shares from
On July 15, 2024, the Company closed its self-underwritten
public offering of
On September 27, 2024, the Company held an annual general meeting of shareholders at which shareholders, among other things, resolved:
| (a) | with immediate effect, to increase the Company’s authorized share capital from US$ |
| (b) | that, subject to and immediately following the Authorized Share Capital Increase being effected, the Company adopt an amended and restated memorandum of association in substitution for, and to the exclusion of, the Company’s existing memorandum of association, to reflect the Authorized Share Capital Increase; and |
| (c) | that, conditional upon the approval of the board of directors of the Company in its sole discretion, with effect as of the date the board of directors of the Company may determine, the authorized, issued, and outstanding shares of the Company (collectively, the “Shares”) be consolidated by consolidating each 15 Shares of the Company, or such lesser whole share amount as the Company’s board of directors may determine in its sole discretion, such amount not to be less than 2, into 1 Share of the Company, with such consolidated Shares having the same rights and being subject to the same restrictions (save as to nominal value) as the existing Shares of such class as set out in the Company’s memorandum and articles of association (the “2024 Share Consolidation”). |
On November 12, 2024,
the Company effected a share consolidation of
On March 24, 2025, the Company effected a share
consolidation of
F-6
On September 3, 2025, the Company held an annual general meeting of shareholders at which shareholders, resolved as a special resolution that, subject to and conditional upon, amongst other things: (i) approval from the Grand Court of the Cayman Islands (the “Court”) of the Capital Reduction (as defined below); (ii) registration by the Registrar of Companies of the Cayman Islands of the order of the Court confirming the Capital Reduction and the minute approved by the Court containing the particulars required under the Companies Act (Revised) (the “Act”) in respect of the Capital Reduction and compliance with any conditions the Court may impose; (iii) compliance with the relevant procedures and requirements under the applicable laws of the Cayman Islands to effect the Capital Reduction; and (iv) obtaining of all necessary approvals from the regulatory authorities or otherwise as may be required in respect of the Capital Reduction, with effect from the date on which these conditions are fulfilled:
| a) | the par value of each issued Ordinary Share of par value US$ |
| b) | the credit arising from the Capital Reduction be transferred to a distributable reserve account of the Company which may be utilized by the Company as the board of directors of the Company may deem fit and as permitted under the Act, the amended and restated memorandum of association adopted by special resolution passed on 1 March 2025 and unanimous written director resolutions passed on 20 February 2025 and made effective on 17 March 2025 (the “Existing Memorandum”), the second amended and restated articles of association of the Company adopted by special resolution passed on 23 September 2022 (the “Existing Articles”), and all relevant applicable laws, including, without limitation, eliminating or setting off any accumulated losses of the Company (if any) from time to time; |
| c) | immediately following the Capital Reduction, pursuant to section 13 of the Act and article 8.1(d) of the Existing Articles, each of the authorized but unissued Ordinary Shares of par value US$ |
| d) | immediately following the Capital Reduction and the Sub-division, the authorized share capital of the Company be altered by the cancellation of: (i) the |
from US$
to US$
(the “Capital Alteration”);
| e) | immediately following the Capital Alteration: |
| a. | the authorized and issued share capital of the Company be divided into two separate classes as follows: |
| i. | US$ |
| ii. | US$ |
it being noted that the terms of, and
rights attaching to the New Share Classes will be materially identical to the existing ordinary shares of par value US$
| b. | the issued shares in the Company outstanding following the Capital Alteration be re-designated, as follows: |
| i. | the |
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| ii. | the |
| iii. | the |
| iv. | the |
| v. | the |
(steps (a) to (e) (inclusive) above shall be collectively referred to as the “Capital Reorganization”),
| f) | any one or more of the directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents, which are in connection with and/or ancillary to the Capital Reorganization and any of the foregoing steps and of administrative nature, on behalf of the Company, including under seal where applicable, as they consider necessary, desirable or expedient to give effect to the foregoing arrangements for the Capital Reorganization and (where applicable) to aggregate all fractional Class A Ordinary Shares and/or Class B Ordinary Shares and sell them for the benefit of the Company.” |
On February 13, 2026, the dual-class share structure
became effective on the Nasdaq Capital Market, and the Company’s authorized share capital was changed to US$
Details of the subsidiaries of the Company as of March 31, 2026 are set out below:
| 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.
F-8
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and the notes thereto for the year ended September 30, 2025 included in the Form 20-F filed on January 28, 2026. Operating results for the six months ended March 31, 2026 are not necessarily indicative of the results that may be expected for the fiscal year ending September 30, 2026. 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 (“U.S. 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 unaudited condensed 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 impairment assessment of receivables, the realizability of advance to suppliers, inventory valuations, useful lives of property, plant and equipment and intangible assets, impairment assessment of long-lived assets, and realization of deferred tax assets. Changes in accounting estimate are accounted for in the period of change and prospective periods. Actual results could differ from those estimates.
Risks and Uncertainties
The business operations of the Company are 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.
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 maintained
in banks within the PRC of less than RMB
F-9
Accounts receivable, net
Accounts receivable are recorded at the gross billing amount less an allowance for any uncollectible accounts due from the customers. Accounts receivable do not bear interest.
Effective October 1, 2022, the Company adopted Accounting Standards Update (“ASU”) No.2016-13, Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”), using the modified retrospective transition method. ASU 2016-13 replaces the existing incurred-loss impairment model with an expected-loss methodology, which will result in more timely recognition of credit losses. Upon adoption, the Company replaced the incurred-loss impairment model with a forward-looking current expected credit losses (CECL) model in place of the incurred-loss methodology for financial instruments measured at amortized cost and receivables resulting from the application of ASC 606, including contract assets.
The Company maintains an allowance for credit losses and records the allowance for credit losses as an offset to accounts receivable. Estimated credit losses charged to the allowance are classified as “General and administrative expenses” in the unaudited condensed consolidated statements of operations and comprehensive loss. The Company assesses collectability by reviewing accounts receivable on an aging schedule basis, as accounts receivable primarily consist of receivables arising from sales of TCMD products and third-party products. In determining the amount of the allowance for credit losses, the Company considers historical collectability based on past due status, the age of the balances, current economic conditions, reasonable and supportable forecasts of future economic conditions, and other factors that may affect the Company’s ability to collect from its customers. Delinquent account balances are written off against the allowance for expected credit losses after management has determined that the likelihood of collection is not probable.
The allowance for uncollectible balances amounted
to $
Inventories, net
Inventories are stated at lower of cost or net
realizable value. Cost is determined using weighted average method. Inventories primarily consist of raw materials and finished goods.
Inventory costs include the purchase price and other expenditures that are directly attributable to bringing the inventories to their
present location and condition. 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, 2026 and September 30, 2025, the Company recorded no allowance for credit loss, as the Company believed that all advances to suppliers were fully realizable.
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. |
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| ● | 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. |
ASC 820 describes three main approaches to measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets or liabilities. The income approach uses valuation techniques to convert future cash flow amounts discounted at market interest rates to a single present value amount. The measurement is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that would currently be required to replace an asset.
Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, short-term investment, accounts receivable, inventories, accounts payable, short-term bank loans, accrued expenses and other current liabilities and due to related parties, approximate the fair value of the respective assets and liabilities as of March 31, 2026 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. The carrying amount of long-term bank loan approximates its fair value as the loan is priced at market interest rate.
Property, plant and equipment
Property, plant and equipment are stated at cost less accumulated depreciation. Depreciation of property, plant and equipment is provided using the straight-line method over their expected useful lives, as follows:
| Categories | 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 unaudited condensed consolidated statements of operations and comprehensive loss 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, 2026 and 2025.
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Intangible Assets
Intangible assets consist primarily of land use
rights, trademarks and software. Under 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.
| Categories | Useful life | |
| Land use rights | ||
| Trademark | ||
| Software |
The Company reviews the carrying value of intangible assets 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, 2026 and 2025.
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 when ready for its 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 are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair
value. The Company recognized an impairment loss of $
Investments in Equity Securities
The Company accounts for its equity investments
in accordance with ASC 321. In accordance with ASC 321, equity investments in 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, 2026 and September 30, 2025, the Company’s investment in JX RCB Bank amounted to $
F-12
The investments in equity securities are evaluated for impairment when facts or circumstances indicate that the fair value of the investments is less than their 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: (i) the nature of the investment; (ii) the cause and duration of the impairment; (iii) the extent to which fair value is less than cost; (iv) the financial condition and near-term prospects of the investments; and (v) the ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. There was no impairment of the Company’s investments in equity securities as of March 31, 2026 and September 30, 2025.
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.
Revenue from sales of TCMD products and third-party products is recognized when the products are delivered to customers. Each customer order is distinct and separately identifiable from other customer orders, constituting a single performance obligation to deliver the ordered product in exchange for consideration. The transaction price is fixed at contract inception and is not subject to rebates, returns or other variable consideration. As each customer order includes only one performance obligation and no variable consideration, no allocation of the transaction price is required. The Company recognizes revenue at a point in time when the control of the products sold has been transferred to customers. The transfer of control is considered complete when the products have been accepted and received by customers. The Company offers credit sales to customers with a credit period of 90 days.
Revenue is presented on a gross basis, as the Company acts as the principal in each transaction. This conclusion is based on the following considerations: (i) the Company is primarily responsible for fulfilling the promise to deliver the product to the customer and is the primary contact for customer issues; (ii) the Company bears the inventory risk; and (iii) the Company has pricing discretion and bears market risk.
Disaggregation of Revenues
The Company disaggregates its revenue from contracts
with customers by source of products, as the Company believes such disaggregation best depicts how the nature, amount, timing and uncertainty
of the revenue and cash flows are affected by economic factors.
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Revenue from sales of self-manufactured TCMD products | $ | $ | ||||||
| Revenue from sales of third-party products | ||||||||
| Total revenue | $ | $ | ||||||
Cost of Revenue
Cost of revenue consists primarily of the costs of raw materials, freight charges, direct labor, depreciation of buildings and machinery, warehousing and overhead associated with the manufacturing process.
General and Administrative Expenses
General and administrative expenses consist primarily of salaries and benefits paid to administrative personnel, office supplies and utility expenses, depreciation of office equipment, consulting fees, and other miscellaneous administrative expenses.
F-13
Research and Development Expenses
The Company expenses all internal research and
development costs as incurred, which primarily comprise employee costs, internal and external costs related to the execution of studies,
manufacturing costs, facility costs of the research center, and depreciation and amortization of intangible assets and property, plant
and equipment used in research and development activities. For the six months ended March 31, 2026 and 2025, total research and development
expenses were approximately $
Shipping and Handling Costs
Shipping and handling costs are expensed as incurred. Inbound shipping and handling costs associated with bringing 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 delivering the products to customers are included in selling expenses.
Advertising Expenses
Advertising expenses primarily relate to the promotion
of the Company’s brand name and products through outdoor billboards, social media platforms such as Weibo and WeChat, and television
advertisements. Advertising costs are expensed as incurred or, where deferred, expensed the first time the advertising takes place. Advertising
expenses are included in selling expenses in the unaudited condensed consolidated statements of operations and comprehensive loss. Advertising
expenses amounted to $
Segment Reporting
In accordance with ASC 280, Segment Reporting, operating segments are defined as components of an enterprise about which separate financial information is available that is evaluated regularly by the chief operating decision maker (“CODM”) in deciding how to allocate resources and in assessing performance. The Company utilizes the management approach to identify its reportable operating segments.
The management approach considers the internal organizational structure and reporting mechanisms employed by the Company’s CODM for operational decision-making and performance evaluation. The Company’s chief executive officer has been designated as the CODM, who reviews and evaluates the consolidated results of operations to determine resource allocation and assess the Company’s overall performance.
Based on this assessment, the Company has concluded that it operates as a reportable operating segment. For management purposes, the Company operates in one business unit based on the products sold, and its sole operating segment is pharmaceutical manufacturing and selling. The CODM monitors the revenue, results of operations, assets and liabilities of its business unit as a whole and regularly reviews its operating results to make decisions about resource allocation. Accordingly, no analysis of segment information other than entity-wide information is presented.
The Company’s long-lived assets are all located in the PRC and substantially all of the monitoring and control activities of its operations are conducted in the PRC. Accordingly, no geographic information is presented.
The significant segment expenses are consistent with those reported in the unaudited condensed consolidated statements of operations and comprehensive loss, including cost of revenue, selling expenses, general and administrative expenses, and research and development expenses. For the significant segment expenses incurred during the six months ended March 31, 2026 and 2025, refer to the unaudited condensed consolidated statements of operations and comprehensive loss.
F-14
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 that includes 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 upon examination by the relevant tax authority. 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. significant income was generated outside the PRC for the six months ended March 31, 2026 and 2025. As of March 31, 2026 and September 30, 2025, all tax returns of the Company’s PRC subsidiaries remained open for statutory examination by the PRC tax authorities.
Value Added Tax (“VAT”)
Sales revenue represents the invoiced value of
goods, net of VAT. The VAT is based on the 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 ordinary shares outstanding for the period. Diluted EPS presents the dilutive effect on a per-share basis of potential ordinary 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 ordinary 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, 2026 and 2025, there were dilutive shares.
Foreign Currency Translation
The functional currency for Universe INC is the U.S. Dollar (“US$”). Universe HK uses the Hong Kong dollar as its functional currency. However, Universe INC and Universe HK currently serve solely as holding companies and had no active operations as of the date of this report. The Company operates only in the PRC and the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s unaudited condensed consolidated financial statements have been translated into the reporting currency US$.
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 in other comprehensive income. Gains and losses resulting from the translation of foreign currency transactions and balances are reflected in the results of operations.
F-15
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.
The following table sets forth the currency exchange rates used in preparing the unaudited condensed consolidated financial statements in this report:
| March 31, 2026 | March 31, 2025 | September 30, 2025 | ||||||||||
| Period-end US$: RMB exchange rate | ||||||||||||
| Period-end US$: HK exchange rate | ||||||||||||
| Period average US$: RMB exchange rate | ||||||||||||
| Period average US$: HK exchange 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 operations and comprehensive loss.
Statement of Cash Flows
In accordance with ASC 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based on 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.
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 benefits, and housing fund are provided to eligible full-time employees. The relevant labor regulations
require the Company’s PRC subsidiaries 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 recognized as expense in the accompanying unaudited condensed consolidated statements of operations and
comprehensive loss amounted to $
Recently Issued Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued. Under the Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”), the Company meets the definition of an emerging growth company, or EGC, and has elected the extended transition period for complying with new or revised accounting standards, which delays the adoption of these accounting standards until they would apply to private companies.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses. The amended guidance improves the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses (including purchases of inventory, employee compensation, depreciation, amortization, and depletion) in commonly presented expense captions (such as cost of sales, SG&A, and research and development). The amended guidance is effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. The requirements will be applied prospectively with the option for retrospective application. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to its consolidated financial statements.
F-16
In January 2025, the FASB issued ASU 2025-01, Income Statement—Reporting Comprehensive Income—Expense Disaggregation Disclosures (Subtopic 220-40): Clarifying the Effective Date. This guidance amends the effective date of Update 2024-03 to clarify that all public business entities are required to adopt the guidance in annual reporting periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption of Update 2024-03 is permitted. The Company is currently in the process of evaluating the impact this amended guidance may have on the footnotes to its consolidated financial statements.
In November 2025, the FASB issued ASU 2025-08, Financial Instruments—Credit Losses (Topic 326): Purchased Loans. This update improves the decision usefulness of the financial reporting for acquired financial assets. The amendments require that purchased seasoned loans be accounted for using the gross-up approach, which will enhance comparability and consistency in the accounting for acquired financial assets. The amendments in this Update are effective for all entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods. The Company is currently in the process of evaluating the impact this amended guidance may have on its consolidated financial statements.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. This update improves U.S. GAAP by establishing authoritative guidance on the accounting for government grants received by business entities. For public business entities, the amendments are effective for annual reporting periods beginning after December 15, 2028, and interim reporting periods within those annual reporting periods. The Company is currently in the process of evaluating the impact this amended guidance may have on its consolidated financial statements.
In May 2026, the FASB issued ASU 2026-2, Environmental Credits and Environmental Credit Obligations (Topic 818). This Update provides recognition, measurement, presentation, and disclosure requirements for all entities that generate, purchase, or receive environmental credits or have a regulatory compliance obligation that may be settled with environmental credits. For public business entities, the amendments in this Update are effective for annual reporting periods beginning after December 15, 2027, and interim reporting periods within those annual reporting periods. The Company is currently in the process of evaluating the impact this amended guidance may have on its consolidated financial statements.
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 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 consolidated financial condition, results of operations, cash flows or disclosures.
NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | $ | $ | ||||||
| Less: allowance for credit loss | ( | ) | ( | ) | ||||
| Accounts receivable, net | $ | $ | ||||||
The Company’s accounts receivable primarily
include the balance due from customers when the Company’s pharmaceutical products are sold and delivered to customers. As of the
date of this report, approximately
F-17
Allowance for credit loss movement is as follows:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Reversal of allowance for credit loss | ( | ) | ||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 4 — INVENTORIES, NET
Inventories consist of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Raw materials | $ | $ | ||||||
| Finished goods | ||||||||
| Inventories valuation allowance | ( | ) | ( | ) | ||||
| Total inventories, net | $ | $ | ||||||
Inventories valuation allowance movement is as follows:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
NOTE 5 — ADVANCE TO SUPPLIERS
Advances to suppliers consist of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Advances to suppliers for purchase of goods | $ | $ | ||||||
| Advances to suppliers | $ | $ | ||||||
Advances to suppliers represent prepayments made to suppliers to ensure continuous high-quality supplies and favorable purchase prices of raw materials.
F-18
NOTE 6 — OTHER RECEIVABLE
Other receivable consists of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Deposit for acquisition company (1) | $ | $ | ||||||
| Prepaid value added tax | ||||||||
| Prepayment for advertising | ||||||||
| Prepayment for property, plant and equipment | ||||||||
| Prepayment for research and development | ||||||||
| Others | ||||||||
| Total other receivable | $ | $ | ||||||
| (1) |
NOTE 7 — SHORT-TERM INVSTMENTS
The Company’s short-term investments consist
of bonds purchased from Hongkong and Shanghai Banking Corporation Limited (“HSBC”) with a term of three months and a maturity
date of
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Add: purchase bond from HSBC | ||||||||
| Ending balance | $ | $ | ||||||
NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consists of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Buildings | $ | $ | ||||||
| Machinery and equipment | ||||||||
| Automobiles | ||||||||
| Office and electric equipment | ||||||||
| Construction-in-progress | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Construction-in-progress consisted of design fee
for the construction project, which amounted to $
F-19
NOTE 9 — INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| Land use rights | $ | $ | ||||||
| Trademark | ||||||||
| Software | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense was $
Estimated future amortization expense for intangible assets is as follows:
| Twelve months ending March 31, | Amortization expense |
|||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | ||||
| 2031 | ||||
| Thereafter | ||||
| $ | ||||
NOTE 10 — PREPAYMENT FOR CONSTRUCTION IN PROGRESS
On June 25, 2021, the Company entered into a construction
contract with a sub-contractor, Jiangxi Chenyuan Construction Project Co., Ltd. (“Chenyuan”), pursuant to which, Chenyuan
was engaged to construct four manufacturing factory buildings and an office building for the Company with a contract sum of RMB
At beginning of the year ended December 31, 2024, due to resurgence of the COVID-19 pandemic, which resulted in lingering logistic disruption, material and labor shortage, and domestic travel restriction, the Company re-estimated that the completion date would be postponed to December 2024. However, during the year 2024, new information was discovered about the topographical and surface structures of the land, which required Chenyuan to re-conduct the geological survey. As a result, the construction progress was further delayed that cause the re-estimated completion date of December 2024 was not met.
In April 2025, Ministry of Emergency Management
of PRC issued Specification for safety management of fine chemical enterprises, pursuant to which, enterprises should not set up employee
dormitories within the factory premises. Because of this new regulation. the Company had to redesign the project, and the expected completion
date of this construction project is further delayed to June 30, 2028. As of March 31, 2026, the Company had made a prepayment of approximately
RMB
F-20
During the year ended September 30, 2022, $
As of March 31, 2026, future additional capital
expenditures on the CIP project are estimated to be approximately RMB
As of March 31, 2026, future minimum capital expenditures on the Company’s CIP project are estimated as follows:
| Twelve months ending March 31, | Capital Expenditure on CIP |
|||
| 2027 | $ | |||
| 2028 | ||||
| 2029 | ||||
| 2030 | |
|||
| Total | $ | |||
NOTE 11 — PREPAYMENT FOR PURCHASE OF A PROPERTY
On May 6, 2021, the Company
entered into a real estate property purchase agreement with a third party, Jiangxi Yueshang Investment Co., Ltd. (“Jiangxi Yueshang”),
pursuant to which the Company agreed to purchase a certain residential apartment and commercial office space totaling
As of March 31, 2026,
the Company had made a prepayment of RMB
NOTE 12 — SHORT-TERM BANK LOANS
Short-term bank loans consist of the following:
| As of | ||||||||||
| Note | March 31, 2026 |
September 30, 2025 |
||||||||
| (Unaudited) | ||||||||||
| Short-term bank loans: | ||||||||||
| Jiangxi Luling Rural Commercial Bank (“LRC Bank”) | (1) | $ | |
$ | ||||||
| Bank of Communications Co., Ltd | (2) | |||||||||
| Zhujiang Rural Bank | (3) | |
||||||||
| Beijing Bank | (4) | |||||||||
| Huaxia Bank | (5) | |
||||||||
| Postal Savings Bank of China | (6) | |
||||||||
| Total short-term loans | $ | $ | ||||||||
F-21
| (1) | On March 3, 2025, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB
On April 22, 2025, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB
On May 16, 2025, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB
On February 28, 2026, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB |
| (2) |
| (3) |
| (4) |
| (5) |
| (6) |
F-22
NOTE 13 — LONG-TERM BANK LOANS
Long-term bank loans consist of the following:
| As of | ||||||||||
| Note | March 31, 2026 |
September 30, 2025 |
||||||||
| (Unaudited) | ||||||||||
| Long-term bank loans: | ||||||||||
| LRC Bank | (1) | $ | $ | |||||||
| Less: current portion of long-term bank loans | ( |
) | ||||||||
| Non-current portion of long-term bank loans | $ | $ | ||||||||
| (1) | On November 23, 2023, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB |
| On November 4, 2025, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB |
For the above-mentioned loans, the Company recorded
a total interest expense of $
NOTE 14 — RELATED PARTY TRANSACTIONS
(a) Nature of relationships with related parties
| Name | Relationship with the Company | |
| Mr. Gang Lai | ||
| Ms. Lin Yang |
(b) Due to related parties
| As of | ||||||||
| Name | March 31, 2026 | September 30, 2025 | ||||||
| (Unaudited) | ||||||||
| Mr. Gang Lai | $ | $ | ||||||
| Ms. Lin Yang | ||||||||
| Total due to related parties | $ | $ | ||||||
As of March 31, 2026, the balance due to related parties mainly consisted of advances from Mr. Gang Lai, the Company’s chief executive officer and the chairman of the board of directors for working capital purposes during the Company’s normal course of business, as well as payment of expenses made by Ms. Lin Yang on behalf of the Company. These advances are unsecured, non-interest bearing and due on demand.
F-23
(c) Loan guarantee provided by related parties
In connection with the Company’s bank borrowings from commercial banks in China, Mr. Gang Lai and Ms. Lin Yang signed guarantee agreements with these banks to provide credit guarantee for the Company’s certain loans (see Note 12 and 13).
NOTE 15 — 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 effect the remittance. Each bank account is insured by the PRC government
authority up to a maximum limit of RMB
The Company’s operations are carried out in China. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic, and legal environments in the PRC, as well as by the general state of the PRC’s economy. In addition, the Company’s business may be influenced by changes in governmental policies with respect to laws and regulations, anti-inflationary measures, currency conversion and remittance abroad, and rates and methods of taxation, among other factors.
As of March 31, 2026 and September 30, 2025, $
For the six months ended March 31, 2026 and 2025,
single customer accounted for more than 10% of the Company’s total revenue. The Company’s top 10 customers accounted in
the aggregate for
Sales of one of the Company’s major products,
Guben Yanling Pill, accounted for
As of March 31, 2026 and September 30, 2025, customer accounted for more than 10% of the total accounts receivable balance.
For the six months ended March 31, 2026 and 2025,
one supplier accounted for
As of March 31, 2026 and September 30, 2025, supplier accounted for more than 10% of the total accounts payable balance.
NOTE 16 — 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
F-24
Increased authorized share capital and share consolidation
On July 3, 2023, the Company held an annual general meeting of shareholders at which shareholders, among other things, resolved:
| (a) | with immediate effect, to increase the Company’s authorized share capital from US$ |
| (b) | that, conditional upon the approval of the board of directors of the Company in its sole discretion, with effect as of the date the board of directors of the Company may determine, the authorized, issued and outstanding shares of the Company be consolidated by consolidating each |
| (c) | that, upon the effectiveness of the 2023 Share Consolidation, the Company adopt amended and restated articles of association, in substantially the form set out in Annex B in the proxy statement dated May 24, 2023, in substitution for and to the exclusion of, the memorandum of association of the Company in effect immediately prior to effectiveness of the 2023 Share Consolidation. |
The board of directors of the Company resolved
to effect the 2023 Share Consolidation on July 27, 2023 with the authorized, issued and outstanding shares to be consolidated on a six
(6) for one (1) ratio, which had the effect of reducing the number of: (a) authorized ordinary shares from
On July 15, 2024, the Company closed its self-underwritten
public offering of
On September 27, 2024, the Company held an annual general meeting of shareholders at which shareholders, among other things, resolved:
| (a) | with immediate effect, to increase the Company’s authorized share capital from US$ |
| (b) | that, subject to and immediately following the Authorized Share Capital Increase being effected, the Company adopt an amended and restated memorandum of association in substitution for, and to the exclusion of, the Company’s existing memorandum of association, to reflect the Authorized Share Capital Increase; and |
| (c) | that, conditional upon the approval of the board of directors of the Company in its sole discretion, with effect as of the date the board of directors of the Company may determine, the authorized, issued, and outstanding shares of the Company be consolidated by consolidating each |
F-25
On November 12, 2024, the Company effected a share
consolidation of
On March 24, 2025, the Company effected a share
consolidation of
On September 3, 2025, the Company held an annual general meeting of shareholders at which shareholders, resolved as a special resolution that, subject to and conditional upon, amongst other things: (i) approval from the Grand Court of the Cayman Islands (the “Court”) of the Capital Reduction (as defined below); (ii) registration by the Registrar of Companies of the Cayman Islands of the order of the Court confirming the Capital Reduction and the minute approved by the Court containing the particulars required under the Companies Act (Revised) (the “Act”) in respect of the Capital Reduction and compliance with any conditions the Court may impose; (iii) compliance with the relevant procedures and requirements under the applicable laws of the Cayman Islands to effect the Capital Reduction; and (iv) obtaining of all necessary approvals from the regulatory authorities or otherwise as may be required in respect of the Capital Reduction, with effect from the date on which these conditions are fulfilled:
| a) | the par value of each issued Ordinary Share of par value US$ |
| b) | the credit arising from the Capital Reduction be transferred to a distributable reserve account of the Company which may be utilized by the Company as the board of directors of the Company may deem fit and as permitted under the Act, the amended and restated memorandum of association adopted by special resolution passed on 1 March 2025 and unanimous written director resolutions passed on 20 February 2025 and made effective on 17 March 2025 (the “Existing Memorandum”), the second amended and restated articles of association of the Company adopted by special resolution passed on 23 September 2022 (the “Existing Articles”), and all relevant applicable laws, including, without limitation, eliminating or setting off any accumulated losses of the Company (if any) from time to time; |
| c) | immediately following the Capital Reduction, pursuant to section 13 of the Act and article 8.1(d) of the Existing Articles, each of the authorized but unissued Ordinary Shares of par value US$ |
| d) | immediately following the Capital Reduction and the Sub-division, the authorized share capital of the Company be altered by the cancellation of: (i) the |
from US$
to US$
(the “Capital Alteration”);
F-26
| e) | immediately following the Capital Alteration: |
| a. | the authorized and issued share capital of the Company be divided into two separate classes as follows: |
| i. | US$ |
| ii. | US$ |
it being noted that the terms of, and
rights attaching to the New Share Classes will be materially identical to the existing ordinary shares of par value US$
| b. | the issued shares in the Company outstanding following the Capital Alteration be re-designated, as follows: |
| i. | the |
| ii. | the |
| iii. | the |
| iv. | the |
| v. | the |
(steps (a) to (e) (inclusive) above shall be collectively referred to as the “Capital Reorganization”),
| f) | any one or more of the directors of the Company be and is/are hereby authorized to do all such acts and things and execute all such documents, which are in connection with and/or ancillary to the Capital Reorganization and any of the foregoing steps and of administrative nature, on behalf of the Company, including under seal where applicable, as they consider necessary, desirable or expedient to give effect to the foregoing arrangements for the Capital Reorganization and (where applicable) to aggregate all fractional Class A Ordinary Shares and/or Class B Ordinary Shares and sell them for the benefit of the Company.” |
On February 13, 2026, the dual-class share structure
became effective on the Nasdaq Capital Market, and the Company’s authorized share capital was changed to US$
As of March 31, 2026,
the Company had a total of
F-27
Underwriter warrants
In connection with the Company’s initial
public offering (the “IPO”), the Company agreed to issue warrants to the underwriter, for a nominal consideration of $
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, 2026 and September 30, 2025, the restricted amounts
as determined pursuant to PRC statutory laws totaled $
NOTE 17 — COMMITMENTS AND CONTINGENCIES
From time to time, the Company may become 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, 2026 and 2025, 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, 2026, future minimum capital expenditures on the Company’s
CIP project amounted to approximately $
On May 6, 2021, the Company entered into a real
estate property purchase agreement with Jiangxi Yueshang, pursuant to which Jiangxi Yueshang agreed to sell, and the Company agreed to
purchase, certain residential apartments and commercial office space totaling
F-28
NOTE 18 — SUBSEQUENT EVENTS
On April 14, 2026, the
Company adopted its 2026 Equity Incentive Plan (the “2026 Equity Incentive Plan”), which provides for the grant of various
equity-based awards with respect to a maximum number of
On May 5, 2026, the compensation
committee of the Company’s Board of Directors (the “Board”) and the Board, as administrator of the 2026 Equity Incentive
Plan, approved the grant of an aggregate of
On June 17, 2026, the
Company entered into a Share Purchase Agreement (the “SPA”) with Ms. Lu Shanshan (“Ms. Lu”), pursuant to which
the Company agreed to acquire
NOTE 19 — 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 financial information of the parent company shall be filed when the restricted net assets
of consolidated subsidiaries exceed
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 financial information of the parent company has been prepared using the same accounting policies as set out in the Company’s unaudited condensed 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 balance sheets as “Investment in subsidiaries” and the respective profit or loss as “Equity in earnings of subsidiaries” on the unaudited condensed ‘consolidated statements of operations and comprehensive loss.
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 unaudited condensed financial statements prepared in accordance with U.S GAAP have been or omitted.
As of March 31, 2026 and September 30, 2025, 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.
F-29
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY BALANCE SHEETS
| As of | ||||||||
| March 31, 2026 | September 30, 2025 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Other receivable | - | |||||||
| Due from related parties | ||||||||
| Due from subsidiaries | ||||||||
| Total current assets | ||||||||
| Non-current asset | ||||||||
| Investment in subsidiaries | $ | $ | ||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive loss | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
| * |
F-30
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Operating costs and expenses: | ||||||||
| General and administrative expenses | $ | ( | ) | $ | ( | ) | ||
| Other income (expenses): | ||||||||
| Interest income | ||||||||
| Other expenses | ( | ) | ( | ) | ||||
| Equity in loss of subsidiaries | ( | ) | ( | ) | ||||
| Net loss | ( | ) | ( | ) | ||||
| Foreign currency translation adjustments | ( | ) | ||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | ||
F-31
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net cash flows from operating activities: | ||||||||
| Equity in earnings of subsidiary | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Other receivable | ( | ) | ||||||
| Due from related parties | ||||||||
| Due to related parties | ||||||||
| Other payable | ||||||||
| Accrued expense | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Investment in subsidiaries | ( | ) | ||||||
| Net cash used in investing activities | ( | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Net proceeds from issuance of ordinary shares | ||||||||
| Cash repayment from subsidiaries | ( | ) | ( | ) | ||||
| Net cash (used in) provided by financing activities | ( | ) | ||||||
| EFFECT OF CHANGES OF FOREIGN EXCHANGE RATES ON CASH | ( | ) | ( | ) | ||||
| CHANGES IN CASH | ( | ) | ||||||
| CASH, beginning of period | ||||||||
| CASH, end of period | $ | $ | ||||||
F-32
Exhibit 99.2
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements and related notes that appear elsewhere in the report on Form 6-K of which this document is a part. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates, and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to these differences include those discussed below and elsewhere in our annual report on Form 20-F for the fiscal year ended September 30, 2025, particularly under the caption “Item 3. Key Information—D. Risk Factors.”
Overview
Universe Pharmaceuticals INC (the “Company,” “we,” “our,” or “us”), through its PRC subsidiaries in China, is a pharmaceutical company specializing in the development, manufacturing, marketing, and sale of traditional Chinese medicine derivative (“TCMD”) products targeted to the elderly to address their physical conditions in the aging process and to promote their general well-being. We have registered and obtained approval for 26 varieties of TCMD products from the National Medical Products Administration (the “NMPA”), and we currently produce 13 varieties of TCMD products and sell them in 261 cities across 30 provinces in China as of the date of this report. In addition, we sell biomedical drugs, medical instruments, traditional Chinese medicine preparations (“TCMPs”), and dietary supplements manufactured by third-party pharmaceutical companies (collectively referred to as “third-party products”).
Our major customers are pharmaceutical companies, hospitals, clinics, and drugstore chains, primarily located in Jiangxi Province, Jiangsu Province, Guangdong Province, Hubei Province, Fujian Province, Guangxi Province, and Shandong Province, as well as 23 other provinces in China.
Key Financial Performance Indicators
In assessing our financial performance, we consider a variety of financial measures, including growth in net revenue and gross profit, as well as our ability to control costs and operating expenses in order to improve our operating efficiency and net income. Our review of these indicators facilitates timely evaluation of the performance of our business and effective communication of results and key decisions, enabling our business to respond promptly to competitive market conditions and to the evolving demands and preferences of our customers. The key measures that we use to evaluate the performance of our business are set forth below.
Net Revenue
Our revenue is reported net of all value-added taxes (“VAT”). Our products are sold with no right of return, and we do not provide credits or sales incentives to customers. Our revenue is driven by sales volume, selling price, and the mix of products sold.
| For the Six Months Ended March 31, | Variance | |||||||||||
| 2026 | 2025 | % | ||||||||||
| Revenue from sales of self-manufactured TCMD products | 64.8 | % | 76.2 | % | (11.5 | )% | ||||||
| Revenue from sales of third-party products | 35.2 | % | 23.8 | % | 11.5 | % | ||||||
| Total revenue | 100.0 | % | 100.0 | % | ||||||||
| Sales volume by unit- TCMD products | 4,462,825 | 6,050,384 | (26.2 | )% | ||||||||
| Sales volume by unit- third party products | 2,162,920 | 2,676,396 | (19.2 | )% | ||||||||
| Total sales volume | 6,625,745 | 8,726,780 | (24.1 | )% | ||||||||
| Average selling price per unit- TCMD products | $ | 1.31 | $ | 1.15 | 13.9 | % | ||||||
| Average selling price per unit- Third-party products | $ | 1.47 | $ | 0.81 | 81.5 | % | ||||||
Revenues from sales of TCMD products manufactured by us accounted for 64.8% and 76.2% of our total revenues for the six months ended March 31, 2026 and 2025, respectively. The 13 TCMD products manufactured by us fall into two categories: (i) treatments and relief for common chronic health conditions in the elderly, designed to achieve physical wellness and longevity (the “Chronic Condition Treatments”), and (ii) cold and flu medications. Our Chronic Condition Treatments primarily include Guben Yanling Pill, Shenrong Weisheng Pill, Quanlu Pill, Yangxue Danggui Syrup, Wuzi Yanzong Oral Liquid, Fengtong Medicinal Liquor, Shenrong Medicinal Liquor, Qishe Medicinal Liquor, Fengshitong Medicinal Liquor, and Shiquan Dabu Medicinal Liquor, and our cold and flu medications primarily include Paracetamol Granule for Children, Isatis Root Granule, and Qiangli Pipa Syrup.
In order to diversify our product offerings and product mix, in addition to selling our self-manufactured TCMD products, we also sell products manufactured by third-party pharmaceutical companies, including (i) biomedical drugs, such as liquid glucose, prednisolone, and citicoline, (ii) medical instruments, such as drug-eluting stents, surgical tubes, and syringes, (iii) TCMPs, such as red sage tablets, Longdan Xiegan pills, and Chinese skullcap capsules, and (iv) dietary supplements, such as vitamins, probiotic powder, and calcium tablets. Revenues from sales of third-party products accounted for 35.2% and 23.8% of our total revenues for the six months ended March 31, 2026 and 2025, respectively.
Gross Profit
Gross profit is equal to net revenue minus cost of goods sold. Cost of goods sold primarily includes inventory costs (raw materials, labor, packaging costs, depreciation and amortization, third-party product purchase price, freight costs, and overhead). Cost of goods sold generally changes in line with our production costs, which are affected by factors including the market price of raw materials, labor productivity, and the purchase price of third-party products, as well as changes in customer and product mix. Our cost of revenues accounted for 63.0% and 65.4% of our total revenue for the six months ended March 31, 2026 and 2025, respectively. We expect our cost of revenues to increase as we further expand our operations in the foreseeable future.
Our gross margin was 37.0% for the six months ended March 31, 2026, an increase of 2.4 percentage points from the gross margin of 34.6% for the six months ended March 31, 2025, due to increases in the average selling price of our TCMD products and third-party products of 13.9% and 81.5%, respectively.
Operating Expenses
Our operating expenses consist of selling expenses, general and administrative expenses and research and development expenses.
Our selling expenses primarily include salary and welfare benefit expenses paid to our sales personnel, advertising expenses to increase the awareness of our brand, shipping and delivery expenses, and expenses incurred for business travel, meals, and other sales promotion and marketing activities. Our selling expenses accounted for 36.4% and 24.9% of our total revenue for the six months ended March 31, 2026 and 2025, respectively. We expect our overall selling expenses, including, but not limited to, advertising expenses, brand promotion expenses, and salaries, to increase in the foreseeable future as we continue to expand our business and promote our products to customers across expanded geographic areas.
Our general and administrative expenses primarily consist of employee salaries, welfare and insurance expenses, depreciation, bad debt reserve expenses, inspection and maintenance expenses, office supply and utility expenses, business travel and meals expenses, land and property taxes and professional service expenses. General and administrative expenses accounted for 16.2% and 34.1% of our revenue for the six months ended March 31, 2026 and 2025, respectively. We expect our general and administrative expenses, including, but not limited to, salaries and business consulting expenses, to increase in the foreseeable future, as we plan to hire additional personnel and incur additional expenses in connection with the expansion of our business operations.
2
The Chinese patent medicine industry is characterized by rapid and frequent changes in customer demand and the launch of new products. If we do not launch new products or improve our existing products to meet the changing demands of our customers in a timely manner, some of our products could become uncompetitive in the market, thereby adversely affecting our revenues and operating results. Our research and development expenses primarily consist of salaries, welfare and insurance expenses paid to our employees involved in research and development activities, materials and supplies used in the development and testing of new TCMD products, depreciation, and other miscellaneous expenses. Research and development expenses accounted for 1.0% and 1.1% of our revenue for the six months ended March 31, 2026 and 2025, respectively. As we continue to develop new products and diversify our product offerings to satisfy customer demand, we expect our research and development expenses to increase in the foreseeable future.
Financial Results for the Six Months Ended March 31, 2026 Compared to the Six Months Ended March 31, 2025
The following table summarizes the results of our operations for the six months ended March 31, 2026 and 2025, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Six Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| REVENUE | $ | 9,036,190 | 100.0 | % | $ | 9,152,915 | 100.0 | % | $ | (116,725 | ) | (1.3 | )% | |||||||||||
| COST OF REVENUE | 5,693,679 | 63.0 | % | 5,988,385 | 65.4 | % | (294,706 | ) | (4.9 | )% | ||||||||||||||
| GROSS PROFIT | 3,342,511 | 37.0 | % | 3,164,530 | 34.6 | % | 177,981 | 5.6 | % | |||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Selling expenses | 3,285,367 | 36.4 | % | 2,276,728 | 24.9 | % | 1,008,639 | 44.3 | % | |||||||||||||||
| General and administrative expenses | 1,463,798 | 16.2 | % | 3,117,727 | 34.1 | % | (1,653,929 | ) | (53.0 | )% | ||||||||||||||
| Research and development expenses | 93,478 | 1.0 | % | 96,836 | 1.1 | % | (3,358 | ) | (3.5 | )% | ||||||||||||||
| Total operating expenses | 4,842,643 | 53.6 | % | 5,491,291 | 60.0 | % | (648,648 | ) | (11.8 | )% | ||||||||||||||
| LOSS FROM OPERATIONS | (1,500,132 | ) | (16.6 | )% | (2,326,761 | ) | (25.4 | )% | 826,629 | (35.5 | )% | |||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||
| Interest expense, net | (126,157 | ) | (1.4 | )% | (128,745 | ) | (1.4 | )% | 2,588 | (2.0 | )% | |||||||||||||
| Other income, net | 71,476 | 0.8 | % | (829,249 | ) | (9.1 | )% | 900,725 | (108.6 | )% | ||||||||||||||
| Total other loss, net | (54,681 | ) | (0.6 | )% | (957,994 | ) | (10.5 | )% | 903,313 | (94.3 | )% | |||||||||||||
| INCOME TAX | (1,554,813 | ) | (17.2 | )% | (3,284,755 | ) | (35.9 | )% | 1,729,942 | (52.7 | )% | |||||||||||||
| PROVISION FOR INCOME TAXES | - | - | % | - | - | % | - | - | % | |||||||||||||||
| NET LOSS | $ | (1,554,813 | ) | (17.2 | )% | $ | (3,284,755 | ) | (35.9 | )% | 1,729,942 | (52.7 | )% | |||||||||||
Revenues. We currently produce and sell 13 varieties of TCMD products and also sell products manufactured by third-party pharmaceutical companies, to our customers.
| For the Six Months Ended March 31, | ||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Revenue - TCMD products sales | $ | 5,850,980 | $ | 6,978,932 | $ | (1,127,952 | ) | (16.2 | )% | |||||||
| Revenue – third-party products sales | 3,185,210 | 2,173,983 | 1,011,227 | 46.5 | % | |||||||||||
| Total revenue | $ | 9,036,190 | $ | 9,152,915 | $ | (116,725 | ) | (1.3 | )% | |||||||
Our revenues decreased by $116,725, or 1.3%, to $9,036,190 for the six months ended March 31, 2026, from $9,152,915 for the six months ended March 31, 2025.
3
Revenue from sales of our TCMD products
Sales of TCMD products decreased by $1,127,952, or 16.2%, to $5,850,980 for the six months ended March 31, 2026, from $6,978,932 for the six months ended March 31, 2025. The decrease in sales of our TCMD products was attributable to the following reasons:
| a) | The nationwide centralized drug procurement policy implemented in China led to a significant decrease in the prices of certain essential medicines and intensified competitive differentiation within the industry, making it increasingly difficult for small and medium-sized enterprises to compete with leading enterprises. As a result, our sales volume of TCMD products decreased by 1,587,559 units, or 26.2%, to 4,462,825 units sold in the six months ended March 31, 2026, from 6,050,384 units sold in the six months ended March 31, 2025. |
| b) | The average selling price of our TCMD products increased by $0.16 per unit, or 13.9%, to $1.31 per unit in the six months ended March 31, 2026, from $1.15 per unit in the six months ended March 31, 2025, due to a change in product mix. |
| c) | The exchange rate between RMB and US$ was US$1.00 to RMB7.2308 in the six months ended March 31, 2025 as compared to US$1.00 to RMB7.0061 in the six months ended March 31, 2026. The appreciation of RMB against US$ had a 3.1% positive impact on our reported revenues. |
Revenue from sales of third-party products
Sales of third-party products increased by $1,011,227, or 46.5%, to $3,185,210 for the six months ended March 31, 2026, from $2,173,983 for the six months ended March 31, 2025. Sales volume of third-party products decreased by 19.2%, to 2,162,920 units sold in the six months ended March 31, 2026, from 2,676,396 units sold in the six months ended March 31, 2025. The average selling price of third-party products increased by $0.66 per unit, or 81.5%, to $1.47 per unit in the six months ended March 31, 2026, from $0.81 per unit in the six months ended March 31, 2025, attributable to our new sales strategy of focusing on the promotion of Traditional Chinese Medicine Pieces with higher average selling prices and gross profit margins in order to improve our overall profitability.
Cost of Revenues. Our cost of revenues primarily consists of inventory costs (including raw materials, labor, packaging costs, depreciation and amortization, third-party product purchase prices, freight costs, and overhead) and business tax. Cost of revenues generally changes as our production costs change, which are affected by factors such as the market price of raw materials, labor productivity, and the purchase price of third-party products, as well as changes in customer and product mix.
| For the Six Months Ended March 31, | ||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Cost of revenue- TCMD products | $ | 3,773,396 | $ | 4,640,381 | $ | (866,985 | ) | (18.7 | )% | |||||||
| Cost of revenue- third-party products | 1,920,283 | 1,348,004 | 572,279 | 42.5 | % | |||||||||||
| Total cost of revenue | $ | 5,693,679 | $ | 5,988,385 | $ | (294,706 | ) | (4.9 | )% | |||||||
Cost of revenues decreased by $294,706, or 4.9%, to $5,693,679 for the six months ended March 31, 2026, from $5,988,385 for the six months ended March 31, 2025, due to a decrease in sales volume.
4
Cost of revenues of TCMD products
Cost of revenues of TCMD products accounted for 66.3% and 77.5% of our total cost of revenues for the six months ended March 31, 2026 and 2025, respectively. Cost of revenues of TCMD products decreased by $866,985, or 18.7%, from $4,640,381 in the six months ended March 31, 2025 to $3,773,396 in the six months ended March 31, 2026. The decrease in cost of revenues of our TCMD products was due to the following reasons:
| (1) | Sales volume of our TCMD products decreased by 26.2%, to 4,462,825 units sold in the six months ended March 31, 2026, from 6,050,384 units sold in the six months ended March 31, 2025. |
| (2) | The average per unit cost of our TCMD products increased by $0.08, or 10.4%, from $0.77 per unit in the six months ended March 31, 2025 to $0.85 per unit in the six months ended March 31, 2026, due to a change in product mix. |
| (3) | The 3.1% positive impact from foreign currency fluctuation as discussed above. |
Cost of revenues of third-party products
Cost of revenues of third-party products accounted for 33.7% and 22.5% of our total cost of revenues for the six months ended March 31, 2026 and 2025, respectively. Cost of revenues of third-party products increased by $572,279, or 42.5%, from $1,348,004 in the six months ended March 31, 2025 to $1,920,283 in the six months ended March 31, 2026. The increase was primarily attributable to an increase in the average per unit cost of third-party products by $0.39 per unit, or 78.0%, from $0.50 per unit in the six months ended March 31, 2025 to $0.89 per unit in the six months ended March 31, 2026, consistent with the increase in average selling price as a result of our new sales strategy as discussed above. Sales volume of our third-party products decreased by 19.2%, from 2,676,396 units sold in the six months ended March 31, 2025 to 2,162,920 units sold in the six months ended March 31, 2026.
Gross profit
Our gross profit increased by $177,981, or 5.6%, to $3,342,511 for the six months ended March 31, 2026, from $3,164,530 for the six months ended March 31, 2025. Our gross margin increased by 2.4 percentage points to 37.0% for the six months ended March 31, 2026, from 34.6% for the six months ended March 31, 2025.
| For the Six Months Ended March 31, | ||||||||||||||||
| 2026 | 2025 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Gross profit- TCMD products | $ | 2,077,584 | $ | 2,338,551 | $ | (260,967 | ) | (11.2 | )% | |||||||
| Gross profit- third-party products | 1,264,927 | 825,979 | 438,948 | 53.1 | % | |||||||||||
| Total gross profit | $ | 3,342,511 | $ | 3,164,530 | $ | 177,981 | 5.6 | % | ||||||||
| Gross margin- TCMD products | 35.5 | % | 33.5 | % | 2.0 | % | ||||||||||
| Gross margin- third party products | 39.7 | % | 38.0 | % | 1.7 | % | ||||||||||
| Total gross margin | 37.0 | % | 34.6 | % | 2.4 | % | ||||||||||
| Average selling price per unit- TCMD products | $ | 1.31 | $ | 1.15 | $ | 0.16 | 13.9 | % | ||||||||
| Average cost per unit- TCMD products | $ | 0.85 | $ | 0.77 | $ | 0.08 | 10.4 | % | ||||||||
| Average selling price per unit- third party products | $ | 1.47 | $ | 0.81 | $ | 0.66 | 81.5 | % | ||||||||
| Average cost per unit - third party products | $ | 0.89 | $ | 0.50 | $ | 0.39 | 78.0 | % | ||||||||
Gross profit from the sales of our TCMD products decreased by $260,967, or 11.2%, from $2,338,551 in the six months ended March 31, 2025 to $2,077,584 in the six months ended March 31, 2026, and the gross margin of our TCMD products increased by 2.0 percentage points, from 33.5% in the six months ended March 31, 2025 to 35.5% in the six months ended March 31, 2026. The decrease in our gross profit from the sales of TCMD products was primarily attributable to the decrease in sales volume.
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Gross profit from third-party product sales increased by $438,948, or 53.1%, from $825,979 in the six months ended March 31, 2025 to $1,264,927 in the six months ended March 31, 2026, while the gross margin of third-party product sales increased by 1.7 percentage points, from 38.0% in the six months ended March 31, 2025 to 39.7% in the six months ended March 31, 2026. The increase in our gross profit from third-party products was primarily driven by the increase in average unit selling price, partially offset by the decrease in sales volume and the increase in average per unit cost.
Operating expenses
The following table sets forth the breakdown of our operating expenses for the six months ended March 31, 2026 and 2025:
| For the Six Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % of revenue | Amount | % of revenue | Amount | % | |||||||||||||||||||
| Total revenue | $ | 9,036,190 | 100.0 | % | $ | 9,152,915 | 100.0 | % | $ | (116,725 | ) | (1.3 | )% | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 3,285,367 | 36.4 | % | 2,276,728 | 24.9 | % | 1,008,639 | 44.3 | % | |||||||||||||||
| General and administrative expenses | 1,463,798 | 16.2 | % | 3,117,727 | 34.1 | % | (1,653,929 | ) | (53.0 | )% | ||||||||||||||
| Research and development expenses | 93,478 | 1.0 | % | 96,836 | 1.1 | % | (3,358 | ) | (3.5 | )% | ||||||||||||||
| Total operating expenses | $ | 4,842,643 | 53.6 | % | $ | 5,491,291 | 60.0 | % | $ | (648,648 | ) | (11.8 | )% | |||||||||||
Selling expenses
Our selling expenses primarily consist of salaries and employee benefit expenses paid to our sales personnel, advertising expenses to increase our brand awareness, shipping and delivery expenses, business travel and meals expenses, and other sales promotion and marketing activities-related expenses.
| For the Six Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses | $ | 542,177 | 16.5 | % | $ | 481,136 | 21.1 | % | $ | 61,041 | 12.7 | % | ||||||||||||
| Advertising expenses | 1,912,566 | 58.2 | % | 1,248,783 | 54.8 | % | 663,783 | 53.2 | % | |||||||||||||||
| Shipping and delivery expenses | 476,681 | 14.5 | % | 389,133 | 17.1 | % | 87,548 | 22.5 | % | |||||||||||||||
| Business travel and meals expenses | 169,745 | 5.2 | % | 140,066 | 6.2 | % | 29,679 | 21.2 | % | |||||||||||||||
| Market research expenses | 170,709 | 5.2 | % | - | - | % | 170,709 | - | % | |||||||||||||||
| Other sales promotion related expenses | 13,489 | 0.4 | % | 17,610 | 0.8 | % | (4,121 | ) | (23.4 | )% | ||||||||||||||
| Total selling expenses | $ | 3,285,367 | 100.0 | % | $ | 2,276,728 | 100.0 | % | $ | 1,008,639 | 44.3 | % | ||||||||||||
Selling expenses increased by $1,008,639, or 44.3%, to $3,285,367 for the six months ended March 31, 2026, from $2,276,728 for the six months ended March 31, 2025, primarily attributable to increases in advertising expenses and market research expenses of $663,783 and $170,709, respectively. The Company renewed its advertising service agreement with Health Headline to promote its brand on Health Headline’s website and mobile application, which contributed to a significant increase in advertising expenses and market research expenses during the six months ended March 31, 2026.
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General and Administrative Expenses
Our general and administrative expenses primarily consist of employee salaries, welfare and insurance expenses, depreciation, bad debt provisions, inspection and maintenance expenses, office supply and utility expenses, business travel and meals expenses, land and property taxes, and professional service expenses.
| For the Six Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses | $ | 424,745 | 29.0 | % | $ | 454,706 | 14.6 | % | $ | (29,961 | ) | (6.6 | )% | |||||||||||
| Depreciation and amortization | 109,265 | 7.5 | % | 124,596 | 4.0 | % | (15,331 | ) | (12.3 | )% | ||||||||||||||
| Office supply and utility expense | 121,350 | 8.3 | % | 58,984 | 1.9 | % | 62,366 | 105.7 | % | |||||||||||||||
| Transportation, business travel and meals expense | 77,594 | 5.3 | % | 114,168 | 3.7 | % | (36,574 | ) | (32.0 | )% | ||||||||||||||
| Consulting fee | 715,449 | 48.9 | % | 2,300,041 | 73.8 | % | (1,584,592 | ) | (68.9 | )% | ||||||||||||||
| Inspection and maintenance fee | 7,225 | 0.5 | % | 10,871 | 0.3 | % | (3,646 | ) | (33.5 | )% | ||||||||||||||
| Stamp tax and other expenses | 8,170 | 0.6 | % | 54,361 | 1.7 | % | (46,191 | ) | (85.0 | )% | ||||||||||||||
| Total general and administrative expenses | $ | 1,463,798 | 100.0 | % | $ | 3,117,727 | 100.0 | % | $ | (1,653,929 | ) | (53.0 | )% | |||||||||||
General and administrative expenses decreased by $1,653,929, or 53.0%, to $1,463,798 for the six months ended March 31, 2026, from $3,117,727 for the six months ended March 31, 2025, primarily attributable to a decrease in consulting fees of $1,584,592. The Company incurred underwriting expenses and legal fees of $1,394,453 in connection with the Company’s registered direct offering closed on December 6, 2024. No such expenses were incurred during the six months ended March 31, 2026.
Research and development expenses
Our research and development expenses primarily consist of salaries, welfare and insurance expenses paid to our employees involved in research and development activities, materials and supplies used in the development and testing of new TCMD products, depreciation and other miscellaneous expenses.
| For the Six Months Ended March 31, | ||||||||||||||||||||||||
| 2026 | 2025 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses for research and development personnel | $ | 53,069 | 56.8 | % | $ | 55,327 | 57.1 | % | $ | (2,258 | ) | (4.1 | )% | |||||||||||
| Materials used in research and development activities | 1,240 | 1.3 | % | - | 0.0 | % | 1,240 | - | % | |||||||||||||||
| Expenditure on new product development | 32,134 | 34.4 | % | 31,603 | 32.6 | % | 531 | 1.7 | % | |||||||||||||||
| Depreciation and others | 7,035 | 7.5 | % | 9,906 | 10.2 | % | (2,871 | ) | (29.0 | )% | ||||||||||||||
| Total research and development expenses | $ | 93,478 | 100.0 | % | $ | 96,836 | 100.0 | % | $ | (3,358 | ) | (3.5 | )% | |||||||||||
Research and development expenses decreased by $3,358, or 3.5%, to $93,478 for the six months ended March 31, 2026, from $96,836 for the six months ended March 31, 2025, primarily attributable to a decrease in depreciation and other expenses of $2,871 as a portion of our production equipment reached the end of its expected useful life.
Other income (expenses), net
Total other expenses, net was $54,681 for the six months ended March 31, 2026, compared to $957,994 for the six months ended March 31, 2025. Exchange loss was $84,258 for the six months ended March 31, 2026, representing a decrease of $871,404 from the exchange loss of $955,662 recorded for the six months ended March 31, 2025.
Provision for Income Taxes
Income tax expense was nil for the six months ended March 31, 2026 and 2025.
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Net Loss
Net loss was $1,554,813 for the six months ended March 31, 2026, compared to a net loss of $3,284,755 for the six months ended March 31, 2025.
Basic and diluted loss per share were $2.76 for the six months ended March 31, 2026, compared to $9.44 for the six months ended March 31, 2025. The weighted average number of shares outstanding increased from 347,814 for the six months ended March 31, 2025 to 563,338 for the six months ended March 31, 2026, primarily due to the issuance of 18,750,000 shares (equivalent to 468,750 shares after giving effect to the 40-for-1 share consolidation effected on March 24, 2025) in connection with a Securities Purchase Agreement entered into on December 6, 2024.
Liquidity and Capital Resources
As of March 31, 2026, we had $27.6 million in cash on hand. We also had short-term investments of $1.5 million in wealth management financial products from financial institutions to generate investment income, which we purchased with proceeds from the issuance of ordinary shares. Such short-term investments can be redeemed at any time at our discretion and are highly liquid. As of March 31, 2026, we also had $15.0 million in accounts receivable. Our accounts receivable primarily include balances due from customers for our pharmaceutical products sold and delivered to customers. Approximately 38.0%, or $5.7 million, of our net accounts receivable balance as of March 31, 2026 have been subsequently collected. Collected accounts receivable will be used as working capital in our operations, if necessary.
As of March 31, 2026, our inventory balance amounted to $2.0 million, primarily consisting of raw materials, work-in-progress and finished TCMD products, which we believe can be sold quickly based on our analysis of current demand trends for our products.
On June 25, 2021, we entered into a construction agreement with a sub-contractor, Jiangxi Chenyuan Construction Project Co., Ltd. (“Chenyuan”), for the construction of four manufacturing plant buildings and an office building with a total estimated budget of RMB165 million (approximately $23.9 million). As of March 31, 2026, we had made a prepayment of approximately RMB69.2 million (approximately $10.0 million) to Chenyuan and future additional capital expenditure on this construction-in-process (“CIP”) project is estimated to be approximately RMB95.8 million (equivalent to $13.9 million), among which approximately $3.6 million is required for the next 12 months. In April 2025, the Ministry of Emergency Management of the PRC issued the Specification for Safety Management of Fine Chemical Enterprises, pursuant to which enterprises are prohibited from setting up employee dormitories within factory premises. The Company was required to redesign the project, and the expected completion date has been further delayed to June 30, 2028. We currently plan to support our ongoing CIP project through cash collected from accounts receivable, and if necessary, borrowings from banks.
On May 6, 2021, we entered into a real estate property purchase agreement with Jiangxi Yueshang to purchase certain residential apartments and commercial office space totaling 2,749.30 square meters, with a total purchase price of RMB32 million (approximately $4.6 million). As of March 31, 2026, we had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance of RMB16 million (approximately $2.3 million) is expected to be paid upon receipt of the Real Estate Ownership Certificate.
As of March 31, 2026, we also had short-term bank loans of $7.4 million and long-term bank loans of $2.2 million that we obtained from several PRC banks for working capital purposes. We expect that we will be able to renew all of the existing bank loans upon their maturity based on our past experiences and our outstanding credit history.
As of March 31, 2026, our working capital balance was $41.6 million. In assessing our liquidity, management monitors and analyzes our cash on-hand, our ability to generate sufficient revenue in the future, and our operating and capital expenditure commitments. We believe that our current cash and cash flows provided by operating activities, borrowings from banks and from our principal shareholders will be sufficient to meet our working capital needs in the next 12 months from the date of this report.
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The following table sets forth a summary of our cash flows for the periods indicated:
| For the Six Months Ended March 31, | ||||||||
| 2026 | 2025 | |||||||
| Net cash (used in) provided by operating activities | $ | (4,298,208 | ) | $ | 2,561,194 | |||
| Net cash used in investing activities | (1,812,650 | ) | (132,737 | ) | ||||
| Net cash (used in) provided by financing activities | (149,072 | ) | 16,398,355 | |||||
| Effect of exchange rate change on cash and restricted cash | 227,635 | (1,051,654 | ) | |||||
| Net (decrease) increase in cash | (6,032,295 | ) | 17,775,158 | |||||
| Cash, beginning of period | 33,592,025 | 29,497,693 | ||||||
| Cash, end of period | $ | 27,559,730 | $ | 47,272,851 | ||||
Operating Activities
Net cash used in operating activities was $4,298,208 for the six months ended March 31, 2026, and consisted primarily of the following:
| ● | Net loss of $1,554,813 for the period. |
| ● | An increase in other receivable of $4,794,563. On June 17, 2026, we entered into a Share Purchase Agreement (the “SPA”) with Ms. Lu Shanshan (“Ms. Lu”), pursuant to which we agreed to acquire 100% of the issued shares (the “Target Shares”) of Best Praise International Limited (the “Target”) for a consideration of US$10,751,000, payable entirely through the issuance of 4,376,552 of our Class A ordinary shares (the “Consideration Shares”) to Ms. Lu or her designated recipients, subject to the terms and conditions set forth in the SPA. The Company prepaid $5,223,594 as a security deposit for the SPA as of March 31, 2026. |
| ● | An increase in accounts payable of $1,999,735 due to pending invoices from suppliers for raw materials purchased in the first quarter of 2026. |
| ● | An increase in accounts receivable of $1,507,555. We provided longer credit terms for our regular customers to maintain customer relationships and promote sales. |
Net cash provided by operating activities was $2,561,194 for the six months ended March 31, 2025, primarily consisting of the following:
| ● | Net loss of $3,284,755 for the period. |
| ● | A decrease in other receivable of $3,555,781. 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 agreed to transfer his 51% ownership in Yunnan Faxi to the Company at a price of RMB72 million (approximately $10.0 million). Based on the contract terms, the Company prepaid RMB25 million (approximately $3.4 million) within three (3) business days of signing the letter of intent. However, due to the unsatisfactory performance of Yunnan Faxi, the equity transfer contract was terminated on December 20, 2024. The amount of $3,562,472 (RMB25 million) was recorded as other receivable as of September 30, 2024 and was collected during the six months ended March 31, 2025. |
| ● | An increase in accounts payable of $2,657,313 due to pending invoices from suppliers for raw materials purchased in the first quarter of 2025. |
| ● | A decrease in accounts receivable of $2,318,451. Our accounts receivable primarily include balance due from customers for our pharmaceutical products sold and delivered to customers. We enhanced our accounts receivable management and shortened the accounts receivable collection period during the six months ended March 31, 2025. |
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| ● | An increase in inventory balance of $1,892,889 because we increased inventory stockpiles to reduce the negative impact from the increase in market prices of Chinese traditional medicine raw materials. |
| ● | An increase in advance to suppliers of $1,057,671 to ensure continuous high-quality supplies and favorable purchase prices of raw materials. |
Investing Activities
Net cash used in investing activities amounted to $1,812,650 for the six months ended March 31, 2026, due to purchase of short-term investments of $1,490,203, purchase of fixed assets of $311,028, and purchase of intangible assets of $11,419.
Net cash used in investing activities amounted to $132,737 for the six months ended March 31, 2025, due to purchase of fixed assets of $84,333, purchase of intangible assets of $35,957, and prepayments for construction in progress of $12,447.
Financing Activities
Net cash used in financing activities amounted to $149,072 for the six months ended March 31, 2026, primarily consisted of the following:
| ● | Proceeds from bank loans of $3,568,319 and repayment of bank loans of $3,568,319. |
| ● | Repayment of related party borrowings of $149,072. The balance due to a related party mainly consisted of advances from Mr. Gang Lai for working capital purposes during our normal course of business. These advances were non-interest bearing and due on demand. |
Net cash provided by financing activities amounted to $16,398,355 for the six months ended March 31, 2025, primarily consisted of the following:
| ● | Net proceeds from issuance of ordinary shares of $15,000,000. |
| ● | Proceeds from bank loans of $691,486 and repayment of bank loans of $691,486. |
| ● | Proceeds from related party borrowings of $1,398,355. The balance due to related party mainly consisted of advances from Mr. Gang Lai for working capital purposes during our normal course of business. These advances were non-interest bearing and due on demand. |
Commitments and contingencies
From time to time, we may be a party to various legal actions arising in the ordinary course of business. We accrue 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, 2026 and 2025, we did not have any legal claims or litigation pending.
As of March 31, 2026, we had the following contractual obligations:
| Payments Due by Period | |||||||||||||||||||||
| Contractual Obligations | Total | Less than 1 year |
1-2 years | 2-3 years | 3-4 years | ||||||||||||||||
| (1) | Debt Obligations | $ | 9,553,493 | $ | 7,378,950 | $ | - | $ | 2,174,543 | $ | - | ||||||||||
| (2) | Capital expenditure commitment on CIP project | 13,888,084 | 3,624,239 | 3,624,239 | 5,443,607 | 1,195,999 | |||||||||||||||
| (3) | Capital expenditure commitment for purchase of property | 2,319,513 | 2,319,513 | - | - | - | |||||||||||||||
| Total | $ | 25,761,090 | $ | 13,322,702 | $ | 3,624,239 | $ | 7,618,150 | $ | 1,195,999 | |||||||||||
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| (1) | As of March 31, 2026, we had a total of $7,378,950 in short-term borrowings and $2,174,543 in long-term borrowings from several PRC banks (see Footnotes 12 and 13 of our unaudited consolidated financial statements and footnotes, for details). |
| (2) | On June 25, 2021, we signed a construction sub-contract with Chenyuan, pursuant to which, Chenyuan will help us construct four manufacturing plant buildings and an office building with a total estimated budget of RMB165 million (approximately $23.9 million). As of March 31, 2026, we had made a prepayment of approximately RMB69.2 million (approximately $10.0 million) to Chenyuan and future additional capital expenditure on this CIP project was estimated to be approximately RMB95.8 million (approximately $13.9 million) (see Footnote 10 of our unaudited condensed consolidated financial statements and footnotes, Prepayment for CIP project, for details). |
| (3) | On May 6, 2021, we entered into a real estate property purchase agreement with Jiangxi Yueshang to purchase certain residential apartments and commercial office space totaling 2,749.30 square meters, with a total purchase price of RMB32 million (approximately $4.6 million). As of March 31, 2026, we had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance of RMB16 million (approximately $2.3 million) is expected to be paid upon reception of the Real Estate Ownership Certificate (see Footnote 11 of our unaudited condensed consolidated financial statements and footnotes, Prepayment for purchase of a property, for details). |
Trend Information
Other than as disclosed elsewhere in this report, we are not aware of any trends, uncertainties, demands, commitments, or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity, or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements as of either March 31, 2026 or September 30, 2025.
Inflation
Inflation does not materially affect our business or the results of our operations.
Seasonality
Seasonality does not materially affect our business or the results of our operations.
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