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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 2024
OR
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☐ SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company report
For the transition period from to
Commission file number: 001-40231
Universe Pharmaceuticals INC
(Exact name of Registrant as specified in its charter)
N/A
(Translation of Registrant’s name into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
265 Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone
Ji’an, Jiangxi, China 343100
+86-0796-8403309
(Address of principal executive offices)
Gang Lai, Chief Executive Officer
Telephone: +86-0796-8403309
Email: gang.lai@universe-pharmacy.com
265 Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone
Ji’an, Jiangxi Province
People’s Republic of China
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
Securities registered or to be registered pursuant to Section 12(b) of the Act.
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| Ordinary Shares | UPC | The Nasdaq Stock Market |
Securities registered or to be registered pursuant to Section 12(g) of the Act.
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.
None
(Title of Class)
Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.
An aggregate of 23,645,974 ordinary shares, par value $0.01875 per share, as of September 30, 2024 (before retroactively taking into account the share consolidation at a ratio of 15-to-1 and the share consolidation at a ratio of 40-to-1, effective as of November 12, 2024 and March 24, 2025, respectively).
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐ No ☒
Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer,” “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ | |
| Non-accelerated filer | ☒ | Emerging growth company | ☒ |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☐
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| U.S. GAAP ☒ | International Financial Reporting Standards as issued by the International Accounting Standards Board ☐ | Other ☐ |
| * | If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow. Item 17 ☐ Item 18 ☐ |
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
(APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PAST FIVE YEARS)
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
TABLE OF CONTENTS
INTRODUCTION
In this annual report on Form 20-F, unless the context otherwise requires, references to:
| ● | “China” or the “PRC” are to the People’s Republic of China, including the special administrative regions of Hong Kong and Macau and excluding Taiwan for the purposes of this annual report only; | |
| ● | “Exchange Act” are to the Securities Exchange Act of 1934, as amended; | |
| ● | “fiscal year” are to the period from October 1 to September 30 of the next calendar year; | |
| ● | “Jiangxi Universe” are to Jiangxi Universe Pharmaceuticals Co., Ltd., a limited liability company organized under the laws of the PRC, which is wholly owned by Universe Technology (as defined below) and an indirect wholly owned subsidiary of the Company; | |
| ● | “PRC operating entities” are to Jiangxi Universe and its subsidiaries; | |
| ● | “RMB” and Renminbi” are to the legal currency of China; | |
| ● | “shares” or “ordinary shares” are to the ordinary shares of the Company, par value $11.25 per share; | |
| ● | “SEC” are to the U.S. Securities Exchange Commission; | |
| ● | “Securities Act” are to the Securities Act of 1933, as amended; | |
| ● | “TCM” are to traditional Chinese medicine; | |
| ● | “TCMD” are to traditional Chinese medicine derivatives; | |
| ● | “Universe Hanhe” are to Guangzhou Universe Hanhe Medical Research Co., Ltd., a PRC formed on May 12, 2021, a wholly-owned subsidiary of Jiangxi Universe; | |
| ● | “Universe HK” are to the Company’s wholly owned subsidiary, Universe Pharmaceuticals Group (International) Limited, a company incorporated in Hong Kong; | |
| ● | “Universe Technology” are to Jiangxi Universe Pharmaceuticals Technology Co., Ltd., a limited liability company organized under the laws of the PRC, and is wholly owned by Universe HK; | |
| ● | “Universe Trade” are to Jiangxi Universe Pharmaceuticals Trade Co., Ltd., a PRC company formed in 2010, a wholly-owned subsidiary of Jiangxi Universe; | |
| ● | “US$,” “U.S. dollars,” “$” and “dollars” are to the legal currency of the United States; and | |
| ● | “we,” “us,” “our Company,” or the “Company”, are to one or more of Universe Pharmaceuticals INC, an exempted company incorporated in the Cayman Islands. |
This annual report on Form 20-F includes our audited consolidated financial statements for the fiscal years ended September 30, 2024, 2023, and 2022. In this annual report, we refer to assets, obligations, commitments, and liabilities in our consolidated financial statements in United States dollars. These dollar references are based on the exchange rate of RMB to United States dollars, determined as of a specific date or for a specific period. Changes in the exchange rate will affect the amount of our obligations and the value of our assets in terms of United States dollars which may result in an increase or decrease in the amount of our obligations and the value of our assets.
This annual report contains translations of certain RMB amounts into U.S. dollars at specified rates. Unless otherwise stated, the following exchange rates are used in this annual report:
| September 30, | ||||||||||||
| US$ Exchange Rate | 2024 | 2023 | 2022 | |||||||||
| At the end of the fiscal year - RMB | RMB7.0176 to $1.00 | RMB7.2960 to $1.00 | RMB7.1135 to $1.00 | |||||||||
| Average rate for the fiscal year - RMB | RMB7.2043 to $1.00 | RMB7.0533 to $1.00 | RMB6.5532 to $1.00 | |||||||||
Part I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not Applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not Applicable.
ITEM 3. KEY INFORMATION
This annual report refers to (i) Universe Pharmaceuticals INC, the Cayman Islands holding company, as “we”, “our”, “us”, or the “Company”, (ii) the Company’s subsidiaries, as “our subsidiaries,” (iii) Jiangxi Universe Pharmaceuticals Co., Ltd., the Company’s indirect wholly owned subsidiary in China (“Jiangxi Universe”) and its subsidiaries, which are domiciled in China and conducting business operations in China, as the “PRC operating entities.” The Company does not conduct any operations.
We are a Cayman Islands holding company with no operations of our own and not a PRC operating company. Our operations are conducted in China by our PRC subsidiaries. Investors in our securities are not purchasing equity interests in our subsidiaries but instead are purchasing equity interests in the ultimate Cayman Islands holding company. Therefore, you will not directly hold any equity interests in our operating companies. The Chinese regulatory authorities could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless. For risks facing our Company as a result of our organizational structure and doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.” We directly hold 100% equity interests in our subsidiaries, and we do not currently use a variable interest entity (“VIE”) structure.
We face legal and operational risks associated with having all of our operations in China, which could significantly limit or completely hinder our ability to offer securities to investors and cause the value of our securities to significantly decline or be worthless. The Chinese government has significant authority to exert influence on the ability of a China-based company, such as us, to conduct its business. Therefore, investors of our Company and our business face potential uncertainty from the PRC government. Changes in China’s economic, political or social conditions or government policies could materially adversely affect our business and results of operations. These risks could result in a material change in our operations and/or the value of our ordinary shares or could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. In particular, recent statements and regulatory actions by China’s government, such as those related to the use of variable interest entities and data security or anti-monopoly concerns, as well as the ability of the U.S. Public Company Accounting Oversight Board, or the PCAOB, to inspect our auditors, may impact our Company’s ability to conduct our business, accept foreign investments, or be listed on a U.S. or other foreign stock exchange. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — The PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the ordinary shares to significantly decline in value or become worthless” and “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ordinary shares, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ordinary shares to significantly decline in value or become worthless.”
As of the date of this annual report, we and our subsidiaries have not been involved in any investigations on cybersecurity review initiated by any PRC regulatory authority, nor have any of them received any inquiry, notice, or sanction. As advised by our PRC counsel, AllBright Law Offices (Fuzhou), we are not subject to cybersecurity review by the Cyberspace Administration of China, or the CAC, since we currently do not possess any personal information of users in our business operations. It is unlikely for us to have over one million users’ personal information and we do not anticipate that we will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject us to the Cybersecurity Review Measures. Pursuant to the Regulations on Network Data Security Administration (the “Data Security Administration”) which became effective on January 1, 2025, we are not subject to network data security review by the government authorities, because we currently do not have over one million users’ personal information, we do not collect data that affect or may affect national security and we do not anticipate that we will be collecting over one million users’ personal information or data that affect or may affect national security in the foreseeable future, which we understand might otherwise subject us to the Data Security Administration.
On February 17, 2023, the China Securities Regulatory Commission (the “CSRC”) issued the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Enterprises (the “Trial Measures”) and five supporting guidelines (collectively, the “Overseas Listings Rules”), which became effective on March 31, 2023. These rules propose to establish a new filing-based regime to regulate overseas offerings and listings by Chinese domestic companies. Under the Overseas Listings Rules, Chinese domestic companies conducting overseas securities offering and listing activities, either in direct or indirect form, shall complete filing procedures with the CSRC pursuant to the requirements of the Trial Measures within three working days following its submission of initial public offering or listing application. Since the date of effectiveness of the Trial Measures, the domestic enterprises otherwise subject to filing that have been listed overseas or met the following circumstances are considered existing enterprises: the application of such enterprises for indirect overseas securities issuance and listing has been approved by the applicable overseas regulators or overseas stock exchanges (e.g., an applicable registration statement has been declared effective by the U.S. Securities and Exchange Commission (the “SEC”)) before the effectiveness of the Trial Measures, and are not required to re-perform issuance and listing supervision procedures with the overseas regulators or overseas stock exchanges, and the overseas issuance and listing of such enterprises have been completed by September 30, 2023. Existing enterprises are not required to file immediately, and filing should be made as required if they conduct refinancing activities or other matters requiring filings in the future. In the opinion of our PRC legal counsel, AllBright Law Offices (Fuzhou), as a domestic company listed on Nasdaq since March 2021, and not currently conducting refinancing or other activities that require filings, we are not required to file with the CSRC in accordance with the Trial Measures at this time. However, in the event that we conduct subsequent offerings, we could be subject to filing requirements with the CSRC. In the event that filings with the CSRC are required, we cannot assure you that we can complete the filing procedures, obtain the approvals or complete other compliance procedures in a timely manner, or at all, or that any completion of filing or approval or other compliance procedures would not be rescinded. Any such failure would subject us to sanctions by the CSRC or other PRC regulatory authorities. These regulatory authorities may impose restrictions and penalties on the operations in China, significantly limit or completely hinder our ability to launch any new offering of our securities, limit our ability to pay dividends outside of China, delay or restrict the repatriation of the proceeds from future capital raising activities into China, or take other actions that could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the trading price of our ordinary shares. Furthermore, the PRC government authorities may further strengthen oversight and control over listings and offerings that are conducted overseas. Any such action may adversely affect our operations and significantly limit or completely hinder our ability to offer or continue to offer securities to you and cause the value of such securities to significantly decline or be worthless. See “Item 3. Key Information—Risk Factors—Risks Relating to Doing Business in China— The approval and/or other requirements of the China Securities Regulatory Commission, or the CSRC, or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval.”
If we do not receive or maintain any required approvals, or we inadvertently conclude that such approvals are not required, or applicable laws, regulations, or interpretations change such that we are required to obtain approval in the future, we may be subject to an investigation by competent regulators, fines or penalties, ordered to suspend our relevant business and rectify, prohibited from engaging in relevant business, or subject to an order prohibiting us from conducting an offering, and these risks could result in a material adverse change in our operations, significantly limit or completely hinder our ability to continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless. See “Item 3. Key Information—Risk Factors—Risks Relating to Doing Business in China—Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.”
In addition, trading in our securities may be prohibited under the Holding Foreign Companies Accountable Act if the PCAOB determines that it cannot inspect the workpapers prepared by our auditor, and that as a result an exchange may determine to delist our securities. On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which, if passed by the U.S. House of Representatives and signed into law, would reduce the period of time for foreign companies to comply with PCAOB audits to two consecutive years instead of three, thus reducing the time period for triggering the prohibition on trading. On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. Our current auditor, Enrome LLP, and our former auditor, YCM CPA INC., the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the U.S. and firms registered with the PCAOB, are subject to laws in the U.S., pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. Our auditor, Enrome LLP, is headquartered in Singapore, and subject to inspect by the PCAOB on a regular basis, and our former auditor, YCM CPA INC., is headquartered in California, has been inspected by the PCAOB. Both our auditor and former auditor are not subject to the determination issued by the PCAOB on December 16, 2021. On August 26, 2022, the CSRC, the Ministry of Finance of the PRC, and the PCAOB signed a Statement of Protocol (the “Protocol”), governing inspections and investigations of audit firms based in China and Hong Kong. The Protocol remains unpublished and is subject to further explanation and implementation. Pursuant to the fact sheet with respect to the Protocol disclosed by the SEC, the PCAOB shall have independent discretion to select any issuer audits for inspection or investigation and has the unfettered ability to transfer information to the SEC. On December 15, 2022, the PCAOB Board determined that the PCAOB was able to secure complete access to inspect and investigate registered public accounting firms headquartered in mainland China and Hong Kong and voted to vacate its previous determinations to the contrary. However, should PRC authorities obstruct or otherwise fail to facilitate the PCAOB’s access in the future, the PCAOB Board will consider the need to issue a new determination. See “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — Our ordinary shares may be delisted or prohibited from being traded over-the-counter under the Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect our auditors. The delisting or the cessation of trading of our ordinary shares, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections would deprive our investors with the benefits of such inspections. Our auditor has not been inspected by the PCAOB, but according to our auditor, it will be inspected by the PCAOB on a regular basis.”
Our Cayman Islands holding company has not declared or paid dividends or made any distributions to our shareholders in the past, nor were any dividends or distributions made by a subsidiary to the Cayman Islands holding company. Our board of directors has complete discretion on whether to distribute dividends, subject to applicable laws. We intend to keep any future earnings to finance the expansion of our business, and we do not have any current plan to declare or pay any cash dividends on our ordinary shares in the foreseeable future. See “Item 3. Key Information — D. Risk Factors — Risks Related to Our Ordinary Shares—We currently do not expect to pay dividends on our ordinary shares in the foreseeable future.” If we determine to pay dividends on any of our ordinary shares in the future, as a holding company, we will rely on payments from subsidiaries of Jiangxi Universe to Jiangxi Universe, and from Jiangxi Universe to Universe Technology, and the distribution of such payments to Universe HK, and then to our Company.
Subject to certain contractual, legal and regulatory restrictions, and our internal cash management policy, cash and capital contributions may be transferred among our Cayman Islands holding company and our subsidiaries. If needed, our Cayman Islands holding company can transfer cash to our PRC subsidiaries through loans and/or capital contributions, and our PRC subsidiaries can transfer cash to our Cayman Islands holding company through issuing dividends or other distributions. Our finance department supervises cash management, following the instructions of our management. Our finance department is responsible for establishing our cash operation plan and coordinating cash management matters among our subsidiaries and departments. Each subsidiary and department initiate a cash request by putting forward a cash demand plan, which explains the specific amount and timing of cash requested, and submitting it to our finance department. The finance department reviews the cash demand plan and prepares a summary for the management of our Company. Management examines and approves the allocation of cash based on the sources of cash and the priorities of the needs. Other than the above, we currently do not have other cash management policies or procedures that dictate how funds are transferred. Cash flows have occurred between our Cayman Islands holding company and our subsidiaries. From October 1, 2024 to the date of this annual report, the Cayman Islands holding company did not receive cash transfer from its subsidiaries. For the fiscal year ended September 30, 2024, 2023 and 2022, the Cayman Islands holding company received cash in the amount of $100,062, $127,827 and $303,746 from its subsidiary in Hong Kong for the payment of directors’ compensation and professional service fees, respectively. There was no distribution of earnings by our PRC subsidiaries to the Cayman Islands holding company during the fiscal years ended September 30, 2022, 2023 and 2024, and from October 1, 2024 to the date of this annual report. In the fiscal years ended September 30, 2022, 2023 and 2024, there was no cash transferred from the Cayman Islands holding company to its PRC subsidiaries. From October 1, 2024 to the date of this annual report, there was no cash transferred from the Cayman Islands holding company to its PRC subsidiaries. See also “Item 8. Financial Information—A. Consolidated Statements and Other Financial Information—Dividend Policy” and our audited consolidated financial statements for the fiscal years ended September 30, 2024, 2023, and 2022.
Cash transfers from our Cayman Islands holding company are subject to applicable PRC laws and regulations on loans and direct investment. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us, and as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Universe HK.
Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Universe HK only out of their respective accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in complying with the administrative requirements necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenue from our operations, we may be unable to pay dividends on our ordinary shares.
Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. Universe HK may be considered a non-resident enterprise for tax purposes, so that any dividends our PRC subsidiaries pay to Universe HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.”
In order for us to pay dividends to our shareholders, we will rely on payments made from Universe Technology’s subsidiary, Jiangxi Universe, to Universe Technology and from Universe Technology to Universe HK and then to our Company. According to the Enterprise Income Tax Law, or the EIT Law, such payments from subsidiaries to parent companies in China are subject to the PRC enterprise income tax at a rate of 25%. In addition, if Jiangxi Universe or its subsidiary or branches incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
Pursuant to the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however, does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends paid by our PRC subsidiaries to its immediate holding company, Universe HK. As of the date of this annual report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Universe HK intends to apply for the tax resident certificate if and when Universe Technology plans to declare and pay dividends to Universe HK. See “Item 3. Key Information—D. Risk Factors— There are significant uncertainties under the EIT Law, relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.”
To the extent cash is located in the PRC or within a PRC domiciled entity and may need to be used to fund operations outside of the PRC, the funds may not be available due to limitations placed on us and our subsidiaries by the PRC government. To the extent cash in and assets of the business is in the PRC or a PRC entity, the funds and assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of us or our subsidiaries by the PRC government to transfer cash and assets. See “Item 3. Key Information—D. Risk Factors — Risks Related to Doing Business in China — To the extent cash and assets of in the business is in the PRC or a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company or our subsidiaries by the PRC government to transfer cash and assets.”
A. [Reserved]
B. Capitalization and Indebtedness
Not applicable.
C. Reasons for the Offer and Use of Proceeds
Not applicable.
D. Risk Factors
Summary of Risk Factors
Investing in our securities involves significant risks. You should carefully consider all of the information in this annual report before investing in our securities. Below is a summary of the principal risks we face. These risks are discussed more fully under “Item 3. Key Information—D. Risk Factors.”
Risks Related to Our Business and Industry (for a more detailed discussion, see “Item 3. Key Information—D. Risk Factors—Risks Related to Our Business and Industry”)
Risks and uncertainties related to our business include, but are not limited to, the following:
| ● | price increases in raw materials and sourced products could harm our financial results; |
| ● | high quality materials for our products may be difficult to obtain or substantially increase our production costs; |
| ● | we are exposed to a number of risks related to our supply chain for the materials required to manufacture our products which could adversely affect our business operations and future development; |
| ● | we operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues and growth prospects; |
| ● | high quality materials for our products may be difficult to obtain or substantially increase our production costs; |
| ● | our future success depends in part on our ability to increase our production capacity, and we may not able to do so in a cost-effective manner. We have engaged a third-party sub-contractor to build manufacturing facilities and an office building for us, and we may encounter challenges relating to the construction, management and operation of such facilities; |
| ● | we are subject to evolving regulatory requirements, non-compliance with which, or changes in which, may adversely affect our business and prospects; and |
| ● | if we fail to maintain or renew requisite licenses, permits, registrations and filings applicable to our business operations, or fail to obtain additional licenses, permits, registrations or filings that become necessary as a result of new enactment or promulgation of government policies, laws or regulations or the expansion of our business, our business and results of operations may be materially and adversely affected. |
Risks Related to Doing Business in China (for a more detailed discussion, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China”)
We face risks and uncertainties relating to doing business in the PRC in general, including, but not limited to, the following:
| ● | the PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the ordinary shares to significantly decline in value or become worthless; |
| ● | uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ordinary shares, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ordinary shares to significantly decline in value or become worthless; |
| ● | our ordinary shares may be delisted or prohibited from being traded over-the-counter under the Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect our auditors. The delisting or the cessation of trading of our ordinary shares, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections would deprive our investors with the benefits of such inspections. Our auditor has not been inspected by the PCAOB, but according to our auditor, it will be inspected by the PCAOB on a regular basis; |
| ● | failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations; |
| ● | the approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval; |
| ● | PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our offerings and/or other financing activities to make loans or additional capital contributions to our PRC operating subsidiaries; |
| ● | adverse changes in political, economic and social conditions, as well as government policies in China could have a material adverse effect on our business results of operations, financial conditions and prospects; |
| ● | changes to the PRC legal system could have an adverse effect on us; |
| ● | recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering. See “Risk Factors—Risks Related to Doing Business in China—Recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and our offering”; and |
| ● | to the extent cash and assets of in the business is in the PRC or a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company or our subsidiaries by the PRC government to transfer cash and assets. See “Risk Factors—Risks Related to Doing Business in China—To the extent cash and assets of in the business is in the PRC or a PRC entity, the funds may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company or our subsidiaries by the PRC government to transfer cash and assets.” |
Risks Relating to Our Ordinary Shares and the Trading Market (for a more detailed discussion, see “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Ordinary Shares”)
In addition to the risks described above, we are subject to general risks and uncertainties relating to our ordinary shares and the trading market, including, but not limited to, the following:
| ● | Our share price has recently declined substantially, and our ordinary shares could be delisted from the Nasdaq or trading could be suspended; | |
| ● | we may issue additional ordinary shares or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our ordinary shares; |
| ● | as a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders; and |
| ● | as a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards. |
Risks Related to Our Business and Industry
Price increases in raw materials and sourced products could harm our financial results.
Our principal raw materials include angelica, codonopsis, poria mushroom isatis root, ginseng, and other herbs and plant extracts. These raw materials are subject to price volatility and inflationary pressures. Our success is dependent, in part, on our ability to reduce our exposure to increases in such costs through a variety of ways, while maintaining and improving margins and market share. The manufacturers of such raw materials are also subject to price volatility and labor cost and other inflationary pressures, which may in turn result in an increase in the amount we pay for sourced products. Raw materials and sourced product price increases may offset our productivity gains and price increases and may adversely impact our financial results.
High quality materials for our products may be difficult to obtain or substantially increase our production costs.
Raw materials account for a portion of our manufacturing costs and we rely on third-party suppliers to provide almost all raw materials. Suppliers may be unable or unwilling to provide the raw materials we need in the quantities requested, at prices we are willing to pay, or that meet our quality standards. We are also subject to potential delays in the delivery of raw materials caused by events beyond our control, including transportation interruptions, delivery delays, labor disputes, other supply chain issues, and changes in government regulations. See also “—We are exposed to a number of risks related to our supply chain for the materials required to manufacture our products” for details. Our business could be adversely affected if we are unable to obtain reliable sources of the raw materials used in the manufacturing of our products that meet our quality standards. Any significant delay in or disruption of the supply of raw materials could, among other things, substantially increase the cost of such materials, require reformulation or repackaging of products, require the qualification of new suppliers, or result in our inability to meet customer demands, which could in turn adversely affect our financial results.
We are exposed to a number of risks related to our supply chain for the materials required to manufacture our products which could adversely affect our business operations and future development.
We rely on third-party suppliers to provide almost all raw materials, and manufacturing our products is highly complex and requires sourcing specialty materials or materials with quality standards. Many of the risks associated with the complexity of manufacturing our products are applicable to the manufacture and supply of the raw materials. Minor deviations in the manufacturing process for these raw materials could result in supply disruption and reduced production yields for our products, which is beyond our control. In addition, we rely on third parties for the supply of these materials exposing us to similar risks of reliance on third parties for final products. See “—We face risks related to our sales of products obtained from third-party suppliers” for further details.
Our manufacturing processes requires many equipment and raw materials such as medicinal plants. We established supplier qualification procedures to verify the operation conditions, production capabilities, credit-worthiness and quality standard of potential suppliers, in order to procure quality raw materials in a timely manner. Although we are not relying on a single supplier for any of our raw materials, we may in the future rely on sole source vendors or a limited number of vendors for some of our equipment and materials. We currently depend on a limited number of suppliers for certain materials and equipment used in the manufacture of our products. Some of these suppliers are small companies with limited resources and experience to support commercial production and may be ill-equipped to support our needs from time to time. Accordingly, we may experience delays in receiving key materials and equipment to support manufacturing. An inability to continue to source product from any of these suppliers, which could be due to regulatory actions or requirements affecting the supplier, adverse financial or other strategic developments experienced by a supplier, labor disputes or shortages, unexpected demands, or quality issues, could adversely affect our ability to satisfy demand for our products, which could adversely and materially affect our product sales and operating results or our ability to conduct clinical trials, either of which could significantly harm our business.
As we continue to develop and scale our manufacturing process, we expect that we will need to obtain supplies of certain raw materials and equipment to be used as part of that process. We may not be able to obtain rights to such materials on commercially reasonable terms, or at all, and if we are unable to alter our process in a commercially viable manner to avoid the use of such materials or find a suitable substitute, it would have a material adverse effect on our business. Even if we are able to alter our process so as to use other materials or equipment, such a change may lead to a delay in our clinical development and/or commercialization plans.
We operate in a highly competitive industry. Our failure to compete effectively could adversely affect our market share, revenues and growth prospects.
The Chinese patent medicine industry in the PRC is subject to significant competition and pricing pressures. We will experience significant competitive pricing pressures as well as competitive products. Several significant competitors may offer products at the same or lower prices than our products. The market is highly sensitive to the introduction of new products, which may rapidly capture a significant share of the market. It is possible that one or more of our competitors could develop a significant research advantage over us that allows them to provide superior products that are more attractive to consumers, which could put us in a competitive disadvantage. Continued pricing pressure or improvements in research and shifts in customer preference could adversely impact our customer base or pricing structure and have a material and adverse effect on our business, financial conditions, results of operations and cash flows.
Failure to maintain or enhance our brands or image could have a material adverse effect on our business and results of operations.
We believe several of our brands, such as “Bai Nian Dan (百年丹)”, “Hu Zhuo Ren (胡卓仁)” and “Long Zhong (龙种)”, are well-recognized among our clients and other Chinese patent medicine industry players. Our brand is integral to our sales and marketing efforts. Our continued success in maintaining and enhancing our brand and image depends to a large extent on our ability to satisfy customer needs by further developing effective and better-quality products, as well as our ability to respond to competitive pressures. If we are unable to satisfy customer needs or if our public image or reputation were otherwise diminished, our business transactions with our customers may decline, which could in turn adversely affect our results of operations.
Our failure to appropriately respond to changing consumer preferences and demand for new products could significantly harm our customer relationships and product sales.
Our business is particularly subject to changing consumer trends and preferences. Our continued success depends in part on our ability to anticipate and respond to these changes, and we may not be able to respond in a timely or commercially appropriate manner to these changes. If we are unable to do so, our customer relationships and product sales could be harmed significantly.
Furthermore, the Chinese patent medicine industry is characterized by rapid and frequent changes in demand and new product introductions. Our failure to accurately depict these trends could negatively impact consumer opinion of our stores as a source for latest products. This could harm our customer relationships and cause losses to our market share. The success of our new product offerings depends upon a number of factors, including our ability to: accurately anticipate customer needs; innovate and develop new products; successfully commercialize new products in a timely manner; price our products competitively; manufacture and deliver our products in sufficient volumes and in a timely manner; and differentiate our product offerings from those our competitors.
If we do not introduce new products or make enhancements to meet the changing needs of our customers in a timely manner, some of our products could become obsolete, which could have a material adverse effect on our revenues and operating results.
If our products do not have the effects intended or cause undesirable side effects, our business may suffer.
Many of the ingredients in our current products have a long history of human consumption, and although we believe that all of these products and the combinations of ingredients in them are safe when taken as directed, the products could have certain undesirable side effects if not taken as directed or if taken by a consumer who has certain medical conditions. In addition, these products may not have the effect intended if they are not taken in accordance with instructions, which may include dietary restrictions. Furthermore, there can be no assurance that any of these products, even when used as directed, will have the effects intended or will not have harmful side effects in an unforeseen way or on an unforeseen cohort. If any of our products or products we develop or commercialize in the future are shown to be harmful or generate negative publicity from perceived harmful effects, our business, financial condition, results of operations, and prospects could be harmed significantly.
We have made substantial investment in advertising our products in order to improve our brand awareness and our market position, which efforts may not be successful, and in such event, our financial position and results of operations may be materially and negatively affected.
We have made substantial investment in advertising our products in order to improve our brand awareness and our market position. In the fiscal year ended September 30, 2022, we entered into an advertising service agreement with a third-party, Health Headline Technology Co., Ltd. (“Health Headline”), pursuant to which, Health Headline provided media advertising services to promote our brand on the Health Headline website and mobile app, with a service period of ten months from March 1, 2022 to December 31, 2022. For the fiscal year ended September 30, 2023, we renewed the advertising services arrangement with Health Headline by entering a new service agreement with Health Headline with a service period of ten months from March 1, 2023 to December 31, 2023. For the fiscal year ended September 30, 2024, we renewed the advertising services arrangement with Health Headline by entering into a new service agreement with Health Headline with a service period of ten months from March 1, 2024 to December 31, 2024. In addition, we incurred substantial advertising expenditures to maintain and enhance our brand and our products, which may not prove successful. Television advertising and other brand promotion activities may not generate customer awareness or increase revenue, and even if they do, any increase in revenue may not offset the expenses we incur in building our brand. Additionally, there could be a negative reaction to certain advertising campaigns. If we fail to promote our brand, or if we incur excessive expenses in this effort, we may fail to attract or retain customers necessary to realize a sufficient return on our brand-building efforts or to achieve the desired brand awareness that is critical for our success.
Our future success depends in part on our ability to increase our production capacity, and we may not able to do so in a cost-effective manner. We have engaged a third-party sub-contractor to build manufacturing facilities and an office building for us, and we may encounter challenges relating to the construction, management and operation of such facilities.
To the extent we are successful in growing our business, we may need to increase our production capacity. We entered into a construction agreement with a sub-contractor, who will construct four manufacturing factories and an office building for us, with a total maximum budget of approximately RMB165 million (US$23.5 million). The construction started on August 8, 2021, with an originally estimated completion date on August 7, 2023. However, due to resurgence in the number of COVID cases, which resulted in logistic disruptions, material and labor shortage, and domestic travel restriction. At the beginning of 2024, the Company had estimated the construction work to be completed in December 2024. During 2024, new information was discovered about the topographical and surface structures of the land, which required Chenyuan to redo the geological survey. As a result, the construction work has been further delayed, and the construction of the four manufacturing factory buildings and the office building is expected to be fully completed and put into use by December 2025 and December 2026, respectively. Our ability to construct such additional facilities is subject to risks and uncertainties. The construction of any new facilities will be subject to risks inherent in the development and construction, including risks of delays and cost overruns as a result of factors outside of our control, which may include delays in government approvals, burdensome permitting conditions, and delays in the delivery of manufacturing equipment or raw materials required for the construction. Additionally, we also depend on the third-party sub-contractor for the development of new facilities, and as such, we are subject to the risk that such third parties do not fulfill their obligations to us under the contraction agreement.
If the sub-contractor is unable to deliver the new facilities to us on time, or if we are unable to expand our manufacturing facilities in general, we may be unable to further scale our business, which would negatively affect our results of operations and financial condition. If we are unable to transition manufacturing operations to such new facilities in a cost-efficient and timely manner, then we may experience disruptions in operations, which could negatively impact our business and financial results. Further, if the demand for our products decreases or if we do not produce the expected output after any such new facilities are operational, we may not be able to spread a significant amount of our fixed costs over the production volume, thereby increasing our per product fixed cost, which would have a negative impact on our business, financial condition and results of operations.
We are subject to evolving regulatory requirements, non-compliance with which, or changes in which, may adversely affect our business and prospects.
As a manufacturer of products designed for human consumption, we are subject to legal and regulatory requirements applicable to the Chinese patent medicine industry in the PRC. We have been subject to penalties by PRC regulatory authorities in the past due to our failure to comply with their requirements, including noncompliance with the Good Manufacturing Practice for Drugs and the National Drug Standard.
The regulations to which we are subject in this area are evolving. As a result, the interpretation of these laws and their enforcement is often uncertain. Predicting the application of these laws can be difficult, and unexpected outcomes in the interpretation and enforcement of the applicable regulations may have an adverse impact on our business and operations. Additionally, any future changes in regulations may render our business non-compliant or require changes to our business practices or licensing arrangements to ensure compliance. These changes may involve significant costs, which in turn may adversely affect our business and financial prospects.
Various regulatory authorities of the PRC government regulate the manufacturing and trading of Chinese patent medicine. Violations of regulations may lead to the imposition of significant penalties which may affect our business, operations, reputation and financial prospects. See “Item 4. Information on the Company—B. Business Overview—Regulations” for details.
As we introduce new products to our customers, we may be required to comply with additional laws and regulations that are yet to be determined. To comply with such additional laws and regulations, we may be required to obtain necessary certificates, licenses or permits, as well as expend additional resources to monitor regulatory and policy developments. Our failure to adequately comply with such additional laws and regulations may delay, or possibly prevent, some of our products from being offered to customers, which may have a material adverse effect on our business, financial condition and results of operations.
If we fail to maintain or renew requisite licenses, permits, registrations and filings applicable to our business operations, or fail to obtain additional licenses, permits, registrations or filings that become necessary as a result of new enactment or promulgation of government policies, laws or regulations or the expansion of our business, our business and results of operations may be materially and adversely affected.
The Chinese patent medicine industry in China is highly regulated, and multiple licenses, permits, filings and approvals are required to operate our business. Currently, through our PRC subsidiaries, we have obtained a valid pharmaceutical manufacturing license, a medical device selling license, and a pharmaceutical trade license. We have made efforts to obtain all applicable approvals, licenses and permits, but due to the complexities, uncertainties and frequent changes in laws, rules, regulations and their interpretation and implementation, we may not always be able to do so, and we may be penalized by governmental authorities for conducting pharmaceutical manufacturing or sales activities without proper approvals, licenses or permits. Moreover, as we continue to increase our product variety, we may also become subject to new or existing laws and regulations that did not affect us in the past. Failure to obtain, renew or retain requisite licenses, permits or approvals may adversely affect our ability to conduct or expand our business, and may have a material adverse impact on our business prospects, results of operations and financial condition.
Our business is subject to inherent risks relating to product liability and personal injury claims.
As a manufacturer of products designed for human consumption, we are subject to product liability claims if the use of our products is alleged to have resulted in injury. For instance, adverse reactions resulting from human consumption of the ingredients contained in our products could occur. We may also be obligated to recall affected products. If we are found liable for product liability claims, we could be required to pay substantial monetary damages. Furthermore, even if we successfully defend ourselves against this type of claim, we could be required to spend significant management, financial and other resources, which could disrupt our business, and our reputation as well as our brand name may also suffer. We, like many other similar companies in China, do not carry product liability insurance. As a result, any imposition of product liability could materially harm our business, financial condition and results of operations. In addition, we do not have any business interruption insurance, due to the limited coverage of any available business interruption insurance in China, and as a result, any business disruption or natural disaster could severely disrupt our business and operations and significantly decrease our revenue and profitability.
We may not be successful in expanding a distribution network.
Although we intend to expand our distribution network to include additional cities and rural areas in the PRC in an effort to increase our geographic presence, our distribution, logistics and products may encounter competition from various similar or substitutive businesses. Therefore, the success of expansion will depend upon many factors, including our ability to form relationships with, and manage an increasing number of, customers base and optimize our distribution network. If we fail to expand our distribution network as planned, our business, financial condition and results of operations may be materially and adversely affected.
The COVID-19 pandemic has been and could continue to materially and adversely affect our business and results of operations.
Our business operations have been affected and may continue to be affected by the COVID-19 pandemic. Although on December 9, 2022, China announced that it was officially moving towards reopening and gradually lifting travel restrictions, after nearly three years of adhering to its dynamic zero-COVID policy, the COVID-19 pandemic continues to threaten global economies and cause significant market volatility and declines in general economic activities of China. In the fiscal year ended September 30, 2024, as affected by the economic downturn in China following the COVID-19 pandemic, we saw a decrease in overall consumer spending and the demand for our products. In the fiscal year ended September 30, 2023, slowdown in economy caused by the COVID-19 pandemic has led to a decline in customers’ spending power, and we changed our pricing strategy to decrease the per unit price of our TCMD products in an effort to increase sales volume and market share during this challenging period. The average selling price of our TCMD products decreased by 50.0% in the fiscal year ended September 30, 2023 as compared to the fiscal year ended September 30, 2022. In the fiscal year ended September 30, 2022, due to resurgence of COVID-19 pandemic in China and related restrictive measures, including travel restrictions, the PRC operating entities experienced delays in the receipt of purchased raw materials from suppliers and in delivering products to customers. The prices of the raw materials increased by about 5% as compared to the fiscal year ended September 30, 2021. In addition, we granted some customers extended payment terms of 30 days to 120 days. However, based on our present relationship with these customers and our evaluation of their financial conditions, we do not anticipate any material collectability problems. The continued uncertainties associated with the COVID-19 pandemic worldwide may cause our revenue and cash flows to underperform in the next 12 months from the date of this annual report. The extent of the future impact of the COVID-19 pandemic on our business and the results of operations is still uncertain.
We are dependent on certain key personnel and loss of these key personnel could have a material effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We are dependent upon the services of Mr. Gang Lai, the chairman of our board of directors and our chief executive officer, for the continued growth and operation of our Company, due to his industry experiences and management experiences. Although we have no reason to believe that Mr. Gang Lai will discontinue his services with us, the interruption or loss of his services would adversely affect our ability to effectively run our business and pursue our business strategy as well as our results of operation. We currently do not have “key person” insurance on any of our executives or employees. There can be no assurance that we will be able to retain our key personnel after the terms of their employment expire. The loss of the services of one or more of our key personnel could have a material adverse effect upon our business, financial condition, and results of operations.
We may not effectively manage our growth, which could materially harm our business.
We expect that our business will grow in the long run, which may place a significant strain on our management, personnel, systems and resources. We must continue to improve our operational and financial systems and managerial controls and procedures, and we will need to continue to expand, train and manage our technology and workforce. We must also maintain close coordination among our compliance, accounting, finance, marketing and sales organizations. We cannot assure you that we will manage our growth effectively. If we fail to do so, our business could be materially harmed.
Our continued growth will require an increased investment by us in technology, facilities, personnel and financial and management systems and controls. It also will require expansion of our procedures for monitoring and assuring our compliance with applicable regulations, and we will need to integrate, train and manage a growing employee base. The expansion of our existing businesses, any expansion into new businesses and the resulting growth of our employee base will increase our need for internal audit and monitoring processes that are more extensive and broader in scope than those we have historically acquired. We may not be successful in identifying or implementing all of the processes that are necessary. Further, unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be adversely affected.
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain and hire these personnel in the future, our ability to improve our products and implement our business objects could be adversely affected.
We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel in the PRC is intense and the pool of qualified candidates in the PRC is very limited. We may not be able to retain the services of our senior executives or personnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect our future growth and financial condition.
Our success depends on our ability to protect our intellectual property.
We currently own 65 patents and 98 trademarks in China. We believe that our success depends on our ability to obtain and maintain patent protection for products developed utilizing our technologies, in the PRC and in other countries, and to enforce these patents. There is no assurance that any of our existing and future patents will be deemed to be valid and enforceable against third-party infringement or that our products will not infringe any third-party patent or intellectual property by a court or administrative body having jurisdiction over such matters. Although we have filed additional patent applications with Patent Administration Department of PRC, there is no assurance that they will be granted.
Any patents relating to our technologies may not be sufficiently broad to protect our products. In addition, our patents may be challenged, potentially invalidated or potentially circumvented. Our patents may not afford us protection against competitors with similar technology or permit the commercialization of our products without infringing third-party patents or other intellectual property rights.
We also rely, or intend to rely, on our trademarks, trade names and brand names to distinguish our products from the products of our competitors, and have registered or will apply to register a number of these trademarks. However, third parties may oppose our trademark applications or otherwise challenge our use of the trademarks. In the event that our trademarks are successfully challenged, we could be forced to rebrand our products, which could result in loss of brand recognition and could require us to devote resources to advertising and marketing these new brands. Further, our competitors may infringe our trademarks, or we may not have adequate resources to enforce our trademarks.
In addition, we also have trade secrets, non-patented proprietary expertise and continuing technological innovations that we expect to seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees and consultants. These agreements may be breached and there may not be adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect to products arising from research, we may not be able to maintain the confidentiality of information relating to these products.
Further, the application and interpretation of China’s intellectual property laws are still evolving and are uncertain. If we are found to have violated the intellectual property rights of others, we may be subject to liability and penalty for our infringement activities or may be prohibited from using such intellectual property, and we may incur licensing fees or be forced to develop alternatives of our own. In addition, we may incur significant expenses, and may be forced to divert management’s time and other resources from our business and operations to defend against these infringement claims, regardless of their merits. Successful infringement or licensing claims made against us may result in significant monetary liabilities and may materially disrupt our reputation, business and operations by restricting or prohibiting our use of the intellectual property at issue.
Because we rely on our manufacturing operations to produce a significant amount of the products we sell, disruptions in our manufacturing system or losses of manufacturing certifications could adversely affect our sales and customer relationships.
Our manufacturing operations produced approximately 60.9%, 57.5% and 59.8% of the total value of the products we sold for the fiscal year ended September 30, 2024, 2023 and 2022, respectively. Our products are produced in our manufacturing facility located in Jinggangshan, Jiangxi Province, China. For the fiscal year ended September 30, 2024, two suppliers accounted for 28.0% and 13.4% of our total purchases, respectively. For the fiscal years ended September 30, 2023 and 2022, one supplier accounted for 29.6% and 10.3% of our total purchases, respectively. No other suppliers individually accounted for more than 10% of our total purchases in the fiscal years ended September 30, 2024, 2023 and 2022. In the event any of our third-party suppliers or vendors becomes unable or unwilling to continue to provide raw materials in the required volumes or quality levels or in a timely manner, we would be required to identify and obtain acceptable replacement supply sources. If we are unable to identity and obtain alternative supply sources, our business could be adversely affected. Any significant disruption in our operations at our manufacturing facility for any reason, including government-imposed regulatory requirements, the loss of certifications, power interruptions, fires, war, or other force of nature, could disrupt our supply of products, adversely affecting our sales and customer relationships.
We face risks related to our sales of products obtained from third-party suppliers.
We sell a significant number of products that are manufactured by third-party suppliers over which we have no direct control. While we have implemented processes and procedures to try to ensure that the suppliers we use are complying with all applicable regulations, there can be no assurance that such suppliers in all instances will comply with such processes and procedures or otherwise with applicable regulations. Noncompliance could result in our marketing and distribution of contaminated or dangerous products which would subject us to liabilities and could result in the imposition by government authorities of penalties that could restrict or eliminate our ability to purchase products. Any or all of these effects could adversely affect our business, financial condition and results of operation.
The growth of our business depends on our ability to finance new product innovations and these increased costs may reduce our cash flows and, if the products in which we have invested fail, it would reduce our profitability.
We operate in the Chinese patent medicine industry, which is characterized by significant competition and rapid change. New products appear with increasing frequency to supplant existing products. If we fail to adapt to those conditions in a timely and efficient manner, our revenues and profits would likely decline. To remain competitive, we must continue to incur significant costs in product research and development, marketing, equipment and facilities and to make capital investment. These costs may increase, resulting in greater fixed costs and operating expenses.
In the fiscal year ended September 30, 2024, we incurred $3.0 million in research and development expenses, a 37.6% decrease compared to the expenses in the fiscal year ended September 30, 2023. In the fiscal year ended September 30, 2023, we incurred $4.9 million research and development expenses, a 36.4% decrease compared to the expenses in the fiscal year ended September 30, 2022. In the fiscal year ended September 30, 2022, we incurred $7.6 million of research and development expenses, a 39.9% increase compared to the expenses in the fiscal year ended September 30, 2021. In order to diversify our profit portfolio, a large portion of the research and development expenses in the fiscal year ended September 30, 2022 was spent on developing and testing eight new products.
Our future operating results will depend to a significant extent on our ability to continue to provide new products that compare favorably based on time to market, cost and performance with the design and manufacturing capabilities and competing third-party suppliers and technologies. Furthermore, our research and development efforts may not produce successful results, and our new products may not achieve market acceptance, create additional revenue for us, or bring us profits. Our failure to increase our net sales sufficient to offset these increased costs would reduce our profitability and may materially and adversely affect our business operations and results of operations.
Future acquisitions may have an adverse effect on our ability to manage our business.
We may acquire businesses, technologies, services or products which are complementary to our core business of manufacturing and selling TCMD products. Future acquisitions may expose us to potential risks, including risks associated with: (i) the integration of new products, services and personnel; unforeseen or hidden liabilities; (ii) the diversion of resources from our existing business; (iii) our potential inability to generate sufficient revenue to offset new costs; the expenses of acquisitions; or (iv) the potential loss of or harm to relationships with both employees and advertising clients resulting from our integration of new businesses.
Any of the potential risks listed above could have a material and adverse effect on our ability to manage our business, our revenues and net income. We may need to raise additional debt funding or sell additional equity securities to make such acquisitions. The raising of additional debt funding by us, if required, would result in increased debt service obligations and could result in additional operating and financing covenants, or liens on our assets, that could restrict our operations. The sale of additional equity securities could result in additional dilution to our shareholders.
Increase in labor costs in the PRC may adversely affect our business and our profitability.
China’s economy has experienced increases in labor costs in recent years, and the average wage in China are expected to continue to grow. The average wage level for our employees has also increased in recent years. We expect that our labor costs, including wages and employee benefits, will continue to increase as we continue to grow our business. Unless we are able to pass on these increased labor costs to our customers by increasing prices for our products or services, our profitability and results of operations may be materially adversely affected.
In addition, we have been subject to stricter regulatory requirements in terms of entering into labor contracts with our employees and paying various statutory employee benefits, including pensions, housing fund, medical insurance, work-related injury insurance, unemployment insurance and childbearing insurance to designated government agencies for the benefit of our employees. Pursuant to the PRC Labor Contract Law (《中华人民共和国劳动法》) (the “Labor Contract Law”) that became effective in January 2008 and its implementing rules that became effective in September 2008 and its amendments that became effective in July 2013, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect any such terminations or those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations.
As of the date of this annual report, we believe that we are in substantial compliance with labor-related laws and regulations in China, and we have not been notified of any instance of noncompliance. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practice will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations could be materially and adversely affected.
Natural disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, terrorist acts and global political events could cause permanent or temporary distribution center or store closures, impair our ability to purchase, receive or replenish inventory, or cause customer traffic to decline, all of which could result in lost sales and otherwise adversely affect our financial performance.
The occurrence of one or more natural disasters, such as hurricanes, fires, floods and earthquakes (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, terrorist acts or disruptive global political events, such as civil unrest in countries in which our suppliers are located, or similar disruptions could adversely affect our operations and financial performance. To the extent these events result in the closure of one or more of our distribution centers, a significant number of stores, a manufacturing facility or our corporate headquarters, or impact one or more of our key suppliers, our operations and financial performance could be materially adversely affected through an inability to make deliveries to our stores and through lost sales. In addition, these events could result in increases in fuel (or other energy) prices or a fuel shortage, decrease in available raw materials of sufficient quality and in sufficient amounts, delays in opening new stores, the temporary lack of an adequate work force in a market, the temporary or long-term disruption in the supply of products from some local and overseas suppliers, the temporary disruption in the transport of goods from overseas, delay in the delivery of goods to our distribution centers or stores, the temporary reduction in the availability of products in our stores and disruption to our information systems. These events also could have indirect consequences, such as increases in the cost of insurance, if any of such events was to result in significant loss of property or other insurable damage.
Risks Related to Doing Business in China
The PRC government has significant authority to intervene or influence the China operations of an offshore holding company, such as ours, at any time. The PRC government may exert more control over offerings conducted overseas and/or foreign investment in China-based issuers. If the PRC government exerts more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers and we were to be subject to such oversight and control, it may result in a material adverse change to our business operations, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, and cause the ordinary shares to significantly decline in value or become worthless.
Our business, prospects, financial condition, and results of operations may be influenced to a significant degree by political, economic, and social conditions in China generally. The PRC government has significant authority to intervene or influence the China operations of an offshore holding company at any time, which could result in a material adverse change to our operations and the value of the ordinary shares. The PRC government has recently indicated an intent to exert more oversight and control over listings conducted overseas and/or foreign investment in China-based issuers. Any such action may hinder our ability to offer or continue to offer our securities to investors, result in a material adverse change to our business operations, and damage our reputation, which could cause the ordinary shares to significantly decline in value or become worthless. See also “—Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.”
Uncertainties arising from the legal system in China, including uncertainties regarding the interpretation and enforcement of PRC laws and the possibility that regulations and rules can change quickly with little advance notice, could hinder our ability to offer or continue to offer the ordinary shares, result in a material adverse change to our business operations, and damage our reputation, which would materially and adversely affect our financial condition and results of operations and cause the ordinary shares to significantly decline in value or become worthless.
The legal system in China is a civil law system based on written statutes. Unlike common law systems, it is a system in which decided legal cases may be cited for reference but have less precedential value. The laws, regulations, and legal requirements in China are quickly evolving and their interpretation and enforcement involve uncertainties. These uncertainties could limit the legal protections available to you and us. In addition, we cannot predict the effect of future developments in the PRC legal system, particularly with regard to new economies, including the promulgation of new laws, changes to existing laws or the interpretation or enforcement thereof, or the preemption of local regulations by national laws. Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all. As a result, we may not be aware of our potential violation of these policies and rules. In addition, any administrative and court proceedings in China may be protracted and result in substantial costs and diversion of resources and management attention.
New laws and regulations may be enacted from time to time and substantial uncertainties exist regarding the interpretation and implementation of current and any future PRC laws and regulations applicable to our businesses. In particular, the PRC government authorities may continue to promulgate new laws, regulations, rules and guidelines governing companies in the patent medicine industry with respect to a wide range of issues, such as intellectual property, unfair competition and antitrust, privacy and data protection, and other matters. Compliance with these laws, regulations, rules, guidelines, and implementations may be costly, and any incompliance or associated inquiries, investigations, and other governmental actions may divert significant management time and attention and our financial resources, bring negative publicity, subject us to liabilities or administrative penalties, or materially and adversely affect our business, financial condition, results of operations, and the value of the ordinary shares.
Our ordinary shares may be delisted or prohibited from being traded over-the-counter under the Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect our auditors. The delisting or the cessation of trading of our ordinary shares, or the threat of their being delisted or prohibited from being traded, may materially and adversely affect the value of your investment. Additionally, the inability of the PCAOB to conduct inspections would deprive our investors with the benefits of such inspections. Our auditor has not been inspected by the PCAOB, but according to our auditor, it will be inspected by the PCAOB on a regular basis.
The Holding Foreign Companies Accountable Act was enacted on December 18, 2020. The Holding Foreign Companies Accountable Act, as amended by the Accelerating Holding Foreign Companies Accountable Act, states if the SEC determines that we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years, the SEC shall prohibit our shares from being traded on a national securities exchange or in the over-the-counter trading market in the U.S.
Our current auditor, Enrome LLP, and our former auditor, YCM CPA INC., the independent registered public accounting firms that issue the audit reports included elsewhere in this annual report, as auditors of companies that are traded publicly in the United States and firms registered with the PCAOB, are subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess their compliance with the applicable professional standards. Our current auditor, Enrome LLP, is based in Singapore, and our former auditor, YCM CPA INC., is headquartered in California, and are both subject to inspection by the PCAOB.
On March 24, 2021, the SEC adopted interim final rules relating to the implementation of certain disclosure and documentation requirements of the Holding Foreign Companies Accountable Act. We will be required to comply with these rules if the SEC identifies us as having a “non-inspection” year under a process to be subsequently established by the SEC. The SEC is assessing how to implement other requirements of the Holding Foreign Companies Accountable Act, including the listing and trading prohibition requirements described above. In May 2021, the PCAOB issued for public comment a proposed rule related to the PCAOB’s responsibilities under the Holding Foreign Companies Accountable Act, which, according to the PCAOB, would establish a framework for the PCAOB to use when determining, as contemplated under the Holding Foreign Companies Accountable Act, whether the PCAOB is unable to inspect or investigate completely registered public accounting firms located in a foreign jurisdiction because of a position taken by one or more authorities in that jurisdiction. The proposed rule was adopted by the PCAOB in September 2021, pending the final approval of the SEC to become effective.
On June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, which was signed into law as part of the fiscal year 2023 omnibus spending legislation on December 29, 2022 and reduced the number of consecutive non-inspection years required for triggering the prohibitions under the Holding Foreign Companies Accountable Act from three years to two.
On December 2, 2021, the SEC issued amendments to finalize rules implementing the submission and disclosure requirements in the Holding Foreign Companies Accountable Act. The rules apply to registrants that the SEC identifies as having filed an annual report with an audit report issued by a registered public accounting firm that is located in a foreign jurisdiction and that PCAOB is unable to inspect or investigate completely because of a position taken by an authority in foreign jurisdictions.
On December 16, 2021, the PCAOB issued a report on its determination that it is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China and in Hong Kong because of positions taken by PRC and Hong Kong authorities in those jurisdictions. The PCAOB has made such determination as mandated under the Holding Foreign Companies Accountable Act. Pursuant to each annual determination by the PCAOB, the SEC will, on an annual basis, identify issuers that have used non-inspected audit firms and thus are at risk of such suspensions in the future. Our auditor is headquartered in California and is not subject to this determination announced by the PCAOB.
On December 15, 2022, the PCAOB announced that it has completed a test inspection of two selected auditing firms in mainland China and Hong Kong and has voted to vacate its previous Determination Report, which concluded in December 2021 that it could not inspect or investigate completely registered public accounting firms based in mainland China or Hong Kong. Moving forward, the PCAOB will continue to demand complete access in mainland China and Hong Kong. Despite the PCAOB’s announcement, Chinese authorities will need to ensure that the PCAOB continues to have full access for inspections and investigations in 2025 and beyond, or the threat for Chinese companies listed on U.S. stock exchanges has not been relieved.
Our auditor, Enrome LLP, is headquartered in Singapore. Enrome LLP has been subject to PCAOB inspections and was not subject to the determinations announced by the PCAOB on December 16, 2021. If, for whatever reason, the PCAOB is unable to conduct full inspections of our auditor, uncertainty under the Holding Foreign Companies Accountable Act could cause the market price of our ordinary shares to be materially and adversely affected, and our securities could be delisted or prohibited from being traded “over-the-counter.” The risk and uncertainty associated with a potential delisting would have a negative impact on the price of our ordinary shares.
The foregoing recent developments would add uncertainties to our future offerings and may result in prohibitions on the trading of our ordinary shares on the Nasdaq Stock Market, if our auditors fail to meet the PCAOB inspection requirement in time.
Failure to comply with cybersecurity, data privacy, data protection, or any other laws and regulations related to data may materially and adversely affect our business, financial condition, and results of operations.
We may be subject to a variety of cybersecurity, data privacy, data protection, and other laws and regulations related to data, including those relating to the collection, use, sharing, retention, security, disclosure, and transfer of confidential and private information, such as personal information and other data. These laws and regulations apply not only to third-party transactions, but also to transfers of information within our organization. These laws and regulations may restrict our business activities and require us to incur increased costs and efforts to comply, and any breach or noncompliance may subject us to proceedings against us, damage our reputation, or result in penalties and other significant legal liabilities, and thus may materially and adversely affect our business, financial condition, and results of operations.
In China, the cybersecurity, data privacy, data protection, or other data-related laws and regulations are relatively new and evolving, and their interpretation and application may be uncertain. For example, on September 24, 2024, the Data Security Administration was promulgated by the Standing Committee of the National People’s Congress (the “SCNPC”), which took effect on January 1, 2025. According to the Data Security Administration, data processors shall, in accordance with relevant state provisions, apply for cybersecurity review when carrying out the following activities: (i) the merger, reorganization, or separation of internet platform operators that have acquired a large number of data resources related to national security, economic development, or public interests, which affect or may affect national security; (ii) data processors that handle personal data of more than one million individuals intend to list on a foreign stock exchange; (iii) data processors that intend to list on Hong Kong exchange, which affects or may affect national security; and (iv) other data processing activities that affect or may affect national security.
As of the date of this annual report, we have not engaged in the relevant businesses provided in the Data Security Administration. As such, we currently do not expect the Data Security Administration or other recent regulations will have an impact on our business or results of operations, and we believe that we are compliant with the regulations and policies that have been issued by the government authorities to date. As of the date of this annual report, we have not received any investigation, notice, warning, or sanction from applicable government authorities (including the CAC) with regard to our business operations concerning any issues related to cybersecurity and data security. In addition, we have not been involved in any review, investigation, enquiry, penalty, or other legal proceedings initiated by applicable governmental or regulatory authorities or third parties in relation to in relation to cyber security or data protection. However, we still face uncertainties regarding the interpretation and implementation of these laws and regulations in the future. Cybersecurity review could result in disruption in our operations, negative publicity with respect to our Company, and diversion of our managerial and financial resources. Furthermore, if we were found to be in violation of applicable laws and regulations in China during such review, we could be subject to fines or other government sanctions and reputational damage. Therefore, potential cybersecurity review, if applicable to us, could materially and adversely affect our business, financial condition, and results of operations.
In addition, the PRC Data Security Law, which was promulgated by the SCNPC on June 10, 2021 and took effect on September 1, 2021, requires data collection to be conducted in a legitimate and proper manner, and stipulates that, for the purpose of data protection, data processing activities must be conducted based on data classification and hierarchical protection system for data security. Furthermore, the recently issued Opinions on Strictly Cracking Down Illegal Securities Activities require (i) speeding up the revision of the provisions on strengthening the confidentiality and archives management relating to overseas issuance and listing of securities and (ii) improving the laws and regulations relating to data security, cross-border data flow, and management of confidential information. The PRC Personal Information Protection Law, which was promulgated by the SCNPC on August 20, 2021 and took effect on November 1, 2021, integrates the scattered rules with respect to personal information rights and privacy protection and applies to the processing of personal information within China as well as certain personal information processing activities outside China, including those for the provision of products and services to natural persons within China or for the analysis and assessment of acts of natural persons within China. There remain uncertainties regarding the further interpretation and implementation of those laws and regulations, if they are deemed to be applicable to us, we cannot assure you that we will be compliant with such new regulations in all respects, and we may be ordered to rectify and terminate any actions that are deemed illegal by the government authorities and become subject to fines and other government sanctions, which may materially and adversely affect our business, financial condition, and results of operations.
Recent greater oversight by the Cyberspace Administration of China over data security, particularly for companies seeking to list on a foreign exchange, could adversely impact our business and operations.
On December 28, 2021, the CAC and other relevant PRC governmental authorities jointly promulgated the Cybersecurity Review Measures, which took effect on February 15, 2022. The Cybersecurity Review Measures provide that, in addition to critical information infrastructure operators (the “CIIOs”) that intend to purchase Internet products and services, net platform operators engaging in data processing activities that affect or may affect national security must be subject to cybersecurity review by the Cybersecurity Review Office of the PRC. According to the Cybersecurity Review Measures, a cybersecurity review assesses potential national security risks that may be brought about by any procurement, data processing, or overseas listing. The Cybersecurity Review Measures require that an online platform operator which possesses the personal information of at least one million users must apply for a cybersecurity review by the CAC if it intends to be listed in foreign countries.
On September 24, 2024, the SCNPC published the Data Security Administration, which became effective on January 1, 2025. The Data Security Administration provides that data processing operators engaging in data processing activities that affect or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC. According to the Data Security Administration, data processing operators who possess personal data of at least one million users or collect data that affects or may affect national security must be subject to network data security review by the relevant Cyberspace Administration of the PRC.
As of the date of this annual report, we have not received any notice from any authorities identifying our PRC subsidiaries or the PRC operating entities as CIIOs or requiring us to go through cybersecurity review or network data security review by the CAC. As advised by our PRC counsel, AllBright Law Offices (Fuzhou), neither the operations of our PRC subsidiaries, nor of the PRC operating entities are expected to be affected, and that we will not be subject to cybersecurity review by the CAC under the Cybersecurity Review Measures, nor is any such entity subject to the Data Security Administration, given that our PRC subsidiaries and the PRC operating entities possess personal data of fewer than one million individual clients and do not collect data that affects or may affect national security in their business operations as of the date of this annual report and do not anticipate that they will be collecting over one million users’ personal information or data that affects or may affect national security in the near future. In general, we believe we are compliant with the regulations or policies that have been issued by the government authorities to date. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Data Security Administration will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Data Security Administration. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot assure you that PRC regulatory agencies, including the CAC, would take the same view as we do. In the event that we are subject to any mandatory cybersecurity review and other specific actions required by the CAC, we face uncertainty as to whether any clearance or other required actions can be timely completed, or at all. If we inadvertently conclude that such approval is not required, fail to obtain and maintain such approvals, licenses, or permits required for our business or respond to changes in the regulatory environment, we could be subject to liabilities, penalties and operational disruption, which may materially and adversely affect our business, operating results, financial condition, and the value of our securities, significantly limit or completely hinder our ability to offer or continue to offer securities to investors, or cause such securities to significantly decline in value or become worthless.
The approval and/or other requirements of the CSRC or other PRC governmental authorities may be required in connection with an offering under PRC rules, regulations or policies, and, if required, we cannot predict whether or how soon we will be able to obtain such approval.
The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by PRC companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of PRC domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If a governmental approval is required, it is uncertain how long it will take for us to obtain such approval, and, even if we obtain such approval, the approval could be rescinded. Any failure or delay in obtaining the requisite governmental approval for an offering, or a rescission of such CSRC approval, if obtained by us, may subject us to sanctions imposed by the relevant PRC regulatory authority, which could include fines and penalties on our operations in China, restrictions or limitations on our ability to pay dividends outside of China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.
On February 17, 2023, the CSRC issued the Trial Measures, and five supporting guidelines, which became effective on March 31, 2023. Pursuant to the Overseas Listings Rules, companies in mainland China that directly or indirectly offer or list their securities in an overseas market, including a company in mainland China limited by shares and an offshore company whose main business operations are in mainland China and intends to offer shares or be listed in an overseas market based on its equities, assets or similar interests in mainland China are required to file with the CSRC within three business days after submitting their listing application documents to the regulator in the place of intended listing. If the company fails to complete the filing procedure or conceals any material fact or falsifies any major content in its filing documents, it may be subject to administrative penalties, such as order to rectify, warnings, fines, and its controlling shareholders, actual controllers, the person directly in charge and other directly liable persons may also be subject to administrative penalties, such as warnings and fines. The Overseas Listings Rules also provide that a company in mainland China must file with the CSRC within three business days for its follow on offering of securities after it is listed in an overseas market. On February 17, 2023, the CSRC also issued the Notice on Administration of the Filing of Overseas Offering and Listing by Domestic Companies and held a press conference for the release of the Overseas Listings Rules, which, among others, clarified that the companies in mainland China that have been listed overseas before March 31, 2023 are not required to file with the CSRC immediately, but these companies should complete filing with the CSRC for their refinancing activities in accordance with the Overseas Listings Rules. A fine between RMB1 million (approximately $157,255) and RMB10 million (approximately $1,572,550) may be imposed if an applicant fails to fulfill the filing requirements with the CSRC or conducts an overseas offering or listing in violation of the Overseas Listings Rules, and in cases of severe violations, a parallel order to suspend relevant businesses or halt operations for rectification may be issued, and relevant business permits or operational license revoked.
On February 24, 2023, the CSRC, jointly with other relevant governmental authorities, published the Provisions on Strengthening Confidentiality and Archives Management of Overseas Securities Issuance and Listing by Domestic Enterprises, or the Confidentiality and Archives Management Provisions, which became effective on March 31, 2023. Pursuant to the Confidentiality and Archives Management Provisions, China-based companies that offer and list securities in overseas markets shall establish confidentiality and archives system. The “China-based companies” refer to companies in mainland China limited by shares which are directly listed on a foreign stock exchange and the domestic operating entities of an offshore company being indirectly listed on a foreign stock exchange. These China-based companies shall obtain the approvals from relevant authorities and file with the competent confidential administration authorities when providing or publicly filing documents and materials related to state secrets or secrets of the government authorities to the relevant securities companies, securities service agencies or the offshore regulatory authorities, or providing or publicly filing such documents and materials through its offshore listing entity. In addition, China-based companies shall complete corresponding procedures when (i) providing or publicly filing documents and materials which may adversely affect national security and public interests to the relevant securities companies, securities service agencies or the offshore regulatory authorities, (ii) providing or publicly filing such documents and materials through its offshore listing entity, or (iii) providing accounting files or copies to relevant securities companies, securities service institutions, overseas regulators and individuals. These China-based companies are also required to provide written statements as to whether they have completed the approval or filing procedures as above when providing documents and materials to securities companies and securities service providers, and the securities companies and securities service providers should properly retain such written statements for inspection. If a China-based company finds that the documents and materials related to state secrets or secrets of the government authorities or other materials, which may adversely affect national security and public interests, have been leaked or have leakage risks, it should take remedial measures immediately and report to the relevant authorities.
In the opinion of our PRC legal counsel, AllBright Law Offices (Fuzhou), as a domestic company listed on Nasdaq since March 2021, and not currently conducting refinancing or other activities that require filings, we are not required to file with the CSRC in accordance with the Overseas Listing Rules at this time. However, in the event that we conduct subsequent offerings, we could be subject to filing requirements with the CSRC. In the event that filings with the CSRC are required, we cannot assure you that we can complete the filing procedures, obtain the approvals or complete other compliance procedures in a timely manner, or at all, or that any completion of filing or approval or other compliance procedures would not be rescinded. Any such failure would subject us to sanctions by the CSRC or other PRC regulatory authorities. These regulatory authorities may impose restrictions and penalties on the operations in China, significantly limit or completely hinder our ability to launch any new offering of our securities, limit our ability to pay dividends outside of China, delay or restrict the repatriation of the proceeds from future capital raising activities into China, or take other actions that could materially and adversely affect our business, results of operations, financial condition and prospects, as well as the trading price of our ordinary shares. Furthermore, the PRC government authorities may further strengthen oversight and control over listings and offerings that are conducted overseas. Any such action may adversely affect our operations and significantly limit or completely hinder our ability to offer or continue to offer securities to you and cause the value of such securities to significantly decline or be worthless.
Furthermore, the governmental authorities may impose restrictions and penalties on our operations in China, such as the suspension of our apps and services, revocation of our licenses, shutting down part or all of our operations, limiting our ability to pay dividends outside of China, delaying or restricting the repatriation of the proceeds from an offering into China, or may take other actions that could have a material adverse effect on our business, financial condition, results of operations and prospects, as well as the trading price of the ordinary shares. The PRC governmental authorities may also take actions requiring us, or making it advisable for us, to halt an offering before settlement and delivery of the ordinary shares offered hereby. Consequently, if you engage in market trading or other activities in anticipation of and prior to settlement and delivery, you do so at the risk that settlement and delivery may not occur. In addition, if the PRC governmental authorities later promulgate new rules or requirements that we obtain their approvals for filings, registrations or other kinds of authorizations for an offering, we cannot assure you that we can obtain the approval, authorizations, or complete required procedures or other requirements in a timely manner, or at all, or obtain a waiver of the requisite requirements if and when procedures are established to obtain such a waiver.
PRC regulation of loans to, and direct investments in, PRC entities by offshore holding companies may delay or prevent us from using proceeds from our offerings and/or other financing activities to make loans or additional capital contributions to our PRC operating subsidiaries.
As an offshore holding company with PRC subsidiaries, we may transfer funds to our PRC subsidiaries or finance our operating entities by means of loans or capital contributions. Any capital contributions or loans that we, as an offshore entity, make to our Company’s PRC subsidiaries are subject to PRC regulations. Any loans to our PRC subsidiaries, which are foreign-invested enterprises, cannot exceed statutory limits based on the difference between the amount of our investments and registered capital in such subsidiaries, and shall be registered with China’s State Administration of Foreign Exchange (“SAFE”), or its local counterparts. Furthermore, any capital increase contributions we make to our PRC subsidiaries, which are foreign-invested enterprises, are subject to the requirement of making necessary filings in the Foreign Investment Comprehensive Management Information System, or FICMIS, and registration with other government authorities in China. We may not be able to obtain these government registrations or approvals on a timely basis, if at all. If we fail to obtain such approvals or make such registration, our ability to make equity contributions or provide loans to our Company’s PRC subsidiaries or to fund their operations may be negatively affected, which may adversely affect their liquidity and ability to fund their working capital and expansion projects and meet their obligations and commitments. As a result, our liquidity and our ability to fund and expand our business may be negatively affected.
We must remit proceeds of any future offerings to China before they may be used to benefit our business in China, and this process may take several months to complete.
The proceeds of our future offerings must be sent back to China, and the process for sending such proceeds back to China may take as long as six months after the closing of an offering. As an offshore holding company of our PRC operating subsidiaries, we may make loans to our PRC subsidiaries, or we may make additional capital contributions to our PRC subsidiaries. Any loans to our PRC subsidiaries are subject to PRC regulations. For example, loans by us to our subsidiaries in China, which are foreign-invested enterprises, to finance their activities cannot exceed statutory limits and must be registered with SAFE.
To remit the proceeds of our offerings, we must take the following steps:
| ● | First, we will open a special foreign exchange account for capital account transactions. To open this account, we must submit to SAFE certain application forms, identity documents, transaction documents, form of foreign exchange registration of overseas investments of the domestic residents, and foreign exchange registration certificate of the invested company. | |
| ● | Second, we will remit the offering proceeds into this special foreign exchange account. | |
| ● | Third, we will apply for settlement of the foreign exchange. In order to do so, we must submit to SAFE certain application forms, identity documents, payment order to a designated person, and a tax certificate. |
The timing of the process is difficult to estimate because the efficiencies of different SAFE branches can vary significantly. Ordinarily the process takes several months but is required by law to be accomplished within 180 days of application.
We may also decide to finance our subsidiaries by means of capital contributions. These capital contributions must be subject to the requirement of making necessary filings in the FICMIS, and registration with other government authorities in China. We cannot assure you that we will be able to obtain these government approvals on a timely basis, if at all, with respect to future capital contributions by us to our subsidiaries. If we fail to receive such approvals, our ability to use the proceeds of any future offerings and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business. If we fail to receive such approvals, our ability to use the proceeds of our future offerings and to capitalize our Chinese operations may be negatively affected, which could adversely affect our liquidity and our ability to fund and expand our business.
We may rely on dividends paid by our subsidiaries for our cash needs, and any limitation on the ability of our subsidiaries to make payments to us could have a material adverse effect on our ability to conduct business.
As a holding company, we conduct all of our business through the PRC operating entities incorporated in China. We may rely on dividends paid by these PRC subsidiaries for our cash needs, including the funds necessary to pay any dividends and other cash distributions to our shareholders, to service any debt we may incur and to pay our operating expenses. The payment of dividends by entities established in China is subject to limitations. Regulations in China currently permit payment of dividends only out of accumulated profits as determined in accordance with accounting standards and regulations in China. In accordance with the Article 166, 168 of the Company Law of the PRC (Amended in 2018) (the “PRC Company Law”), each of our PRC subsidiaries is required to set aside at least 10% of its after-tax profit based on PRC accounting standards each year to its general reserves or statutory capital reserve fund until the aggregate amount of such reserves reaches 50% of its respective registered capital. A company may discontinue the contribution when the aggregate sum of the statutory surplus reserve is more than 50% of its registered capital. The statutory common reserve fund of a company shall be used to cover the losses of the company, expand the business and production of the company or be converted into additional capital. As a result, our PRC subsidiaries are restricted in their ability to transfer a portion of their net assets to us in the form of dividends. In addition, if any of our PRC subsidiaries incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us. Any limitations on the ability of our PRC subsidiaries to transfer funds to us could materially and adversely limit our ability to grow, make investments or acquisitions that could be beneficial to our business, pay dividends and otherwise fund and conduct our business.
Adverse changes in political, economic and social conditions, as well as government policies in China could have a material adverse effect on our business results of operations, financial conditions and prospects.
All of our business operations are conducted in China. Accordingly, our financial condition, results of operations and prospects are, to a material extent, subject to economic, political and legal developments in China. The economy in China differs from the economies of developed countries in many respects, including, among other things, the degree of government involvement, control of investment, level of economic development, growth rate, foreign exchange controls and resource allocation. Although the economy in China has been transitioning from a planned economy to a more market-oriented economy for about four decades, a substantial portion of productive assets in China is still owned by the PRC government. The PRC government also exercises significant control over the economic growth of China through allocating resources, controlling payments of foreign currency denominated obligations, setting monetary policy and providing preferential treatment to particular industries or companies. In recent years, the PRC government has implemented measures emphasizing the utilization of market forces in economic reform, the reduction of state ownership of productive assets and the establishment of sound corporate governance practices in business enterprises. Some of these measures benefit the overall economy in China, but may adversely affect us. For example, our financial condition and results of operations may be adversely affected by government policies on the Chinese patent medicine industry in China or changes in tax regulations applicable to us. If the business environment in China deteriorates, our business in China may also be materially and adversely affected.
Changes to the PRC legal system could have an adverse effect on us.
The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions under the civil law system may be cited for reference but have limited precedential value. Since these laws and regulations are relatively new and the PRC legal system continues to rapidly evolve, the interpretations of many laws, regulations and rules are not always uniform and the enforcement of these laws, regulations and rules involves uncertainties.
In 1979, the PRC government began to promulgate a comprehensive system of laws and regulations governing economic matters in general. The overall effect of legislation over the past decades has significantly enhanced the protections afforded to various forms of foreign investments in China. However, recently enacted laws and regulations may not sufficiently cover all aspects of economic activities in China. In particular, the interpretation and enforcement of these laws and regulations involve uncertainties. Since PRC administrative and court authorities have significant discretion in interpreting and implementing statutory provisions and contractual terms, it may be difficult to evaluate the outcome of administrative and court proceedings and the level of legal protection we enjoy. These uncertainties may affect our judgment on the relevance of legal requirements and our ability to enforce our contractual rights or tort claims.
Furthermore, the PRC legal system is based in part on government policies and internal rules, some of which are not published on a timely basis or at all and may have retroactive effect. As a result, we may not be aware of our violation of any of these policies and rules until sometime after the violation. In addition, any administrative and court proceedings in China may be protracted, resulting in substantial costs and diversion of resources and management attention.
Labor Contract Law and other labor-related laws in the PRC may adversely affect our business and our results of operations.
On December 28, 2012, the PRC government released the revision of the Labor Contract Law, which became effective on July 1, 2013. Pursuant to the Labor Contract Law, employers are subject to stricter requirements in terms of signing labor contracts, minimum wages, paying remuneration, determining the term of employees’ probation and unilaterally terminating labor contracts. In the event that we decide to terminate some of our employees or otherwise change our employment or labor practices, the Labor Contract Law and its implementation rules may limit our ability to effect those changes in a desirable or cost-effective manner, which could adversely affect our business and results of operations. According to the PRC Social Insurance Law (《中华人民共和国社会保险法》), employees must participate in pension insurance, work-related injury insurance, medical insurance, unemployment insurance and maternity insurance and the employers must, together with their employees or separately, pay the social insurance premiums for such employees. In accordance with the Regulations on the Management of Housing Fund which was promulgated by the State Council in 1999 and amended in 2002 and 2019, employers must register at the designated administrative centers and open bank accounts for depositing employees’ housing funds. As the interpretation and implementation of labor-related laws and regulations are still evolving, we cannot assure you that our employment practices do not and will not violate labor-related laws and regulations in China, which may subject us to labor disputes or government investigations. As of the date of this annual report, we believe that we are in substantial compliance with labor-related laws and regulations in China, and we have not been notified of any instance of noncompliance. We cannot assure you that we will be able to comply with all labor-related law and regulations regarding including those relating to obligations to make social insurance payments and contribute to the housing provident fund. If we are deemed to have violated relevant labor laws and regulations, we could be required to provide additional compensation to our employees and our business, financial condition and results of operations will be adversely affected.
There are significant uncertainties under the EIT Law, relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.
Under the PRC EIT Law and its implementation rules, the profits of a foreign invested enterprise generated through operations, which are distributed to its immediate holding company outside the PRC, will be subject to a withholding tax rate of 10%. Pursuant to a special arrangement between Hong Kong and the PRC, such rate may be reduced to 5% if a Hong Kong resident enterprise owns more than 25% of the equity interest in the PRC company. Our PRC subsidiaries, Universe Technology, Jiangxi Universe, Universe Trade and Universe Hanhe, are wholly-owned by our Hong Kong subsidiary. Moreover, under the Notice of the State Administration of Taxation on Issues regarding the Administration of the Dividend Provision in Tax Treaties promulgated on February 20, 2009, the taxpayer needs to satisfy certain conditions to enjoy the benefits under a tax treaty. The beneficial owner of the relevant dividends and the corporate shareholder to receive dividends from the PRC subsidiary must have continuously met the direct ownership thresholds during the 12 consecutive months preceding the receipt of the dividends. Further, the State Administration of Taxation (the “SAT”) promulgated the Notice on How to Comprehend and Determine the “Beneficial Owner” in Tax Treaties (《国家税务总局关于税收协定中”受益所有人”有关问题的公告》) on February 3, 2018, which limits the “beneficial owner” to individuals, projects or other organizations normally engaged in substantive operations, and sets forth certain detailed factors in determining the “beneficial owner” status. In current practice, a Hong Kong enterprise must obtain a tax resident certificate from the relevant Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority. As of the date of this annual report, we have not commenced the application process for a Hong Kong tax resident certificate from the relevant Hong Kong tax authority, and there is no assurance that we will be granted such a Hong Kong tax resident certificate.
Even after we obtain the Hong Kong tax resident certificate, we are required by applicable tax laws and regulations to file required forms and materials with relevant PRC tax authorities to prove that we can enjoy 5% lower PRC withholding tax rate. Universe HK intends to obtain the required materials and file with the relevant tax authorities when it plans to declare and pay dividends, but there is no assurance that the PRC tax authorities will approve the 5% withholding tax rate on dividends received from Universe HK.
Failure to qualify for or obtain any preferential tax treatments that are available in China could adversely affect our results of operations and financial condition.
The EIT Law and its implementation rules generally impose a uniform income tax rate of 25% on all enterprises, but grant preferential treatment to “high and new technology enterprises strongly supported by the state,” or HNTEs, with a preferential enterprise tax rate of 15%. Our subsidiaries, Jiangxi Universe and Universe Trade, were accredited as HNTE and enjoy the reduced income tax rate of 15% for three years through November 2025 and December 2023, respectively. Universe Trade did not successfully renew its HNTE status at the end of December 2023 and, therefore, has been subject to the standard PRC enterprise income tax rate of 25% starting from January 2024. According to the relevant administrative measures, to qualify as an “HNTE,” a company must meet certain financial and non-financial criteria and complete verification procedures with the administrative authorities. Continued qualification as an HNTE is subject to review by the relevant government authorities in China every three years, and in practice, certain local tax authorities may require annual evaluation of the qualification. In the event that Jiangxi Universe fails to renew its status as HNTE with the local tax authority upon expiration of its HNTE status in November 2025, it will be subject to the standard PRC enterprise income tax rate of 25%.
Under the EIT Law, we may be classified as a “Resident Enterprise” of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.
Under the EIT Law, an enterprise established outside of China with “de facto management bodies” within China is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. The implementing rules of the EIT Law define de facto management as “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
If the PRC tax authorities determine that we are a “resident enterprise” for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. First, we may be subject to the enterprise income tax at a rate of 25% on our worldwide taxable income as well as PRC enterprise income tax reporting obligations. In our case, this would mean that income such as non-China source income would be subject to PRC enterprise income tax at a rate of 25%. Currently, we do not have any non-China source income, as we conduct our sales in China. Second, under the EIT Law and its implementing rules, dividends paid to us from our PRC subsidiaries would be deemed as “qualified investment income between resident enterprises” and therefore qualify as “tax-exempt income” pursuant to the clause 26 of the EIT Law. Finally, it is possible that future guidance issued with respect to the new “resident enterprise” classification could result in a situation in which the dividends we pay with respect to our ordinary shares, or the gain our non-PRC shareholders may realize from the transfer of our ordinary shares, may be treated as PRC-sourced income and may therefore be subject to a 10% PRC withholding tax. The EIT Law and its implementing regulations are, however, relatively new and ambiguities exist with respect to the interpretation and identification of PRC-sourced income, and the application and assessment of withholding taxes. If we are required under the EIT Law and its implementing regulations to withhold PRC income tax on dividends payable to our non-PRC shareholders, or if non-PRC shareholders are required to pay PRC income tax on gains on the transfer of their ordinary shares, our business could be negatively impacted and the value of your investment may be materially reduced. Further, if we were to be treated as a “resident enterprise” by PRC tax authorities, we would be subject to taxation in both China and such countries in which we have taxable income, and our PRC tax may not be creditable against such other taxes.
To the extent cash in and assets of the business is in the PRC or a PRC entity, the funds and assets may not be available to fund operations or for other use outside of the PRC due to interventions in or the imposition of restrictions and limitations on the ability of our Company or our subsidiaries by the PRC government to transfer cash and assets.
Relevant PRC laws and regulations permit the companies in mainland China to pay dividends only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Additionally, each of the companies in mainland China are required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. The companies in mainland China are also required to further set aside a portion of their after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at their discretion. These reserves are not distributable as cash dividends. Furthermore, if we determine to pay dividends on any of our ordinary shares in the future, as a holding company, we will rely on payments from subsidiaries of Jiangxi Universe to Jiangxi Universe, and from Jiangxi Universe to Universe Technology, and the distribution of such payments to Universe HK, and then to our Company. If our PRC subsidiaries incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us.
Our cash dividends, if any, will be paid in U.S. dollars. If we are considered a tax resident enterprise of mainland China for tax purposes, any dividends we pay to our overseas shareholders may be regarded as China-sourced income and as a result may be subject to PRC withholding tax. See “—Under the EIT Law, we may be classified as a ‘Resident Enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.”
The PRC government also imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of mainland China. The majority of our and the PRC operating entities’ income is received in Renminbi and shortages in foreign currencies may restrict our ability to pay dividends or other payments, or otherwise satisfy our foreign currency denominated obligations, if any. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and expenditures from trade-related transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange as long as certain procedural requirements are met. Approval from appropriate government authorities is required if Renminbi is converted into foreign currency and remitted out of mainland China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may, at its discretion, impose restrictions on access to foreign currencies for current account transactions and if this occurs in the future, we may not be able to pay dividends in foreign currencies to our shareholders.
Any limitation on the ability of our PRC subsidiaries and the PRC operating entities to distribute dividends or other payments to their respective shareholders could materially and adversely limit our ability to conduct operations, make investments, engage in acquisitions, or undertake other activities requiring working capital. However, our operations and business, including investment and/or acquisitions by our PRC subsidiaries and the PRC operating entities within mainland China, will not be affected as long as the capital is not transferred in or out of mainland China.
We may be exposed to liabilities under the Foreign Corrupt Practices Act and Chinese anti-corruption law.
We are subject to the U.S. Foreign Corrupt Practices Act (the “FCPA”), and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers, as defined by the statute, for the purpose of obtaining or retaining business. We are also subject to Chinese anti-corruption laws, which strictly prohibit the payment of bribes to government officials. We have operations, agreements with third parties, and make sales in China, which may expose us to claims of corruption. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees of our Company, because these parties are not always subject to our control.
Although we believe that, as of the date of this annual report, we have complied in all material respects with the provisions of the FCPA and Chinese anti-corruption law, our existing safeguards and any future improvements may prove to be less than effective, and the employees of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA or Chinese anti-corruption law may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
The enforcement of stricter advertisement laws and regulations in the PRC may adversely affect our business and our profitability.
In October 2018, the SCNPC promulgated the PRC Advertising Law, effective on October 26, 2018. According to the Advertising Law, advertisements shall not have any false or misleading content, or defraud or mislead consumers. Furthermore, an advertisement will be deemed as a “false advertisement” if any of the following situations exist: (i) the advertised product or service does not exist; (ii) there is any inconsistency that has a material impact on the decision to purchase in what is included in the advertisement with the actual circumstances with respect to the product’s performance, functions, place of production, uses, quality, specification, ingredient, price, producer, term of validity, sales condition, and honors received, among others, or the service’s contents, provider, form, quality, price, sales condition, and honors received, among others, or any commitments, among others, made on the product or service; (iii) fabricated, forged or unverifiable scientific research results, statistical data, investigation results, excerpts, quotations, or other information have been used as supporting material; (iv) effect or results of using the good or receiving the service are fabricated; or (v) other circumstances where consumers are defrauded or misled by any false or misleading content.
Our current marketing relies on advertisements on media platforms. The laws and regulations of advertising are relatively new and evolving and there is substantial uncertainty as to the interpretation of “false advertisement” by the State Administration for Industry and Commerce of the PRC (the “SAIC”). If any of the advertisements published by our customers is deemed to be a “false advertisement” by the SAIC or its local branch, we could be subject to various penalties, such as discontinuation of publishing the target advertisement, imposition of fines and obligations to eliminate any adverse effects incurred by such false advertisement. Any such penalties may disrupt our business and our competition with competitors, and could affect our results of operations and financial conditions.
We were not in compliance with the PRC’s regulations relating to employee’s social insurance and housing funds prior to April 2020, and as a result, we may be subject to penalties for such non-compliance.
Pursuant to the Social Insurance Law of the PRC (the “Social Insurance Law”), which was promulgated by the SCNPC on October 28, 2010 and amended on December 29, 2018, and the Administrative Regulations on the Housing Provident Funds, which was promulgated by the State Council on April 3, 1999 and last amended on March 24, 2019, employers are required to make contributions, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity insurance and to housing provident funds. Prior to April 2020, we only contributed to the social insurance and housing provident funds for some, but not all, of our employees. Since April 2020, we have started contributing to the social insurance and housing funds for our eligible full-time employees in accordance with the aforementioned PRC laws and regulations. Even though we are currently making contributions in accordance with applicable PRC laws, there is a risk that the labor security administration authority may take enforcement action to collect from us all the outstanding contributions of the social insurance required to be made for the employees in the past, and we may be subject to a late charge at the rate of 0.05% per day on the total outstanding contribution.
U.S. regulatory bodies may be limited in their ability to conduct investigations or inspections of our operations in China.
The SEC, the U.S. Department of Justice and other U.S. authorities may also have difficulties in bringing and enforcing actions against us or our directors or executive officers in the PRC. The SEC has stated that there are significant legal and other obstacles to obtaining information needed for investigations or litigation in China. Although the authorities in China may establish a regulatory cooperation mechanism with the securities regulatory authorities of another country or region to implement cross-border supervision and administration, such cooperation with the securities regulatory authorities in Hong Kong or other jurisdictions may not be efficient in the absence of mutual and practical cooperation mechanism. Furthermore, China has recently adopted a revised securities law that became effective on March 1, 2020, Article 177 of which provides, among other things, that no overseas securities regulator is allowed to directly conduct investigation or evidence collection activities within the territory of the PRC. Accordingly, without governmental approval in China, no entity or individual in China may provide documents and information relating to securities business activities to overseas regulators when it is under direct investigation or evidence discovery conducted by overseas regulators. While detailed interpretation of or implementation rules under Article 177 have yet to be promulgated, it could present significant legal and other obstacles to obtaining information needed for investigations and litigation conducted outside of China, which may further increase difficulties faced by you in protecting your interests. See also “—You may experience difficulty in effecting service of process, enforcing foreign judgments or bringing actions against our directors and officers.”
You may experience difficulty in effecting service of process, enforcing foreign judgments or bringing actions against our directors and officers.
We are a Cayman Islands exempted company with limited liability and most of our assets are located outside of the United States. In addition, all of our directors and officers are nationals or residents of the PRC, including our chief executive officer and chairman of the board of directors, Mr. Gang Lai, our chief financial officer, Ms. Lin Yang, and our directors, Mr. Jiawen Pang, Mr. Yongping Yu and Mr. Ding Zheng, and all or a substantial portion of their assets are located outside the United States. As a result, it may be difficult or impossible for you to effect service of process within the United States upon our directors and executive officers. It may also be difficult for you to enforce in the United States courts judgments obtained in the United States courts based on the civil liability provisions of the United States federal securities laws against us and our officers and directors who reside and whose assets are located outside the United States.
We have been advised by our Cayman Islands legal counsel, Ogier (Cayman) LLP, that the courts of the Cayman Islands are unlikely (i) to recognize or enforce against us, judgments of courts of the United States obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States; and (ii) in original actions brought in the Cayman Islands, to impose liabilities against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States, so far as the liabilities imposed by those provisions are penal in nature. In those circumstances, although there is currently no statutory enforcement or treaty between the United States and the Cayman Islands providing for enforcement of judgments obtained in the United States. The courts of the Cayman Islands will recognize and enforce a foreign money judgment of a foreign court of competent jurisdiction without retrial on the merits based on the principle that a judgment of a competent foreign court imposes upon the judgment debtor an obligation to pay the sum for which judgment has been given provided certain conditions are met. For a foreign judgment to be enforced in the Cayman Islands, such judgment must be final and conclusive, given by a court of competent jurisdiction (the courts of the Cayman Islands will apply the rules of Cayman Islands private international law to determine whether the foreign court is a court of competent jurisdiction), and must not be in respect of taxes or a fine or penalty, inconsistent with a Cayman Islands judgment in respect of the same matter, impeachable on the grounds of fraud or obtained in a manner, and or be of a kind the enforcement of which is, contrary to natural justice or the public policy of the Cayman Islands. Furthermore, it is uncertain that Cayman Islands courts would enforce: (1) judgments of U.S. courts obtained in actions against us or other persons that are predicated upon the civil liability provisions of the U.S. federal securities laws; or (2) original actions brought against us or other persons predicated upon the Securities Act. Ogier has informed us that there is uncertainty with regard to Cayman Islands law relating to whether a judgment obtained from the U.S. courts under civil liability provisions of the securities laws will be determined by the courts of the Cayman Islands as penal, punitive in nature. A Cayman Islands Court may stay enforcement proceedings if concurrent proceedings are being brought elsewhere.
In addition, there is uncertainty as to whether the courts of the PRC would recognize or enforce judgments of the United States courts against us or such persons predicated upon the civil liability provisions of the securities laws of the United States or any state. The recognition and enforcement of foreign judgments are provided for under the PRC Civil Procedures Law. PRC courts may recognize and enforce foreign judgments in accordance with the requirements of the PRC Civil Procedures Law based either on treaties between China and the country where the judgment is made or on principles of reciprocity between jurisdictions. China does not have any treaties or other forms of reciprocity with the United States that provide for the reciprocal recognition and enforcement of foreign judgments. In addition, according to the PRC Civil Procedures Law, the PRC courts will not enforce a foreign judgment against us or our directors and officers if they decide that the judgment violates the basic principles of PRC laws or national sovereignty, security or public interest. As a result, it is uncertain whether and on what basis a PRC court would enforce a judgment rendered by a court in the United States.
Further, pursuant to the PRC Civil Procedures Law, any matter, including matters arising under U.S. federal securities laws, in relation to assets or personal relationships may be brought as an original action in China, only if the institution of such action satisfies the conditions specified in the PRC Civil Procedures Law. As a result of the conditions set forth in the PRC Civil Procedures Law and the discretion of the PRC courts to determine whether the conditions are satisfied and whether to accept the action for adjudication, there remains uncertainty as to whether an investor will be able to bring an original action in a PRC court based on U.S. federal securities laws.
Because our business is conducted in the RMB and the price of our ordinary shares is quoted in United States dollars, changes in currency conversion rates may affect the value of your investments.
Our business is conducted in the PRC, our books and records are maintained in the RMB, the legal currency of the PRC, and the financial statements that we file with the SEC and provide to our shareholders are presented in United States dollars. Changes in the exchange rate between the RMB and U.S. dollars affect the value of our assets and the results of our operations in U.S. dollars. The value of the RMB against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions and perceived changes in the economy of the PRC and the United States. Any significant revaluation of the RMB may materially and adversely affect our cash flows, revenue and financial condition. Further, our securities will be offered in United States dollars, and we will need to convert any net proceeds we receive into RMB in order to use the funds for our business. Changes in the conversion rate between the United States dollar and the RMB will affect that amount of proceeds we will have available for our business.
Government control in currency conversion may adversely affect our financial condition, our ability to remit dividends, and the value of your investment.
The PRC government imposes controls on the convertibility of the Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. We receive substantially all of our revenues in Renminbi. Under our current corporate structure, our Cayman Islands holding company may rely on dividend payments from our PRC subsidiaries to fund any cash and financing requirements we may have.
Under existing PRC foreign exchange regulations, the Renminbi cannot be freely converted into any foreign currency, and conversion and remittance of foreign currencies are subject to PRC foreign exchange regulations. It cannot be guaranteed that under a certain exchange rate, we will have sufficient foreign exchange to meet our foreign exchange requirements. Under the current PRC foreign exchange control system, foreign exchange transactions under the current account conducted by us, including the payment of dividends, do not require advance approval from SAFE, but we are required to present documentary evidence of such transactions and conduct such transactions at designated foreign exchange banks within China that have the licenses to carry out foreign exchange business. Foreign exchange transactions under the capital account conducted by us, however, must be approved in advance by SAFE.
Under existing foreign exchange regulations, we are able to pay dividends in foreign currencies without prior approval from SAFE by complying with certain procedural requirements. However, we cannot assure you that these foreign exchange policies regarding payment of dividends in foreign currencies will continue in the future.
In fact, in light of the flood of capital outflows of China in 2016 due to the weakening Renminbi, the PRC government has imposed more restrictive foreign exchange policies and stepped up scrutiny of major outbound capital movement including overseas direct investment. More restrictions and substantial vetting process may be put in place by SAFE to regulate cross-border transactions falling under the capital account. If any of our shareholders regulated by such policies fails to satisfy the applicable overseas direct investment filing or approval requirement timely or at all, it may be subject to penalties from the relevant PRC authorities. The PRC government may, at its discretion, further restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, we may not be able to pay dividends in foreign currencies to our shareholders, including holders of the ordinary shares. Our capital expenditure plans and our business, operating results and financial condition may be materially and adversely affected.
Our business may be materially and adversely affected if any of our PRC subsidiaries declare bankruptcy or become subject a dissolution or liquidation proceeding.
The Enterprise Bankruptcy Law of the PRC, or the Bankruptcy Law, came into effect on June 1, 2007. The Bankruptcy Law provides that an enterprise will be liquidated if the enterprise fails to settle its debts as and when they fall due and if the enterprise’s assets are, or are demonstrably, insufficient to clear such debts.
Our PRC subsidiaries hold certain assets that are important to our business operations. If any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, unrelated third-party creditors may claim rights to some or all of these assets, thereby hindering our ability to operate our business, which could materially and adversely affect our business, financial condition and results of operations.
If any of our PRC subsidiaries undergoes a voluntary or involuntary liquidation proceeding, prior approval from SAFE for remittance of foreign exchange to our shareholders abroad is no longer required, but we still need to conduct a registration process with the SAFE local branch. It is not clear whether “registration” is a mere formality or involves the kind of substantive review process undertaken by SAFE and its relevant branches in the past.
Our current corporate structure and business operations may be affected by the newly enacted PRC Foreign Investment Law.
On March 15, 2019, the National People’s Congress approved the Foreign Investment Law, which became effective on January 1, 2020. The PRC Foreign Investment Law defines the “foreign investment” as the investment activities in China conducted directly or indirectly by foreign investors in the following manners: (i) the foreign investor, by itself or together with other investors establishes a foreign invested enterprises in China; (ii) the foreign investor acquires shares, equities, asset tranches, or similar rights and interests of enterprises in China; (iii) the foreign investor, by itself or together with other investors, invests and establishes new projects in China; (iv) the foreign investor invests through other approaches as stipulated by laws, administrative regulations or otherwise regulated by the State Council. If our PRC subsidiaries are recognized as “foreign investment enterprises,” PRC governmental authorities will regulate foreign investment by applying the principle of re-entry national treatment together with a “negative list,” which will be promulgated by or promulgated with approval by the State Council. Foreign investors are prohibited from making any investments in the industries which are listed as “prohibited” in such negative list; and, after satisfying certain additional requirements and conditions as set forth in the “negative list,” are allowed to make investments in industries which are listed as “restricted” in such negative list. For any foreign investor that fails to comply with the negative list, the competent authorities are entitled to ban its investment activities, require such investor to take measures to correct its non-compliance and impose other penalties.
Pharmaceutical production and distribution activities that we conduct through our PRC subsidiaries are not subject to foreign investment restrictions or prohibitions set forth in the Special Administrative Measures for the Access of Foreign Investment (Negative List) (Edition 2022) (the “2022 Negative List”). We do not intend to conduct any types of business activities restricted or prohibited under the 2021 Negative List in the future. However, it is unclear whether any updated “negative list” to be published by the State Council in the future will be different from the 2022 Negative List. If future laws, administrative regulations or provisions of the State Council set forth restrictions or prohibitions on foreign investment in our current business activities, and that our PRC subsidiaries are recognized as “foreign investment enterprises,” we may be required to take appropriate and timely measures to comply with such regulatory requirements. If we fail to do so, our business operations could be materially and adversely affected.
Failure to comply with PRC regulations relating to the establishment of offshore special purpose companies by PRC residents may subject our PRC resident shareholders to personal liability, may limit our ability to acquire PRC companies or to inject capital into our PRC subsidiaries, may limit the ability of our PRC subsidiaries to distribute profits to us or may otherwise materially and adversely affect us.
Pursuant to the Circular on relevant issues concerning Foreign Exchange Administration of Overseas Investment and Financing and Return Investments Conducted by Domestic Residents through Overseas Special Purpose Vehicle (the “Circular 37”), which was promulgated by SAFE, and became effective on July 4, 2014, (1) a PRC resident must register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle, or an Overseas SPV, that is directly established or indirectly controlled by the PRC resident for the purpose of conducting investment or financing; and (2) following the initial registration, the PRC resident is also required to register with the local SAFE branch for any major change, in respect of the Overseas SPV, including, among other things, a change in the Overseas SPV’s PRC resident shareholder, name of the Overseas SPV, term of operation, or any increase or reduction of the contributions by the PRC resident, share transfer or swap, and merger or division. Additionally, pursuant to the Circular of SAFE on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (the “Circular 13”), which was promulgated on February 13, 2015 and became effective on June 1, 2015, the aforesaid registration shall be directly reviewed and handled by qualified banks in accordance with the Circular 13, and SAFE and its branches shall perform indirect regulation over the foreign exchange registration via qualified banks.
Mr. Gang Lai completed the initial foreign exchange registration on June 3, 2019. As it remains unclear how Circular 37 and Circular 13 will be interpreted and implemented, and how or whether SAFE will apply them to us. Therefore, we cannot predict how they will affect our business operations or future strategies. For example, the ability of our present and prospective PRC subsidiaries to conduct foreign exchange activities, such as the remittance of dividends and foreign currency-denominated borrowings, may be subject to compliance with Circular 37 and Circular 13 by our PRC resident beneficial holders. In addition, as we have little control over either our present or prospective, direct or indirect shareholders or the outcome of such registration procedures, we cannot assure you that these shareholders who are PRC residents will amend or update their registration as required under Circular 37 and Circular 13 in a timely manner or at all. Failure of our present or future shareholders who are PRC residents to comply with Circular 37 and Circular 13 could subject these shareholders to fines or legal sanctions, restrict our overseas or cross-border investment activities, limit the ability of our PRC subsidiaries to make distributions or pay dividends or affect our ownership structure, which could adversely affect our business and prospects.
We may be unable to complete a business combination transaction efficiently or on favorable terms due to complicated merger and acquisition regulations and certain other PRC regulations.
On August 8, 2006, six PRC regulatory authorities, including the Ministry of Commerce of the People’s Republic of China, or MOFCOM, the State Assets Supervision and Administration Commission, the SAT, the SAIC, the CSRC and the SAFE, jointly issued the M&A Rules, which became effective on September 8, 2006 and was amended in June 2009. The M&A Rules, governing the approval process by which a PRC company may participate in an acquisition of assets or equity interests by foreign investors, requires the PRC parties to make a series of applications and supplemental applications to the government agencies, depending on the structure of the transaction. In some instances, the application process may require presentation of economic data concerning a transaction, including appraisals of the target business and evaluations of the acquirer, which are designed to allow the government to assess the transaction. Accordingly, due to the M&A Rules, our ability to engage in business combination transactions has become significantly more complicated, time-consuming and expensive, and we may not be able to negotiate a transaction that is acceptable to our Shareholders or sufficiently protect their interests in a transaction.
The M&A Rules allow PRC government agencies to assess the economic terms of a business combination transaction. Parties to a business combination transaction may have to submit to the MOFCOM and other relevant government agencies an appraisal report, an evaluation report and the acquisition agreement, all of which form part of the application for approval, depending on the structure of the transaction. The M&A Rules also prohibit a transaction at an acquisition price obviously lower than the appraised value of the business or assets in China and in certain transaction structures, require that consideration must be paid within defined periods, generally not in excess of a year. In addition, the M&A Rules also limit our ability to negotiate various terms of the acquisition, including aspects of the initial consideration, contingent consideration, holdback provisions, indemnification provisions and provisions relating to the assumption and allocation of assets and liabilities. Transaction structures involving trusts, nominees and similar entities are prohibited. Therefore, such regulation may impede our ability to negotiate and complete a business combination transaction on legal and/or financial terms that satisfy our investors and protect our shareholders’ economic interests.
We face uncertainties with respect to indirect transfers of equity interests in PRC resident enterprises by their non-PRC holding companies.
The SAT released a circular on December 15, 2009 that addresses the transfer of shares by nonresident companies, generally referred to as Circular 698. Circular 698, which became effective retroactively to January 1, 2008, may have a significant impact on many companies that use offshore holding companies to invest in China. Circular 698 has the effect of taxing foreign companies on gains derived from the indirect sale of a PRC company. Where a foreign investor indirectly transfers equity interests in a PRC resident enterprise by selling the shares in an offshore holding company, and the latter is located in a country or jurisdiction that has an effective tax rate less than 12.5% or does not tax foreign income of its residents, the foreign investor must report this indirect transfer to the tax authority in charge of that PRC resident enterprise. Using a “substance over form” principle, the PRC tax authority may disregard the existence of the overseas holding company if it lacks a reasonable commercial purpose and was established for the purpose of avoiding PRC tax. As a result, gains derived from such indirect transfer may be subject to PRC withholding tax at a rate of up to 10.0%.
SAT subsequently released public notices to clarify issues relating to Circular 698, including the Announcement on Several Issues concerning the EIT on the Indirect Transfers of Properties by Nonresident Enterprises (the “SAT Notice 7”), which became effective on February 3, 2015. SAT Notice 7 abolished the compulsive reporting obligations originally set out in Circular 698. Under SAT Notice 7, if a non-resident enterprise transfers its shares in an overseas holding company, which directly or indirectly owns PRC taxable properties, including shares in a PRC company, via an arrangement without reasonable commercial purpose, such transfer shall be deemed as indirect transfer of the underlying PRC taxable properties. Accordingly, the transferee shall be deemed as a withholding agent with the obligation to withhold and remit the EIT to the competent PRC tax authorities. Factors that may be taken into consideration when determining whether there is a “reasonable commercial purpose” include, among other factors, the economic essence of the transferred shares, the economic essence of the assets held by the overseas holding company, the taxability of the transaction in offshore jurisdictions, and economic essence and duration of the offshore structure. SAT Notice 7 also sets out safe harbors for the “reasonable commercial purpose” test.
On October 17, 2017, the SAT released the Notice on Several Issues concerning the Withholding and Collection of Income Tax of Non-resident Enterprises from the Source (the “SAT Notice 37”). SAT Notice 37 clarifies: (1) matters concerning the withholding and collection of corporate income tax, and property transfer of non-resident enterprises based on the EIT Law; (2) the currencies required to be used by the withholding agents (when the payments is made in a currency rather than RMB), as well as the time, venue and business for the performance of the withholding and collection obligations; and (3) the abolishment of Circular 698.
There is little guidance and practical experience regarding the application of SAT Notice 7 and SAT Notice 37 and the related SAT notices. Moreover, the relevant authority has not yet promulgated any formal provisions or formally declared or stated how to calculate the effective tax rates in foreign tax jurisdictions. As a result, due to our complex offshore restructuring, we may become at risk of being taxed under SAT Notice 7 and SAT Notice 37 and we may be required to expend valuable resources to comply with SAT Notice 7 and SAT Notice 37 or to establish that we should not be taxed under SAT Notice 7 and SAT Notice 37, which could have a material adverse effect on our financial condition and results of operations.
Risks Related to our Ordinary Shares and the Trading Market
Our share price may be volatile and could decline substantially, which could result in substantial losses to our investors.
The trading price of our ordinary shares is likely to continue to be volatile and could fluctuate widely due to factors beyond our control. This may happen because of broad market and industry factors, including the performance and fluctuation of the market prices of other companies with business operations located mainly in China that have listed their securities in the United States. The securities of some of these companies have experienced significant volatility since their initial public offerings, including, in some cases, substantial price declines in their trading prices. The trading performances of other Chinese companies’ securities after their offerings may affect the attitudes of investors toward Chinese companies listed in the United States in general and consequently may impact the trading performance of our shares, regardless of our actual operating performance.
The market price of our ordinary shares may be volatile, both because of actual and perceived changes in the company’s financial results and prospects, and because of general volatility in the stock market. The factors that could cause fluctuations in our share price may include, among other factors discussed in this section, the following:
| ● | actual or anticipated variations in the financial results and prospects of the company or other companies in the pharmaceutical business; |
| ● | changes in financial estimates by research analysts; |
| ● | changes in the market valuations of other companies in the Chinese patent medicine industry; |
| ● | announcements by us or our competitors of new education services, expansions, investments, acquisitions, strategic partnerships or joint ventures; |
| ● | mergers or other business combinations involving us; |
| ● | additions and departures of key personnel and senior management; |
| ● | changes in accounting principles; |
| ● | the passage of legislation or other developments affecting us or our industry; |
| ● | the trading volume of our ordinary shares in the public market; | |
| ● | the release of lockup, escrow or other transfer restrictions on our outstanding equity securities or sales of additional equity securities; |
| ● | potential litigation or regulatory investigations; |
| ● | changes in economic conditions, including fluctuations in global and Chinese economies; |
| ● | financial market conditions; |
| ● | natural disasters, terrorist acts, acts of war or periods of civil unrest; and |
| ● | the realization of some or all of the risks described in this section. |
The listing of our ordinary shares on the Nasdaq Capital Market is contingent on our compliance with the Nasdaq Capital Market’s conditions for continued listing. A decline in the closing price of our ordinary shares could result in a breach of the requirements for listing on the Nasdaq Capital Market. If we do not maintain compliance, Nasdaq could commence suspension or delisting procedures in respect of our ordinary shares. The commencement of suspension or delisting procedures by an exchange remains at the discretion of such exchange and would be publicly announced by the exchange. If a suspension or delisting were to occur, there would be significantly less liquidity in the suspended or delisted securities. In addition, our ability to raise additional necessary capital through equity or debt financing would be greatly impaired. Furthermore, with respect to any suspended or delisted ordinary shares, we would expect decreases in institutional and other investor demand, analyst coverage, market making activity and information available concerning trading prices and volume, and fewer broker-dealers would be willing to execute trades with respect to such ordinary shares. A suspension or delisting would likely decrease the attractiveness of our ordinary shares to investors and cause the trading volume of our ordinary shares to decline, which could result in a further decline in the market price of our ordinary shares.
In addition, the stock markets have experienced significant price and trading volume fluctuations from time to time, and the market prices of the equity securities of pharmaceutical companies are sometimes subject to sharp price and trading volume changes. These broad market fluctuations may materially and adversely affect the market price of our ordinary shares.
We may issue additional ordinary shares or other equity securities without your approval, which would dilute your ownership interests and may depress the market price of our ordinary shares.
We may issue additional ordinary shares or our other securities to investors. We may also issue additional ordinary shares or other equity securities of equal or senior rank in the future for any reason or in connection with, among other things, future acquisitions or repayment of outstanding indebtedness, without shareholder approval, in a number of circumstances.
Our issuance of additional ordinary shares or other equity securities of equal or senior rank would have the following effects:
| ● | our existing shareholders’ proportionate ownership interest in us will decrease; |
| ● | the amount of cash available per share, including for payment of dividends in the future, may decrease; |
| ● | the relative voting strength of each previously outstanding share may be diminished; and |
| ● | the market price of our ordinary shares may decline. |
We currently do not expect to pay dividends on our ordinary shares in the foreseeable future.
We currently do not expect to pay dividends on our ordinary shares in the foreseeable future. Instead, for the foreseeable future, it is expected that we will continue to retain any earnings to finance the development and expansion of its business, and not to pay any cash dividends on its ordinary shares. Consequently, you should not rely on an investment in the Company as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends, subject to applicable laws. Even if our board of directors decides to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flow, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our ordinary shares will likely depend entirely upon any future price appreciation of our ordinary shares. We cannot guarantee that our ordinary shares will appreciate in value or even maintain the price at which you purchased the ordinary shares. You may not realize a return on your investment in our ordinary shares and you may even lose your entire investment in our ordinary shares.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about us or our business, our ordinary share price and trading volume could decline.
The trading market for our ordinary shares will depend in part on the research and reports that securities or industry analysts publish about us or our business. Securities and industry analysts do not currently, and may never, publish research on us. If no securities or industry analysts commence coverage of our Company, the trading price for its ordinary shares would likely be negatively impacted. In the event securities or industry analysts initiate coverage, if one or more of the analysts who cover us downgrade its securities or publish inaccurate or unfavorable research about its business, its stock price would likely decline. If one or more of these analysts cease coverage of our Company or fail to publish reports on our Company, demand for its ordinary shares could decrease, which might cause its ordinary share price and trading volume to decline.
A sale or perceived sale of a substantial number of our ordinary shares may cause the price of our ordinary shares to decline.
If our shareholders sell substantial amounts of our ordinary shares in the public market, the market price of our ordinary shares could fall. Moreover, the perceived risk of this potential dilution could cause shareholders to attempt to sell their shares and investors to short our ordinary shares. These sales also make it more difficult for us to sell equity-related securities in the future at a time and price that we deem reasonable or appropriate.
We incur substantial increased costs being a public company.
We incur significant legal, accounting and other expenses as a public company that we did not incur as a private company. The Sarbanes-Oxley Act of 2002, as well as rules subsequently implemented by the SEC and Nasdaq, impose various requirements on the corporate governance practices of public companies.
Compliance with these rules and regulations increases our legal and financial compliance costs and makes some corporate activities more time-consuming and costlier. We have incurred additional costs in obtaining director and officer liability insurance. In addition, we incur additional costs associated with our public company reporting requirements. It may also be more difficult for us to find qualified persons to serve on our board of directors or as executive officers.
We are an “emerging growth company,” as defined in the JOBS Act and will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the completion of our initial public offering, (b) in which we have total annual gross revenue of at least $1.235 billion, or (c) in which we are deemed to be a large accelerated filer, which means the market value of our ordinary shares that is held by non-affiliates exceeds $700 million as of the prior March 31, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 in the assessment of the emerging growth company’s internal control over financial reporting and permission to delay adopting new or revised accounting standards until such time as those standards apply to private companies.
After we are no longer an “emerging growth company,” or until five years following the completion of our initial public offering, whichever is earlier, we expect to incur significant additional expenses and devote substantial management effort toward ensuring compliance with the requirements of Section 404 and the other rules and regulations of the SEC. For example, as a public company, we have been required to increase the number of independent directors and adopt policies regarding internal controls and disclosure controls and procedures.
We are currently evaluating and monitoring developments with respect to these rules and regulations, and we cannot predict or estimate with any degree of certainty the amount of additional costs we may incur or the timing of such costs.
There can be no assurance that we will not be a passive foreign investment company (“PFIC”) for United States federal income tax purposes for any taxable year, which could subject United States holders of our ordinary shares could be subject to adverse United States federal income tax consequences.
A non-United States corporation will be a PFIC for United States federal income tax purposes for any taxable year if either (i) at least 75% of its gross income for such taxable year is passive income or (ii) at least 50% of the value of its assets (based on average of the quarterly values of the assets) during such year is attributable to assets that that produce or are held for the production of passive income. Based on the current and anticipated value of our assets and the composition of our income assets, we are not currently a PFIC under the current PFIC rules for United States federal income tax purposes. However, the determination of whether or not we are a PFIC according to the PFIC rules is made on an annual basis and depends on the composition of our income and assets and the value of our assets from time to time. Therefore, changes in the composition of our income or assets or value of our assets may cause us to become a PFIC. The determination of the value of our assets (including goodwill not reflected on our balance sheet) may be based, in part, on the quarterly market value of ordinary shares, which is subject to change and may be volatile.
The classification of certain of our income as active or passive, and certain of our assets as producing active or passive income, and hence whether we are or will become a PFIC, depends on the interpretation of certain United States Treasury Regulations as well as certain IRS guidance relating to the classification of assets as producing active or passive income. Such regulations guidance is potentially subject to different interpretations. If due to different interpretations of such regulations and guidance the percentage of our passive income or the percentage of our assets treated as producing passive income increases, we may be a PFIC in one or more taxable years.
If we are a PFIC for any taxable year during which a United States person holds ordinary shares, certain adverse United States federal income tax consequences could apply to such United States person. See “Item 10. Additional Information—E. Taxation—United States Federal Income Taxation—PFIC.”
For as long as we are an emerging growth company, we will not be required to comply with certain reporting requirements, including those relating to accounting standards and disclosure about our executive compensation, that apply to other public companies.
We are classified as an “emerging growth company” under the JOBS Act. For as long as we are an emerging growth company, unlike other public companies, we will not be required to, among other things, (i) provide an auditor’s attestation report on management’s assessment of the effectiveness of our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act, (ii) comply with any new requirements adopted by the PCAOB, requiring mandatory audit firm rotation or a supplement to the auditor’s report in which the auditor would be required to provide additional information about the audit and the financial statements of the issuer, (iii) provide certain disclosure regarding executive compensation required of larger public companies, or (iv) hold nonbinding advisory votes on executive compensation. We will remain an emerging growth company for up to five years, although we will lose that status sooner if we have more than $1.235 billion of revenues in a fiscal year, have more than $700 million in market value of our ordinary shares held by non-affiliates, or issue more than $1.0 billion of non-convertible debt over a three-year period.
To the extent that we rely on any of the exemptions available to emerging growth companies, you will receive less information about our executive compensation and internal control over financial reporting than issuers that are not emerging growth companies. If some investors find our ordinary shares to be less attractive as a result, there may be a less active trading market for our ordinary shares and our share price may be more volatile.
Our ability to produce accurate financial statements have been materially adversely affected by our failure to establish proper internal financial reporting controls. If we fail to establish and maintain proper internal financial reporting controls in a reasonably timely manner, our ability to produce accurate financial statements or comply with applicable regulations may continue to be impaired.
Our independent registered public accounting firm has not conducted an audit of our internal control over financial reporting. In the course of auditing our consolidated financial statements for the fiscal year ended September 30, 2024, we identified material weaknesses in our internal control over financial reporting and other control deficiencies as of September 30, 2024. A “material weakness” is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness identified to date relates to a lack of accounting staff and resources with appropriate knowledge of generally accepted accounting principles in the United States (“U.S. GAAP”) and SEC reporting and compliance requirements.
Following the identification of the material weaknesses and control deficiencies, we have undertaken certain remedial steps and plan to continue taking remedial measures, including:
| (i) | recruiting qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework. Since very few companies in Ji’an, Jiangxi Province, the area in which our main PRC operating subsidiaries are located, have sought public listing on a U.S. exchange, we have difficulty identifying qualified accounting candidates with U.S. GAAP experience and expertise. We plan to search for qualified personnel in other regions of China; and |
| (ii) | implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel. |
The implementation of these measures may not fully address the material weaknesses in our internal control over financial reporting, and we cannot conclude that they have been fully remedied. Our failure to correct theses material weaknesses or our failure to discover and address any other material weaknesses could result in inaccuracies in our financial statements and could also impair our ability to comply with applicable financial reporting requirements and related regulatory filings on a timely basis. As a result, our business, financial condition, results of operations and prospects, as well as the trading price of our ordinary shares, may be materially and adversely affected. Moreover, ineffective internal control over financial reporting significantly hinders our ability to prevent fraud.
As a public company, we will be subject to Sarbanes-Oxley Act of 2002, or Sarbanes-Oxley Act. Since we qualify as an “emerging growth company” pursuant to the JOBS Act with less than US$1.235 billion in revenue for our last fiscal year. An emerging growth company may take advantage of specified reduced reporting and other requirements that are otherwise applicable generally to public companies. These provisions include exemption from the auditor attestation requirement under Section 404 of the Sarbanes-Oxley Act of 2002, or Section 404, in the assessment of the emerging growth company’s internal control over financial reporting. Moreover, even if management concludes that our internal control over financial reporting is effective, our independent registered public accounting firm, after conducting its own independent testing, may issue a report that is qualified if it is not satisfied with our internal controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.
During the course of documenting and testing our internal control procedures, we may identify other weaknesses and deficiencies in its internal control over financial reporting. In addition, if we fail to maintain the adequacy of our internal control over financial reporting, as these standards are modified, supplemented or amended from time to time, we may not be able to conclude on an ongoing basis that we have effective internal control over financial reporting in accordance with Section 404. Generally speaking, if we fail to achieve and maintain an effective internal control environment, we could suffer material misstatements in our financial statements and fail to meet our reporting obligations, which would likely cause investors to lose confidence in our reported financial information. This could in turn limit our access to capital markets, harm our results of operations, and lead to a decline in the trading price of our securities. Additionally, ineffective internal control over financial reporting could expose us to increased risk of fraud or misuse of corporate assets and subject us to potential delisting from the stock exchange on which we list, regulatory investigations and civil or criminal sanctions.
As a foreign private issuer, we are not subject to certain U.S. securities law disclosure requirements that apply to a domestic U.S. issuer, which may limit the information publicly available to our shareholders.
As a foreign private issuer, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act and therefore there may be less publicly available information about us than if we were a U.S. domestic issuer. We are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:
| ● | the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K; |
| ● | the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act; |
| ● | the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and the selective disclosure rules by issuers of material non-public information under Regulation FD. |
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq listing standards that allow us to follow Cayman Islands law for certain governance matters. Certain corporate governance practices in the Cayman Islands may differ significantly from corporate governance listing standards as, except for general fiduciary duties and duties of care, Cayman Islands law does not have a comparable corporate governance regime applicable to the Company which prescribes specific corporate governance standards.
Nasdaq Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the Nasdaq Capital Market prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, Nasdaq Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The Cayman Islands do not require shareholder approval prior to any of the foregoing types of issuances. The Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. The board of directors of the Company has elected to follow the Company’s home country rules as to such issuances and will not be required to seek shareholder approval prior to entering into such a transaction.
Other than the above, we do not currently intend to follow any additional home country practices in lieu of Nasdaq requirements. However, if we choose to follow such other home country practice in the future, our shareholders may be afforded less protection than they otherwise would have under corporate governance listing standards applicable to U.S. domestic issuers.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all of the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter. We would lose our foreign private issuer status if, for example, more than 50% of our ordinary shares are directly or indirectly held by residents of the U.S. and we fail to meet additional requirements necessary to maintain our foreign private issuer status. If we lose our foreign private issuer status on this date, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms, which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements, and our officers, directors and principal shareholders will become subject to the short-swing profit disclosure and recovery provisions of Section 16 of the Exchange Act. In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the Nasdaq listing standards. As a U.S. listed public company that is not a foreign private issuer, we will incur significant additional legal, accounting and other expenses that we will not incur as a foreign private issuer, and accounting, reporting and other expenses in order to maintain a listing on a U.S. securities exchange.
The laws of the Cayman Islands may not provide our shareholders with benefits comparable to those provided to shareholders of corporations incorporated in the United States.
Our corporate affairs are governed by our amended and restated memorandum and articles of association, by the Companies Act (Revised) of the Cayman Islands and by the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by minority shareholders and the fiduciary responsibilities of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law in the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands and from English common law. Appeals from the Cayman Islands Courts to the Privy Council (which is the final Court of Appeal for British overseas territories such as the Cayman Islands) are binding on courts in the Cayman Islands. Decisions of the English courts, and particularly the Supreme Court and the Court of Appeal are generally of persuasive authority but are not binding in the courts of the Cayman Islands. Decisions of courts in other Commonwealth jurisdictions are similarly of persuasive but not binding authority. The rights of our shareholders and the fiduciary responsibilities of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedents in the United States. In particular, the Cayman Islands has a less developed body of securities laws relative to the United States. Therefore, our public shareholders may have more difficulty protecting their interests in the face of actions by our management, directors or controlling shareholders than would shareholders of a corporation incorporated in a jurisdiction in the United States.
You may be unable to present proposals before annual general meetings or extraordinary general meetings not called by shareholders.
Cayman Islands law provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. These rights, however, may be provided in a company’s amended and restated articles of association. Our amended and restated articles of association allow our shareholders holding shares representing in aggregate not less than 10% of our voting share capital in issue, to requisition a general meeting of our shareholders, in which case our directors are obliged to call such meeting. Advance notice of at least 21 clear days is required for the convening of our annual general shareholders’ meeting and at least 14 days’ notice any other general meeting of our shareholders. A quorum required for a meeting of shareholders consists of at least one shareholder present or by proxy, representing not less than one-third of the total outstanding shares carrying the right to vote at such general meeting of the Company.
The obligation to disclose information publicly may put us at a disadvantage to competitors that are private companies.
We are a public company in the United States. As a public company, we will be required to file periodic reports with the SEC upon the occurrence of matters that are material to our Company and shareholders. Although we may be able to attain confidential treatment of some of our developments, in some cases, we will need to disclose material agreements or results of financial operations that we would not be required to disclose if we were a private company. Our competitors may have access to this information, which would otherwise be confidential. This may give them advantages in competing with our Company. Similarly, as a U.S. public company, we will be governed by U.S. laws that our competitors, which are mostly private Chinese companies, are not required to follow. To the extent compliance with U.S. laws increases our expenses or decreases our competitiveness against such companies, our public company status could affect our results of operations.
Item 4. INFORMATION ON THE COMPANY
A. History and Development of the Company
Our Corporate History and Structure
We are an offshore holding company incorporated in the Cayman Islands. As a holding company with no operations of our own, our operations are conducted in China through our wholly owned indirect PRC subsidiary, Jiangxi Universe, and its subsidiaries. Investors in our securities are not purchasing equity interests in our subsidiaries but instead are purchasing equity interests in the ultimate Cayman Islands holding company. Therefore, you will not directly hold any equity interests in the operating entities. The Chinese regulatory authorities could disallow this structure, which would likely result in a material change in our operations and/or a material change in the value of the securities we are registering for sale, including that it could cause the value of such securities to significantly decline or become worthless. For risks facing our Company as a result of our organizational structure and doing business in China, see “Item 3. Key Information—D. Risk Factors—Risks Related to Doing Business in China.”
We initially conducted our business through Jiangxi Universe, a PRC company formed in 1998 and Universe Trade, a PRC company formed in 2010, a wholly-owned subsidiary of Jiangxi Universe.
With the growth of our business and in order to facilitate international capital investment in our Company, we underwent an offshore reorganization in 2019 and 2020. On December 11, 2019, our holding company, Universe Pharmaceuticals INC, was incorporated under the laws of the Cayman Islands as an exempted company with limited liability. Our wholly owned subsidiary Universe HK was formed in Hong Kong on May 21, 2014 as an intermediate holding company. Universe HK in turn holds all the capital stocks of Universe Technology, a wholly foreign owned enterprise incorporated in China on Aril 8, 2019. Universe Technology holds all the capital stocks and controls Jiangxi Universe. Jiangxi Universe holds 100% of the equity interests in Universe Trade.
Our holding company has no business operation other than holding the shares in Universe HK. Universe HK is a pass-through entity with no business operation. Universe Technology is exclusively engaged in the business of managing the operation of Jiangxi Universe. Jiangxi Universe specializes in manufacturing our own TCMD products. Universe Trade specializes in the distribution and sales of our own TCMD products and third-party pharmaceutical products.
Foshan Shangyu Investment Holding Co., Ltd. (“Foshan Shangyu”) is our affiliated entity, 90% owned by and controlled by Mr. Gang Lai, our chief executive officer and chairman of the board of directors. Foshan Shangyu was formed in 2004 in China as a holding company of Mr. Gang Lai. Foshan Shangyu has no business operations.
On May 12, 2021, we formed Guangzhou Universe Hanhe Medical Research Co., Ltd. in the PRC, as a wholly-owend subsidiary of Jiangxi Universe. Universe Hanhe does not conduct any business operations as of the date of this annual report.
The following diagram illustrates our corporate structure as of the date of this annual report:
Recent Development
On July 15, 2024, we closed a self-underwritten public offering of 20,000,000 ordinary shares, par value US$0.01875 per share, at an offering price of US$1.25 per share. We raised a total of US$25 million through that offering, before deducting offering-related expenses, and net proceeds of $24.625 million.
On November 12, 2024, we effected a share consolidation of 15 ordinary shares with par value of US$0.01875 per share each in the Company’s issued and unissued share capital into one ordinary share with par value of US$0.28125. All fractional shares were rounded up to the whole number of shares. Immediately following the share consolidation, the authorized share capital of the Company was US$140,625,000 divided into 450,000,000 ordinary shares, par value US$0.28125 per share and 50,000,000 preferred shares, par value US$0.28125 per share.
On December 6, 2024, we entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers named thereto, pursuant to which the Company agreed to issue and sell (i) 388,000 ordinary shares, par value US$0.28125 per share (the “Offered Shares”), (ii) 18,362,000 pre-funded warrants to purchase 18,362,000 ordinary shares, par value US$0.28125 per share (the “Pre-funded Warrants”), and (iii) 18,750,000 common warrants to purchase 18,750,000 ordinary shares, par value US$0.28125 per share (the “Common Warrants”), at a combined purchase price of US0.80 per Offered Share and one accompanying Common Warrant, or at a combined purchase price of US$0.79 per Pre-funded Warrant (in lieu of one Offered Share) and one accompanying Common Warrant, in a registered direct offering (the “Offering”). The Company received approximately $15.0 million in gross proceeds from the Offering, before deducting placement agent fees and estimated offering expenses. The Offered Shares and the ordinary shares underlying the Pre-funded Warrants and the Common Warrants offered under the Securities Purchase Agreement were offered and sold pursuant to the Company’s effective registration statement on Form F-3 (Registration No. 333-268028), initially filed by the Company with the SEC on October 27, 2022 and declared effective by the SEC on November 15, 2022, and the base prospectus included therein, as supplemented by the prospectus supplement dated December 6, 2024.
The Offering closed on December 10, 2024. For the period from the effectiveness of the registration statement on Form F-1 to September 30, 2024, we used approximately US$7.0 million for research and development purposes, approximately US$6.75 million for upgrading and expanding our manufacturing facilities, and approximately US$6.0 million for brand marketing. We still intend to use the remaining proceeds from our initial public offering in the manner disclosed in our registration statement on Form F-1, as amended (File Number 333-248067). For the period from October 1, 2024 to the date of this annual report, we used approximately USD$280,000 for advertising purposes.
On March 24, 2025, we effected a share consolidation of 40 ordinary shares with par value of US$0.28125 per share each in the Company’s issued and unissued share capital into one ordinary share with par value of US$11.25. All fractional shares were rounded up to the whole number of shares. Immediately following the share consolidation, the authorized share capital of the Company was US$140,625,000 divided into 11,250,000 ordinary shares, par value US$11.25 per share and 1,250,000 preferred shares, par value US$11.25 per share.
Corporate Information
Our principal executive offices are located at 265 Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an, Jiangxi Province, People’s Republic of China, and our phone number is +86-0796-8403309. Our registered office in the Cayman Islands is located at Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KYI – 1205 Cayman Islands, and the phone number of our registered office is +1-(345)769-9372. We maintain a corporate website at http://www.universe-pharmacy.com. The information contained in, or accessible from, our website or any other website does not constitute a part of this annual report.
The SEC maintains a website at www.sec.gov that contains reports, proxies, and information statements, and other information regarding issuers that file electronically with the SEC using its EDGAR system.
For information regarding our principal capital expenditures, see “Item 5. Operating and Financial Review and Prospects—B. Liquidity and Capital Resources—Capital Expenditures.”
B. Business Overview
Overview
TCM is a comprehensive form of healthcare that has been widely adopted in China for more than 23 centuries. TCM rests upon the assumption that the human body is an ecosystem, embodying the fusion of Shen (psyche), Essence (soma), Qi, Moisture (body fluids), and Blood (tissue). Health in the context of TCM is more than just the absence of diseases, but to identify imbalance in human body and restore harmony. TCM is not only intended to cure diseases but to enhance the capacity for fulfillment, happiness and general well-being of people.
Through the PRC operating entities, we are a pharmaceutical company based in Jiangxi, China, specializing in the manufacturing, marketing, sales and distribution of TCMD products targeting the elderly with the goal of addressing their physical conditions in the aging process and to promote their general well-being. The PRC operating entities 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, which are sold in approximately 261 cities of 30 provinces in China. In addition, through our subsidiary Universe Trade, we sell not only our own TCMD products, but also biomedical drugs medical instruments, Traditional Chinese Medicine Pieces (“TCMPs”), and dietary supplements manufactured by third-party pharmaceutical companies.
Products manufactured by us. The 13 TCMD products currently manufactured by us fall into two categories: (1) treatment and relief for common chronic health conditions in the elderly designed to achieve physical wellness and longevity (“chronic condition treatments”), and (2) cold and flu medications.
| ● | Chronic condition treatments: 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. |
| ● | Cold and flu medicines: Paracetamol Granule for Children, Isatis Root Granule and Qiangli Pipa Syrup. |
As people age, they have an increasing risk of developing chronic health conditions. According to a report published by the Chinese Center for Disease Control and Prevention in March 2019, 75.8% of seniors have at least one chronic health condition, and 35.1% of them have two or more. According to the “Blue Book of Elderly Health (2020-2021)” released in December 2021 by the Chinese Academy of Medical Sciences, the School of Public Health of Peking Union Medical College and the Social Sciences Literature Publishing House, the prevalence of hypertension, diabetes and hypercholesterolemia in Chinese residents aged 60 and above is 58.3%, 19.4% and 10.5%, respectively, and more than 3/4 of the residents have multiple disease coexistence, and with the increase of age, the prevalence of chronic diseases increases. Some of the most common chronic diseases in the elderly include arthritis, chronic kidney disease, fatigue, and low back pain. The PRC operating entities’ products under the category of chronic condition treatments are designed to address some of the aforementioned diseases. The PRC operating entities’ cold and flu medicines, on the other hand, include products designed to treat and relieve symptoms of respiratory illnesses caused by bacteria and viruses.
The PRC operating entities’ third-party products. Through our subsidiary, Universe Trade, we also distribute and sell products manufactured by third-party producers, including biomedical drugs, medical instruments, TCMPs and dietary supplements. For the fiscal years ended September 30, 2024, 2023 and 2022, we distributed around 2,552, 2,239 and 2,785 types of third-party products, respectively.
The PRC operating entities’ Customers. The PRC operating entities’ major customers are pharmaceutical distributors, hospitals, clinics and drugstore chains, primarily located in Jiangxi Province, Jiangsu Province, Guangdong Province, Hubei Province, Fujian Province, Guangxi Province and Shandong Province, and 23 other provinces in China.
The PRC operating entities’ customer base decreased from 2,651 as of September 30, 2022 to 2,541 as of September 30, 2023, and increased to 2,561 as of September 30, 2024. The revenues from selling the PRC operating entities’ own products decreased from $23,988,177 for the fiscal year ended September 30, 2022 to $18,572,658 for the fiscal year ended September 30, 2023, as we changed our pricing strategy and decreased selling price of our TCMD products to increase sales volume and market share, and decreased to $14,026,049 for the fiscal year ended September 30, 2024 because sales volume decreased by 29.1% as global economic slowdown has led to a decline in customers’ spending power. The revenues from distributing and selling third-party products decreased from $16,154,974 in the fiscal year ended September 30, 2022 to $13,736,077 for the fiscal year ended September 30, 2023 due to decreased sales volume and negative impact from foreign currency fluctuation and decreased to $8,998,409 for the fiscal year ended September 30, 2024 because sales volume decreased by 28.0%. Our net loss was $8,736,566 for the fiscal year ended September 30, 2022, $6,163,061 for the fiscal year ended September 30, 2023, and $20,327,897 for the fiscal year ended September 30, 2024.
Our Competitive Strengths
We believe we have the following competitive strengths:
A recognized manufacturer of TCMD products in China’s rapidly growing health and wellness market
We are a recognized manufacturer of TCMD products in China’s rapidly growing health and wellness market. We own a number of famous brands in the industry, which are also our registered trademarks in China. For instance, our brand “Hu Zhuo Ren (胡卓仁)” is especially well-recognized in Jiangxi Province. Further, our brand “Bai Nian Dan (百年丹)” is famous for specializing in products targeted at the physical wellness of older population. Our other recognized brands include “Long Zhong (龙种)”, “Yi Ke Ting (益克停)”, “Xue Li (血力)”, “Duo Lai Mei (朵来美)”, “Shu Er Kang (舒儿康)”, “Hu Zhuo Ren (胡卓仁)”, “Ai Bi Xin (爱必欣)”, and “Yong He Shuang Feng (永和双凤)”.
The Chinese patent medicine industry is growing rapidly and steadily in China. The primary growth drivers of China’s Chinese patent medicine industry include the increasing disposable income and healthcare awareness in China, growing aging population and the prevalence of chronic diseases, and favorable governmental policies and regulations.
We attribute our success to our recognized brand names, strong relationships with our suppliers, loyal and stable customer base, and proven capability to develop and manufacture TCMD products aligned with the preferences of end consumers.
Rigorous quality control standards and manufacturing protocols
We believe that the quality of our products is crucial to our success as a pharmaceutical company, and we have implemented an overall quality control system, as well as strict manufacturing protocols specifically designed for each product. Our quality control system starts from procurement. The raw materials we source from our suppliers must first be examined and certified for quality. We review the performance of our suppliers based on the quality of their products and adjust future orders from them accordingly. Further, an average of three inspections are made by our personnel throughout the manufacturing process to ensure that the manufacturing protocols are strictly followed, and that the quality of semi-products are at or above standard. After completion of manufacturing, our personnel will perform an overall quality examination. Through the implementation of a quality control system, we are able to identify the weakness in our production process and improve our operations over time. We believe our quality control standards and manufacturing protocols have contributed to the high quality and consistency of our products.
Visionary management team with substantial industry experience
Our visionary management team is the bedrock of our success. Many members of our leadership possess extensive experience in the pharmaceutical, biomedical, chemical and related industries. For instance, our chief executive officer, Mr. Gang Lai, has about 33 years of corporate management experiences. Mr. Xiaojun Deng, the deputy manufacturing manager of Jiangxi Universe, holds a degree in Traditional Chinese Medicine Manufacturing from Jiangxi Medical School with over 28 years of working experience in the Chinese patent medicine industry. Ms. Lin Yang, our chief financial officer, has over 16 years of finance and management experience working in pharmaceutical companies. Mr. Yajun Hu, the general manager of Jiangxi Universe, has over 10 years of experiences in managing a pharmaceutical company. Mr. Baochang Liu, our chief operating officer, has over 19 years of experience in pharmaceutical marketing and had previously held marketing and management positions at a number of listed pharmaceutical companies in China. Moreover, many members of the team have worked together for an extended period of time and helped build the Company from the ground up. The rapport that the team has built extends beyond the talent and skills of individual team members and contributes to a collective sense of mission.
Our Growth Strategy
Build a Strong Brand Image to Achieve National Recognition
We believe that broader recognition and favorable perception of our brand by consumers in our target markets are crucial to our future success. Our brand has gained a solid reputation in Southern China, especially Jiangxi Province, and we plan to increase the awareness of our brand among consumers in other parts of China. Specifically, we plan to build a strong brand image that we are a TCMD producer specializing in the development and manufacture of products designed to address the physical conditions of the elderly during the aging process and to promote their general well-being. To achieve our goal, we plan to spend most of our efforts on the development and marketing of our brand “Bai Nian Dan (百年丹)” as the brand to be associated with our ideal brand image because “Bai Nian” (百年) signifies longevity in the Chinese language, and “Dan” (丹) alludes to our signature product, Guben Yanling Pill.
We have been advertising our products through television advertisement. We also intend to advertise targeting older customers, including transmitting our advertisements through additional traditional media platforms such as live radio stations, newspapers, as well as in-person marketing at drug stores and clinics. In the fiscal year ended September 30, 2022, our marketing department explored direct selling strategy and increased its efforts to market products directly to customers in Liaoning Province. In the fiscal year ended September 30, 2023, our marketing strategies are primarily focused on digital marketing and brand promotion, and we launched in-app advertising campaigns and created brand films to enhance our recognition among potential customers. In the fiscal year ended September 30, 2024, we continued adopting our marketing strategies for the fiscal year ended September 30, 2023, with a focus on promoting our products with in-app advertising campaigns through Health Headline.
Enhance Our Distribution Network to Increase Market Penetration and Customer Stickiness
Currently, our products are sold in 30 provinces in China. We plan to enter the markets in other parts of China. To achieve this goal, we have made efforts to further strengthen and expand our distribution network through connecting with more local distributors, chain drugstores, malls and supermarkets in other parts of China. Currently, our strategic focus is to attract more marketing talents and build a stronger sales and marketing team to keep us on top of the latest information of local markets, customer preferences and industry trends. We also plan to create an online store to reach a wider consumer demographic. In the future, we plan to start our own retail chain stores, and provide training programs to sales personnel to improve their skills and acquire knowledge of our products, in order to further diversify our distribution channels to increase our market penetration and customer base.
Integrate Our Internal Manufacturing Capability to Ensure Productivity, Supply, and Selection of Products
We plan to further optimize our production facilities to increase the productivity, supply and selection of our products, so that we may gain competitive edges over our competitors. Specifically, we intend to increase productivity and supply by expanding the existing production lines and converting them into automated production lines. To increase the selection of our products, we plan to build additional production facilities for our licensed TCMD products to be launched in the future.
Further Grow Our Research and Development Capacities
The size of the Chinese patent medicine market has been growing steadily. To respond to increasing market demand, we will continue to provide financial and operational resources to focus on the research and development of TCMD products and dietary supplements designed to address the physical conditions of the elderly during the aging process and promote their general well-being.
Our Manufactured Products
We manufacture, market and sell 13 different TCMD products to customers in 30 different provinces in China. Our TCMD products fall under two categories: chronic condition treatments and cold and flu medications. The following list outlines our current products:
| Percentage of Gross Sales | ||||||||||||||||||
| Product Category | Product Name | Posology | 2024 | 2023 | 2022 | Intended Uses | ||||||||||||
| Chronic Condition Treatments | Guben Yanling Pill | Pills | 37.2 | % | 36.4 | % | 42.5 | % | To relieve fatigue, palpitation, low back pain, and generalized weakness and soreness. | |||||||||
| Shenrong Weisheng Pill | Pills | 4.4 | % | 3.5 | % | 2.5 | % | To relieve fatigue, dizziness, excessive sweating, and pain in the waist and the knees. | ||||||||||
| Quanlu Pill | Pills | 2.3 | % | 1.9 | % | 1.7 | % | To improve kidney functions and spleen functions, and relieve fatigue, low back pain, and knee pain. | ||||||||||
| Wuzi Yanzong Oral Liquid | Oral liquid | 0.1 | % | 0.1 | % | 0.5 | % | To improve kidney functions. | ||||||||||
| Yangxue Danggui Syrup | Syrup | 0.8 | % | 0.3 | % | 0.4 | % | To improve blood circulation and treating dizziness, headaches and menstrual pains. | ||||||||||
| Fengshitong Medicinal Liquor | Medicinal liquor | - | 0.8 | % | 0.6 | % | To treat low back pain and numbness in the feet and hands, and relieve rheumatoid arthritis pain. | |||||||||||
| Shiquan Dabu Medicinal Liquor | Medicinal liquor | 1.0 | % | 1.1 | % | 1.0 | % | To treat dizziness, palpitation, fatigue, and weakness, and ease menstrual flow. | ||||||||||
| Fengtong Medicinal Liquor | Medicinal liquor | 0.6 | - | % | 0.2 | % | To treat low back pain and numbness in the feet and hands, and relieve symptoms of arthritis. | |||||||||||
| Shenrong Medicinal Liquor | Medicinal liquor | 1.2 | % | 0.6 | % | 0.5 | % | To improve blood circulation and relieve symptoms of fatigue, low back pain and leg pain. | ||||||||||
| Qishe Medicinal Liquor | Medicinal liquor | 0.3 | % | 0.3 | % | 0.5 | % | To treat blood stasis, arthritis, and numbness in the feet and hands. | ||||||||||
| Cold and Flu Medicines Medicinal Liquor | Qiangli Pipa Syrup | Syrup | 3.7 | % | 4.9 | % | 5.9 | % | Relieve cough and reduce mucus and phlegm. | |||||||||
| Paracetamol Granule for Children | Granules | 2.2 | % | 3.4 | % | 1.9 | % | To relieve children’s headaches, muscle aches, toothaches, colds and fevers. | ||||||||||
| Isatis Root Granule | Granules | 7.0 | % | 4.3 | % | 1.6 | % | To treat common colds and other infections of the upper respiratory tract. | ||||||||||
Among the 13 TCMD products we manufacture, Guben Yanling Pill is our signature product. For the fiscal years ended September 30, 2024, 2023 and 2022, the revenue derived from the sale of Guben Yanling Pill represented 37.2%, 36.4% and 42.5% of our total revenue.
Our Manufacturing Process
The following chart illustrates our main manufacturing process from raw material purchase to marketing:
Our Raw Materials and Suppliers
We select our raw materials for the manufacturing of our products strictly in accordance with the guidance in Pharmacopoeia of the People’s Republic of China (《中华药典》) (the “PPRC”), an official compendium of drugs covering both TCM and western medications complied by the Pharmacopoeia Commission of the Ministry of Health of People’s Republic of China. The PPRC specifies the standards of description, dosage, purity, storage, and other material information for each drug. In the manufacturing of our TCMD products, more than 110 types of raw materials are regularly used, among which angelica, codonopsis, poria mushroom, isatis root, ginseng loquat leaves, safflower, and Baijiu liquor represent our main raw materials.
Currently, we have stable access to all the raw materials necessary for our production. There are many suppliers in the industry for the regularly used raw materials, and therefore we are not relying on a single supplier for any of our raw materials. If we are unable to purchase any of the raw materials from one supplier, we do not expect to face material difficulties in locating another supplier at substantially the same price. While the prices of such raw materials may vary greatly from time to time due to market forces beyond our control, we believe we can hedge such risk by adjusting our price, or absorbing higher costs if and when necessary.
To source the raw materials required for our products, we regularly contract with our suppliers by placing bulk orders with them at below market prices. Our raw material suppliers include mostly traditional Chinese medicine manufacturers and pharmaceutical trading companies. After years of business cooperation, we believe that our relationships with our current suppliers are strong and stable.
We consider our raw materials suppliers whose sales to us accounted for more than 10% of our overall purchases in any given period to be our major suppliers for such period. For the fiscal year ended September 30, 2024, two suppliers accounted for 28.0% and 13.4% of our total purchases, respectively. For the fiscal year ended September 30, 2023, one supplier accounted for 29.6% of the total purchases. For the fiscal year ended September 30, 2022, one supplier, Jiangxi Hongjing Pharmaceutical Co., Ltd., accounted for approximately 10.3% of our total purchases. No other supplier individually accounted for more than 10% of our total purchases for the fiscal years ended September 30, 2024, 2023 and 2022.
Manufacturing Process
The following is a brief description of the manufacturing process of the TCMD products we currently produce by dosage forms.
Pill Products
To make our pill products, the raw materials first go through a preparation process, during which such materials are dried, roughly ground and sterilized. Processed raw materials are then finely ground, mixed with honey, and made into pills before they are finally packaged.
Granule Products
The raw materials of our granule products typically go through a purifying process, during which such materials are stewed, filtered, condensed, and let stand. Processed raw materials are then mixed with supplemental ingredients before they are made into granules, dried, and finally packaged.
Syrup Products
The raw materials of our syrup products are first stewed together and condensed. Condensed liquid is then filtered and mixed with supplemental ingredients before it is bottled and packaged.
Oral Liquid Products
The raw materials of our oral liquid products are first filtered, condensed, and fixed with other supplemental ingredients. The processed materials are then further filtered and sterilized before being bottled and packaged.
Medicinal Liquor Products
The raw materials of our medicinal liquor products first go through a purifying process, during which such materials are selected, cut, rinsed, stewed, and refrigerated. Processed raw materials then go through an extraction process that involves mixing with solvents and filtering. Then, the liquor products are bottled and packaged.
Quality Control and Assurance
We seek to ensure the high quality of our products through our quality control system and by conducting product testing and review. Our entire manufacturing process is strictly supervised pursuant to internal quality control standards that have been set up in strict adherence to the guidelines provided in PPRC. We conduct our quality testing by examining the quality of each and every type of raw materials. If the raw materials meet our quality standards, we start the manufacturing process, during which we continue our quality testing for every substantial procedure, including filtering, grinding, mixing, and pill making. After our products are packaged, we will examine various features of our final products thoroughly, including appearance, weight, taste, water content, and microorganism content.
Third-party Product Distribution
In addition to manufacturing our own products, we also distribute and sell, through our subsidiary Universe Trade, biomedical drugs, medical instruments, TCMPs and dietary supplements manufactured by third-party pharmaceutical companies. For the fiscal year ended September 30, 2024, we had distributed roughly 2,532 third-party products, of which approximately 39.0% are biochemical drugs, such as liquid glucose, prednisolone, and citicoline, approximately 9.0% are medical instruments, such as drug-eluting stents, surgical tubes and syringes, approximately 48.0% are TCMPs, such as red sage tables, Longdan Xiegan pills, and Chinese skullcap capsules, and approximately 4.0% are dietary supplements. For the fiscal year ended September 30, 2023, we had distributed roughly 2,239 third-party products, of which approximately 91.69% are biochemical drugs, such as liquid glucose, prednisolone, and citicoline, approximately 8.29% are medical instruments, such as drug-eluting stents, surgical tubes and syringes, approximately 0.02% are TCMPs, such as red sage tables, Longdan Xiegan pills, and Chinese skullcap capsules. For the fiscal year ended September 30, 2022, we had distributed roughly 2,785 third-party products, of which approximately 85.0% are biochemical drugs, such as liquid glucose, prednisolone, and citicoline, approximately 14.8% are medical instruments, such as drug-eluting stents, surgical tubes and syringes, approximately 0.2% are TCMPs, such as red sage tables, Longdan Xiegan pills, and Chinese skullcap capsules.
Our Suppliers of Third-party Products
We source third-party pharmaceutical products from their manufacturers in China. Our third-party product suppliers include mostly medical instrument manufacturers, pharmaceutical product manufacturers and dietary supplement manufacturers. For all of the products that we source and sell, we can generally find similar replacements in the market from the competitors of our current suppliers. Accordingly, we do not have any continuous or long-term supply agreements with any of these suppliers. We purchase third-party medical products from our suppliers on a per purchase order basis.
For the fiscal year ended September 30, 2024, 2023 and 2022, we purchased products from over 598, 661 and 658 suppliers, respectively. For the fiscal years ended September 30, 2024, 2023 and 2022, we did not have any supplier of third-party products whose sales to us accounted for more than 10% of our overall purchases of that fiscal year.
Our Customers
Our customers are mostly pharmaceutical distributors, hospitals, clinics and drugstore chains with pharmaceutical business qualification certificates, awarded and authorized by the NMPA and are authorized to sell and deliver our products to end consumers. As of the date of this annual report, our customers are scattered over 261 cities of 30 provinces in China. We determine whether to establish long-term business relationships with our customers primarily based on two factors, their ability to promote our products and their ability to make payments on time.
As of September 30, 2024, we had a total of 2,561 customers, of which 1,276 were pharmaceutical distributors, 231 were clinics, 358 were drug stores, and 696 were hospitals. As of September 30, 2023, we had a total of 2,541 customers, of which 1,267 were pharmaceutical distributors, 279 were clinics, 356 were drug stores, and 639 were hospitals.
For the fiscal year ended September 30, 2024, our revenues generated from sales to pharmaceutical distributors, hospitals, clinics and drugstore chains represented 65.68%, 20.77%, 9.07% and 4.49% of our total revenues, respectively. For the fiscal year ended September 30, 2023, our revenues generated from sales to pharmaceutical distributors, hospitals, clinics and drugstore chains represented 59.26%, 22.02%, 13.50% and 5.22% of our total revenues, respectively. For the fiscal year ended September 30, 2022, our revenues generated from sales to pharmaceutical distributors, hospitals, clinics and drugstore chains represented 49.3%, 10.9%, 8.6%, and 31.2% of our total revenues, respectively.
None of our customers generated more than 10% of our revenue for the fiscal years ended September 30, 2024, 2023 and 2022. However, our top 10 customers aggregately accounted for 22.5%, 27.2% and 32.2% of our total revenue for the fiscal years ended September 30, 2024, 2023 and 2022, respectively.
Marketing and Sales
We believe that marketing activities are crucial to our success in the competitive Chinese patent medicine industry. As of September 30, 2024, we had a total of 60 employees in our marketing department. Employees in our marketing department are mainly responsible for performing various marketing activities, including researching the most updated industry and market information, analyzing market trends and consumer preferences, setting up marketing strategies, executing sales contracts, communicating with existing customers and networking with potential customers.
Our marketing and sales initiatives for the next several years will focus on three objectives: developing a strong brand image, building a successful marketing team, and expanding retail channels. To develop our brand image as a producer of TCMD products aiming at addressing the physical conditions of the elderly during the aging process and promoting their general well-being, we seek to promote our brand “Bai Nian Dan (百年丹)” utilizing both online marketing channels such as WeChat official account and other social media and traditional platforms such as television, newspapers, and live radio stations. As part of the efforts to build a successful marketing team, we intend to hire additional sales talents and provide monetary and equity incentives to sales employees. For the purpose of expanding our retail channels, we plan to open an online retail store, and according to the preferences of online shoppers, we may adjust the sizes, packaging, or prices of our products.
Research and Development
We established a research and development department in 1998. Our research and development team has been focusing on the upgrade of current products and the development of production techniques to increase productivity. After years of continued development, our research and development department has become the core of our technological innovation efforts. As of September 30, 2024, we had 17 employees dedicated to research and development.
Research and Development (“R&D”) Achievements
Our research and development team has invented patented technologies to enhance the quality of our products and our manufacturing efficiency. For instance, our patented TCM mixer is able to mix powders more evenly and thoroughly compared to a traditional mixing machine, thereby increasing the quality of the mixed medicine powder. The special design of our patented TCM concentration device is able to increase the contact area of the liquid medicine as compared to a regular concentration device, thereby increasing the manufacturing efficiency of our products in liquid dosage form.
As a result of our efforts, our subsidiary, Jiangxi Universe, is certified as a high and new technology enterprise by the Science and Technology Department of Jiangxi Province, with the current certification expiring in November 2025. This certification entitles Jiangxi Universe to a favorable corporate income tax of 15%, rather than the unified tax rate of 25% it would pay if it were not certified.
R&D Development Plan
To further our strong brand image, we plan to develop products designed to address the physical conditions of the elderly during the aging process and promoting their general well-being, including TCMD products and dietary supplements. In the upcoming years, we intend to focus on the development of immunity boost products and sleep aids.
In addition to our own efforts, our research and development team also intends to collaborate with other industry professionals and TCM experts with respect to the development of products we plan to launch in the future.
Competition
We compete with pharmaceutical companies in China that manufacture and sell products similar to ours. Furthermore, many of these companies are more established than we are, and have significantly greater financial, technical, and other resources than we presently possess. Some of our competitors may be able to respond more quickly to new opportunities, market changes or changes of customer preferences, and may be able to undertake more extensive promotional activities, offer more attractive terms to distributors, and adopt more aggressive pricing strategies than we are. Despite that, we believe we are well-positioned to compete in this market with our diversified product portfolio, recognized brand name, established sales and marketing network and experienced management team with a proven track record.
Competitors of our products
The following table sets forth the competitors of our products.
| Products | Competitors | |
| Guben Yanling Pill | Taiyuan Daningtang Pharmaceuticals Co., Ltd.; Shenyang Dongxin Pharmaceutical Industry Co., Ltd. |
|
| Shenrong Weisheng Pill | China Beijing Tong Ren Tang Group Co., Ltd.; Jiangxi Zhongyuan Pharmaceutical Co., Ltd. |
|
| Quanlu Pill | Renhe Pharmaceuticals Co.; Guangzhou Pharmaceutical Co., Ltd. |
|
| Fuzi Lizhong Pill | China Beijing Tong Ren Tang Group Co., Ltd. | |
| Yangxue Danggui Syrup | Sichuan Tiancheng Pharmaceuticals Co., Ltd. | |
| Qiangli Pipa Syrup | Jiangzhong Pharmaceuticals Co., Ltd.; China Resources Sanjiu Medical & Pharmaceuticals Co., Ltd.; Jiangxi Tengwangge Pharmaceuticals Co., Ltd. |
|
| Paracetamol and Chlorpheniramine Maleate Granules for Children |
China Resources Sanjiu Medical & Pharmaceuticals Co., Ltd.; Sunflower Pharmaceutical Group Co., Ltd. |
|
| Isatis Root Granules | Guangzhou Pharmaceuticals Co., Ltd.; China Resources Sanjiu Medicine & Pharmaceuticals Co., Ltd.; China Beijing Tong Ren Tang Group Co., Ltd. |
|
| Wuzi Yanzong Oral Liquid | China Beijing Tong Ren Tang Group Co., Ltd. | |
| Shuquan Dabu Medicinal Liquor | Jiangxi Puzheng Pharmaceuticals Co., Ltd. | |
| Shenrong Medicinal Liquor | Jiangxi Puzheng Pharmaceuticals Co., Ltd. | |
| Qishe Medicinal Liquor | Jiangxi Zhongyuan Pharmaceuticals Co., Ltd. | |
| Fengtong Medicinal Liquor | Jiangxi Zhongyuan Pharmaceuticals Co., Ltd. |
Competitors of Third-party Products
Our competitors of pharmaceutical products, including biochemical drugs and TCMPs, are many internationally and nationally well-known manufacturers and distributors, including China Beijing Tong Ren Tang Group Co., Ltd., Yunnan Baiyao Group, China Resources Sanjiu Medicine & Pharmaceuticals Co., Ltd., and Guangzhou Baiyunshan Pharmaceutical Holdings Co., Ltd.
Our competitors in the medical instrument market include many well-known manufacturers and distributors of medical instruments, including Shinva Medical Instrument Co., Ltd., Jiangsu Yuyue Medical Equipment & Supply Co., Ltd., Lepu Medical Technology (Beijing) Co., Ltd., and Shanghai Runda Medical Technology Co., Ltd.
Our competitors in the dietary supplement market include internationally and nationally well-known manufacturers and distributors of dietary supplements, such as By-health Co., Ltd., Amway (China) Co., Ltd., and Perfect (China) Co., Ltd.
We intend to compete with these larger companies by appealing to the specific needs and preferences of our customers and offering competitive prices.
Employees
As of September 30, 2024, 2023 and 2022, we had a total of 225, 225 and 224 employees, all of whom are located in China. The following table sets forth the number of our employees by function as of September 30, 2024.
| Function | Number
of |
% of Total |
||||||
| Purchasing Department | 5 | 2 | % | |||||
| Warehouse Department | 9 | 4 | % | |||||
| Manufacturing Department | 105 | 47 | % | |||||
| Quality Control Department | 16 | 7 | % | |||||
| Research and Development Department | 18 | 8 | % | |||||
| Marketing Department | 58 | 26 | % | |||||
| Finance Department | 7 | 3 | % | |||||
| Administration Department | 7 | 3 | % | |||||
| Total | 225 | 100 | % | |||||
Our success depends on our ability to attract, retain and motivate qualified personnel. As part of our human resources strategy, we offer employees competitive salaries and other bonuses and incentives.
We primarily recruit our employees in China through direct hiring. We provide training to new employees that we hire. We also conduct regular and specialized internal training to meet the needs of our employees in different departments. We believe that such training is effective in equipping our employees with the skill set and work ethics we require.
As required under PRC regulations, we participate in various employee social security plans that are organized by applicable local municipal and provincial governments, including housing, pension, medical, work-related injury, maternity and unemployment benefit plans.
We enter into standard contracts and agreements regarding confidentiality, intellectual property, employment, ethic policies and non-competition with most of our executive officers, managers and employees. These contracts typically include a non-competition provision effective during and up to one year after termination of their employment with us and a confidentiality provision effective during and up to one year after their employment with us.
Our employees have not formed any employee union or association. We believe that we maintain a good working relationship with our employees and we have not experienced any difficulty in recruiting staff for our operations as of the date of this annual report.
Properties and Facilities
Our corporate headquarters are located in Jinggangshan, Jiangxi Province, China. We own properties in Jingggangshan as office spaces, storage facilities and manufacturing facilities with an aggregate gross floor area of approximately 825,563 square feet. We believe that our existing facilities are generally adequate to meet our current needs, but we expect to seek additional space as needed to accommodate future growth. Following is a list of our properties all of which we own the land use rights to:
| No. | Land Use Right Holder |
Property Address | Use of Property |
Area in Square Feet |
Terms of Use |
|||||
| 1 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Manufacturing | 173,467 | October 2053 | |||||
| 2 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Manufacturing | 470,921 | October 2053 | |||||
| 3 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Manufacturing | 57,010 | October 2053 | |||||
| 4 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Storage | 27,426 | October 2053 | |||||
| 5 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Manufacturing | 29,276 | October 2053 | |||||
| 6 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Storage | 57,083 | October 2053 | |||||
| 7 | Jiangxi Universe | 265 Jingjiu Avenue, Economy and Technology Development District, Jinggangshan, Ji’an, Jiangxi, China | Manufacturing | 10,380 | October 2053 |
We manufacture all of our products at the properties listed above. Currently, we are capable of producing a maximum of approximately 12 million bottles of liquid products, 13 million boxes of pill products, and 10 million boxes of solid products annually.
Intellectual Property
We regard our patents, trademarks, domain names and other intellectual property critical to our business operations. We rely on laws and regulations on patents, trademarks and domain names to protect our intellectual property. As of the date of this annual report, we have registered 65 patents in China, including 36 utility model patents, 17 design patents, and 12 invention patents, and 98 trademarks in China, including our well-recognized brands “Bai Nian Dan (百年丹)”, “Hu Zhuo Ren (胡卓仁)” and “Long Zhong (龙种).” Under certain trademark licensing agreements entered into by and between Jiangxi Universe and Guangzhou Ningjing Investment Co., Ltd (“Guangzhou Ningjing”), a related company controlled by Mr. Gang Lai, our chief executive officer and chairman of the Board of Directors, Jiangxi Universe is authorized to use three trademarks held by Guangzhou Ningjing for commercial purposes, with the licensing authorization for two of such trademarks expiring on August 14, 2028 and one expiring on January 9, 2029. Jiangxi Universe is obligated to pay an aggregate of RMB500,000 (approximately US$71,249) to Guangzhou Nanjing annually as trademark licensing fees.
We implement a set of comprehensive measures to protect our intellectual property, in addition to making trademark and patent registration application. Key measures include: (i) timely registration, filing and application for ownership of our intellectual property, (ii) actively tracking the registration and authorization status of our intellectual property and take action in a timely manner if any potential conflicts with our intellectual property are identified, and (iii) clearly stating all rights and obligations regarding the ownership and protection of our intellectual property in all employment contracts and commercial contracts we enter into.
As of the date of this annual report, we have not been subject to any material dispute or claims for infringement upon third parties’ trademarks, licenses and other intellectual property rights in China.
Seasonality
We currently do not experience seasonality in our business.
Environmental Matters
We comply with the Environmental Protection Law of China as well as applicable local regulations. In addition to statutory and regulatory compliance, we actively ensure the environmental sustainability of our operations. Parties may be levied upon us if we fail to adhere to and maintain certain standards. Such failure has not occurred in the past, and we generally do not anticipate that it will occur in the future, but no assurance can be given in this regard.
Insurance
We maintain certain insurance policies to safeguard us against risks and unexpected events. For example, we provide social security insurance including pension insurance, unemployment insurance, work-related injury insurance and medical insurance for our employees in compliance with applicable PRC laws. We also maintain directors and officers’ liability insurance. We do not maintain business interruption insurance or product liability insurance, which are not mandatory under PRC laws. We do not maintain key man insurance, insurance policies covering damages to our network infrastructures or information technology systems nor any insurance policies for our properties. During the fiscal years ended September 30, 2024, 2023 and 2022, we did not make any material insurance claims in relation to our business.
Legal Proceedings
We may from time to time become a party to various legal administrative proceedings arising in our ordinary course of our business. As of the date of this annual report, neither we nor any of our subsidiaries is a party of any material legal proceeding.
Regulations
This section sets forth a summary of the principal PRC laws, regulations, and rules relevant to our PRC operating entities’ business and operations in China.
We are a pharmaceutical manufacturer in China. This section sets forth a summary of applicable laws, rules, regulations, government and industry policies and requirement that have a significant impact on our operations and business in China. This summary does not purport to be a complete description of all laws and regulations, which apply to our business and operations. Investors should note that the following summary is based on relevant laws and regulations in force as of the date of this annual report, which may be subject to change.
Major Regulatory Authorities
The pharmaceutical industry in the PRC is mainly administered by four governmental agencies: (i) the NMPA, a department under the State Administration for Market Regulation (the “SAMR”) (国家市场监督管理总局), (ii) the National Health Commission (the “NHC”) (国家卫生健康委员会), (iii) the National Administration of Traditional Chinese Medicine (the “NATCM”) (国家中医药管理局), and (iv) the National Healthcare Bureau (the “NHB”) (国家医疗保障局).
The NMPA, whose predecessor is the China Food and Drug Administration, or the CFDA, is the primary regulator of almost all key stages of the life-cycle of pharmaceutical products, including non-clinical researches, clinical trials, marketing approvals, manufacturing, advertising and promotion, distribution and pharmacovigilance.
The NHC, formerly known as the National Health and Family Planning Commission, is the principal regulator of healthcare in China. It is primarily responsible for drafting national healthcare policies and regulating public health, medical services and health contingency system, coordinating the healthcare reform and overseeing the operation of medical institutions and professional practice of medical personnel. The NHC is responsible for (1) the research, production, circulation and use of Chinese medicines, including traditional Chinese medicine; (2) the preparation and publication of the Chinese Pharmacopoeia; and (3) the supervision of the selection, approval, distribution and revision of the National OTC Drug Catalogue. In addition, the CFDA and its local administrative authorities may take a number of enforcement actions to enforce their regulations.
The NATCM is an agency under the NHC that oversees China’s traditional Chinese medicine industry.
The NHB, a new authority established in May 2018, is responsible for (1) drafting and implementing policies, plans and standards on medical insurance, maternity insurance and medical assistance; (2) administering healthcare fund; (3) formulating a uniform medical insurance catalogue and payment standards on drugs, medical disposables and healthcare services; and (4) formulating and administering the bidding and tendering policies for drugs and medical disposables.
Regulations Related to Pharmaceutical Manufacture
Manufacturing License
Pursuant to the Pharmaceutical Administration Law of the People’s Republic of China (《中华人民共和国药品管理法》), which was promulgated in 1984 by the SCNPC and last amended in August 2019, a pharmaceutical manufacturer is required to obtain its manufacturing license from the NMPA before it starts to manufacture pharmaceutical products. Prior to granting such permit, the relevant government authority will inspect the applicant’s production facilities, and assess whether the sanitary conditions, quality assurance system, management structure and equipment at the production facilities have met the required standards. A manufacturing license is valid for a period of five years and the manufacturer is required to apply for renewal within six months prior to its expiration date. The manufacturer will be subject to reassessment by the authority in accordance with then prevailing legal and regulatory requirements for the purposes of such renewal. Currently, our subsidiary Jiangxi Universe holds a valid manufacturing license from the NMPA issued on December 21, 2020 and valid until December 20, 2025.
Contract Manufacturing of Drugs
Pursuant to the Administrative Regulations for the Contract Manufacturing of Drugs (《药品委托生产监督管理规定》) (the “Contract Manufacturing Regulations”) issued by the NMPA in August 2014, in the event that a drug manufacturer in China with drug marketing authorization temporarily lacks manufacturing capability as a result of technology upgrade or is unable to meet market demand due to insufficient manufacturing capacity, it may use contract manufacturer for its drug manufacturing. Contract manufacturing arrangements need to be approved by the provincial branch of the NMPA. The Contract Manufacturing Regulations prohibit contract manufacturing arrangements for certain special drugs, including narcotic drugs, psychoactive drugs, biochemical drugs and active pharmaceutical ingredients.
Other Regulations in relation to the Pharmaceutical Industry
“Two-vote system” for drug sales
The NHC and other six ministries and commissions issued the Notice on the Opinions on the Implementation of the “Two-Invoice System” in Drug Procurement by Public Medical Institutions (for Trial Implementation) (《关于在公立医疗机构药品采购中推行“两票制”的实施意见 (试行) 的通知》) (the “Notice on Two-Invoice System”) on January 11, 2017. “Two-invoice system” means that one invoice shall be issued by a pharmaceutical manufacturer to a distributor, and another invoice shall be issued by the distributor to a hospital. An internal transfer of drugs from a group pharmaceutical distributor to its wholly owned or controlled subsidiary or a transfer of drugs between such wholly owned subsidiaries may not be deemed as “one invoice” however, the invoicing for the whole group can be done only once. Pharmaceutical manufacturers and distributors shall reasonably determine the markup level in the spirit of fairness, legality, legitimacy and integrity. Public medical institutions is encouraged to settle the payment for drugs directly with pharmaceutical manufacturers, and pharmaceutical manufacturers and are encouraged to settle the delivery cost with distributors.
In the sale of drugs, drug manufacturers and distributors shall issue value-added tax (“VAT”) special invoices or normal VAT invoices in accordance with the regulations regarding invoice control. The sold drug shall also be delivered in a way that confirms to the requirements of the Good Supply Practice for Pharmaceutical Products (2016 version) (《药品经营质量管理规范(2016修订)》), and the names of the purchaser and seller on the invoices shall be consistent with the delivery form, payment flow and amount.
Drug Advertisements
Pursuant to the Interim Administrative Measures for the Review of Advertisements for Drugs, Medical Devices, Health Food and Formula Food for Special Medical Purposes (《药品、医疗器械、保健食品、特殊医学用途配方食品广告审查管理暂行办法》) promulgated on December 24, 2019 and effective on March 1, 2020, an enterprise seeking to advertise its drugs must apply for an advertising approval code. An advertising approval code shall expire on the earlier of the expiration dates of the product’s registration certificate, filing certificate or production license. If an expiration date is not prescribed in the product’s registration certificate, filing certificate or production license, the advertising approval code shall be valid for two years. The contents of an approved advertisement shall not be altered without prior approval. Where an advertisement needs to be edited, the enterprise shall submit an application for a new advertisement approval code.
Insert Sheet, Labels and Packaging of Pharmaceutical Products
According to the Measures for the Administration of the Insert Sheets and Labels of Drugs (《药品说明书和标签管理规定》) effective on June 1, 2006, the insert sheets and labels of a pharmaceutical product shall be reviewed and approved by the NMPA. A drug insert sheet should include the scientific data, conclusions and information concerning drug safety and efficacy in order to direct the safe and reasonable use of pharmaceutical products. The inner label of a pharmaceutical product shall indicate the product name, indication or function, strength, dose and usage, production date, batch number, expiration date and drug manufacturer, and the outer label of a pharmaceutical product shall indicate the product name, ingredients, description, indication or function, strength, dose and usage and adverse reactions.
According to the Measures for the Administration of Pharmaceutical Packaging (《药品包装管理办法》) effective on September 1, 1988, pharmaceutical packaging must comply with national and professional standards. If no national or professional standards are available, a manufacturer can formulate and implement its own standards after it receives approval from the provincial food and drug administration or bureau of standards. The company shall reapply for approval if it were to change its own packaging standards. Pharmaceutical products with no approved packing standards shall not be sold or traded in the PRC, except for drugs for military use.
Drug Technology Transfer
On August 19, 2009, the NMPA promulgated the Administrative Regulations for Technology Transfer Registration of Drugs (《药品技术转让注册管理规定》) (the “Technology Transfer Regulations”) to regulate the drug technology transfer process, including the application, evaluation, examination, approval and monitoring of, drug technology transfer. Drug technology transfer means that the owner transfers its pharmaceutical manufacturing technology to a pharmaceutical manufacturer and that the transferee applies for drug registration pursuant to the Technology Transfer Regulations. Drug technology transfer includes the transfer of new drug technology and drug manufacturing technology.
Applications for drug technology transfer shall be submitted to the provincial drug regulatory authority where the transferee is located. The drug regulatory authority examines application materials and conducts on-site inspections of the transferee’s manufacturing facilities. If the transferor and the transferee are located in different provinces, the provincial drug regulatory authority where the transferor is located shall issue examination opinions as well. The Center for Drug Evaluation (the “CDE”), a branch of the NMPA, shall further review the application materials, provide technical evaluation opinions and form a comprehensive evaluation opinion based on the on-site inspection reports and the testing results of the samples. The NMPA shall determine whether to approve the application according to the comprehensive evaluation opinion of the CDE. An approval letter of supplementary application and a drug approval number will be issued for qualified applications.
Price of drugs
Pursuant to the Drug Administration Law (《药品管理法》), for those drugs whose prices are determined by market, manufacturers and distributors of pharmaceutical products and medical institutions shall set the prices in accordance with the principles of fairness, rationality, and good faith, and provide consumers with drugs at reasonable prices. Pharmaceutical product manufacturers, distributors and medical institutions shall determine and indicate their products’ retail prices in accordance with the regulations over drug prices promulgated by the pricing department of the State Council of the People’s Republic of China (the “State Council”).
On May 4, 2015, the National Development and Reform Commission, the National Health and Family Planning Commission, the Ministry of Human Resources and Social Security, the Ministry of Industry and Information Technology, the Ministry of Finance, the MOFCOM and the NMPA jointly issued the Notice Regarding Reforms to the Price of Medical Products (《关于印发推进药品价格改革意见的通知》), pursuant to which, since June 1, 2015, other than anesthetics and Class 1 psychotropic drugs, the actual price of pharmaceutical products shall be decided by market instead of by the government. As of the date of this annual report, the actual price of all products we sell, including TCMD products and third-party products, are determined by market.
As of the date of this annual report, we are engaged in the business of manufacturing and selling drugs. We obtained our latest drug manufacturing license on May 31,2024 which is valid until December 20, 2025, in compliance with the applicable PRC laws and regulations.
Regulation relating to Company Establishment and Foreign Investment
The PRC Company Law applies to the establishment, operation and management of both PRC domestic companies and foreign-invested enterprises. Foreign investment in the PRC corporate entities are also regulated by the foreign-Owned Enterprise Law of the PRC (《中华人民共和国外资企业法》) (the “Foreign-Owned Enterprise Law”) promulgated on April 12, 1986 and amended on October 31, 2000 and September 3, 2016, the Implementing Rules for the Foreign-Owned Enterprise Law of the PRC (《中华人民共和国外资企业法实施细则》) promulgated on December 12, 1990 and amended on April 12, 2001 and February 19, 2014, and the Interim Administrative Measures for the Record-filing of the Incorporation and Change of Foreign-invested Enterprises (《外商投资企业设立及变更备案管理暂行办法》) (the “Record-filing Measures”) promulgated on October 8, 2016 and amended on July 30, 2017 and June 29, 2018. Under these laws and regulations, the establishment of a wholly foreign-owned enterprise is subject to the approval of, or the filing with the MOFCOM or its local counterpart, and such wholly foreign-owned enterprises must register and file with the appropriate administrative bureau of industry and commerce.
The Foreign Investment Law of the People’s Republic of China (《中华人民共和国外商投资法》) (the “Foreign Investment Law”), which was promulgated by the National People’s Congress On March 15, 2019, and came into effect on January 1, 2020, provides that foreign investment refers to the investment activities in China carried out directly or indirectly by foreign natural persons, enterprises or other organizations (the “Foreign Investors”), including the following: (1) Foreign Investors establishing foreign-invested enterprises in China alone or collectively with other investors; (2) Foreign Investors acquiring shares, equities, properties or other similar rights of Chinese domestic enterprises; (3) Foreign Investors investing in new projects in China alone or collectively with other investors; and (4) Foreign Investors investing through other ways prescribed by laws and regulations or the State Council. The State adopts the management system of pre-establishment national treatment and negative list for foreign investment. The pre-entry national treatment means the treatment given to Foreign Investors and their investments at the stage of investment access is not lower than that of domestic investors and their investments. The negative list management system means that the state implements special administrative measures for access of foreign investment in specific fields. Foreign investors shall not invest in any forbidden fields stipulated in the negative list and shall mean the conditions stipulated in the negative list before investing in any restricted fields. The negative list is released upon approval of the State Council. After the Foreign Investment Law came into effect, it replaced the Foreign-Owned Enterprise Law.
The Implementation Regulations for the Foreign Investment Law of the PRC (《中华人民共和国外商投资法实施条例》) (the “Implementation Regulations for the FIL”) was adopted at the 74th executive meeting of the State Council on December 12, 2019 and came into effect on January 1, 2020. The purpose of the Implementation Regulations for the FIL is to encourage and promote foreign investment, protect the legitimate rights and interests of investors, regulate the administration of foreign investment, and continuously optimize the foreign investment environment. For those foreign-invested enterprises established prior to the implementation of the Foreign Investment Law and established in accordance with the Law of the People’s Republic of China on Sino-foreign Joint Ventures (《中华人民共和国中外合资经营企业法》), the Law of the People’s Republic of China on Foreign-invested Enterprises, and the Law of the People’s Republic of China on Sino-Foreign Cooperative Enterprises, they can modify or retain their organizational forms and organizational structures in accordance with the PRC Company Law, Partnership Law of the People’s Republic of China and other applicable laws within 5 years since the implementation of the Foreign Investment Law.
Foreign investment in China shall comply with the Catalogue for Encouraged Foreign Investment (2022 Revision) (《鼓励外商投资产业目录(2022年版)》), or the 2022 Catalogue, and the Special Administrative Measures for the Access of Foreign Investment (Negative List) (Edition 2022) (《外商投资准入特别管理措施(负面清单) (2022年版)》), or the 2022 Negative List, which were issued on March 12, 2022 and came into effect on the same date. The Catalogue classifies foreign-invested industries into two categories, (1) encouraged foreign-invested industries; and (2) foreign-invested industries that are subject to the 2018 Negative List. The 2018 Negative List set out restrictions such as shareholding requirements and qualifications of the senior management. According to the Record-filing Measures, foreign investments that are not subject to special access administrative measures are only required to complete an online filing with the MOFCOM or its local counterpart. The scope of our business as approved by the licensing authority and the actual scope of our business are not subject to the restrictions set forth in the 2021 Negative List.
The M&A Rules were jointly promulgated by the MOFCOM, the State-Owned Assets Supervision and Administration Commission of the State Council, the SAT, the SAIC, the CSRC, and the SAFE on August 8, 2006 and was amended by MOFCOM on June 22, 2009. The M&A Rules provides that a foreign investor is required to obtain necessary approvals when it: (1) acquires equity interests in a domestic enterprise or subscribes to additional shares in a domestic enterprise; (2) purchases the assets of a domestic enterprise through establishment of a foreign-invested enterprise; or (3) establishes a foreign-invested enterprise through which it purchases the assets of a domestic enterprise and operates these assets. In particular, any PRC company, enterprise or individual is required to obtain approval from the MOFCOM and comply with applicable laws and regulations if it establishes an offshore company and attempts to acquire a domestic enterprise related to such offshore company.
Regulations Related to Overseas Listing
The Overseas Listings Rules refine the regulatory system for domestic company’s overseas offering and listing by subjecting both direct and indirect overseas offering and listing activities to the filing-based administration, and clearly define the circumstances where provisions for direct and indirect overseas offering and listing apply and the relevant regulatory requirements.
According to the Overseas Listings Rules, among other things, a domestic company in the PRC that seeks to offer and list securities on overseas markets shall fulfill the filing procedures with the CSRC as per requirement of the Trial Measures. Where a domestic company seeks to directly offer and list securities on overseas markets, the issuer shall file with the CSRC. Where a domestic company seeks to indirectly offer and list securities on overseas markets, the issuer shall designate a major domestic operating entity, which shall, as the domestic responsible entity, file with the CSRC. Initial public offerings or listings on overseas markets shall be filed with the CSRC within three working days after the relevant application is submitted overseas. If an issuer subsequently offers securities on the same overseas market where it has previously offered and listed securities, filings shall be made with the CSRC within three working days after the offering is completed. Upon occurrence of any material event, such as change of control, investigations or sanctions imposed by overseas securities regulatory agencies or other relevant competent authorities, change of listing status or transfer of listing segment, or voluntary or mandatory delisting, after an issuer has offered and listed securities on an overseas market, the issuer shall submit a report thereof to the CSRC within three working days after the occurrence and public disclosure of such event.
The Trial Measures provide that an overseas listing or offering is explicitly prohibited, if any of the following happens: (i) such securities offering and listing is explicitly prohibited by provisions in laws, administrative regulations, and relevant state rules; (ii) the intended securities offering and listing may endanger national security as reviewed and determined by competent authorities under the State Council in accordance with law; (iii) the domestic company intending to make the securities offering and listing, or its controlling shareholder(s) and the actual controller(s), have committed relevant crimes such as corruption, bribery, embezzlement, misappropriation of property, or undermining the order of the socialist market economy during the latest three years; (iv) the domestic company intending to make the securities offering and listing is currently under investigations for suspicion of criminal offenses or major violations of laws and regulations, and no conclusion has yet been made thereof; or (v) there are material ownership disputes over equity held by the domestic company’s controlling shareholder(s) or by other shareholder(s) that are controlled by the controlling shareholder(s) and/or actual controller. Moreover, a domestic company that seeks to offer and list securities on overseas markets shall abide by certain other regulatory requirements as set out in the Trial Measures, including compliance with laws of national secrecy, foreign investment, cybersecurity, data security, cross-border investment and financing, foreign exchange, and other laws and relevant provisions.
The Trial Measures also provide that if the issuer meets the following criteria, the overseas securities offering and listing conducted by such issuer will be deemed to be an indirect overseas offering by PRC domestic companies: (i) domestic companies accounted for 50% or more of any of the issuer’s operating revenue, total profit, total assets, or net assets as documented in its audited consolidated financial statements for the most recent fiscal year; and (ii) the main parts of the issuer’s business activities are conducted in mainland China, or its main place(s) of business are located in mainland China, or the majority of senior management staff in charge of its business operations and management are PRC citizens or have their usual place(s) of residence located in mainland China.
Under the Trial Measures, if a domestic company fails to fulfill the filing procedures or offers and lists securities on an overseas market in violation of the relevant provisions of the Trial Measures, the CSRC shall order rectification, issue warnings to such domestic company, and impose a fine between RMB1,000,000 (approximately US$0.14 million) and RMB10,000,000 (approximately US$1.42 million). Directly liable persons-in-charge and other directly liable persons shall be warned and each subject to a fine between RMB500,000 (approximately US$0.07 million) and RMB5,000,000 (approximately US$0.71 million). Controlling shareholders and actual controllers of the domestic company that organize or instruct the aforementioned violations shall be subject to a fine between RMB1,000,000 (approximately US$0.14 million) and RMB10,000,000 (approximately US$1.42 million).
On February 24, 2023, the CSRC promulgated the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies (the “Confidentiality and Archives Administration Provisions”), which became effective on March 31, 2023. According to the Confidentiality and Archives Administration Provisions, domestic companies that seek overseas offering and listing (either in direct or indirect means) and the securities companies and securities service providers (either incorporated domestically or overseas) that undertake relevant businesses shall institute a sound confidentiality and archives administration system and take necessary measures to fulfill confidentiality and archives administration obligations. They shall not leak any state secret or working secret of government agencies, or harm national security and public interests. Therefore, a domestic company that plans to, either directly or through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers, and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to laws, and file with the secrecy administrative department at the same level. Moreover, if the leakage of any other documents and materials which a domestic company plans to publicly disclose or provide to relevant individuals and entities aforementioned, either directly or through its overseas listed entity, will be detrimental to national security or public interest, the domestic company shall strictly fulfill relevant procedures stipulated by applicable regulations.
Furthermore, the Confidentiality and Archives Administration Provisions stipulate that a domestic company that provides accounting archives or copies of accounting archives to any entities, including securities companies, securities service providers, and overseas regulators and individuals, shall fulfill due procedures in compliance with applicable regulations. Working papers produced in mainland China by securities companies and securities service providers in the process of undertaking businesses related to overseas offering and listing by domestic companies shall be retained in mainland China. Where such documents need to be transferred or transmitted to areas outside of mainland China, relevant approval procedures stipulated by regulations shall be followed.
Laws and Regulations Related to Cyber Security and Data Protection
Data Security Law of the PRC
The Data Security Law of the PRC (the “Data Security Law”) was promulgated by the SCNPC on June 10, 2021, and took effect on September 1, 2021. Pursuant to the Data Security Law, data refers to any record of information in electronic or any other form and data processing including the collection, storage, use, processing, transmission, provision, and public disclosure of data. The Data Security Law establishes a classified and tiered system for data protection based on the level of importance of the data to the economic and social development, as well as the level of danger of the data imposed on national security, public interests, or the legal interests of individuals and organizations upon any manipulation, destruction, leakage, illegal acquisition, or illegal usage thereof. The data processors shall comply with the provisions of laws and regulations when conducting data processing activities, establish and improve a whole-process data security management system, organize data security educational trainings, and take corresponding technical measures and other necessary measures to safeguard data security.
Regulations on Network Data Security Administration
The Data Security Administration was promulgated by SCNPC on September 24, 2024 and took effect on January 1, 2025. According to the Data Security Regulations, data processors shall, in accordance with relevant state provisions, apply for cybersecurity review when carrying out the following activities: (i) the merger, reorganization, or separation of internet platform operators that have acquired a large number of data resources related to national security, economic development, or public interests, which affect or may affect national security; (ii) data processors that handle personal data of more than one million individuals intend to list on a foreign stock exchange; (iii) data processors that intend to list on Hong Kong exchange, which affects or may affect national security; and (iv) other data processing activities that affect or may affect national security.
Cybersecurity Review Measures
On December 28, 2021, 13 government departments, including the CAC, jointly promulgated the Cybersecurity Review Measures, which became effective on February 15, 2022. Under the Cybersecurity Review Measures, (i) where a critical information infrastructure operator procures network products and services, it shall anticipate the national security risks that may be posed by the products and services once they are put into use. Those that affect or may affect national security shall be reported to the Cybersecurity Review Office of the PRC for cybersecurity review; (ii) online platform operators controlling personal information of more than one million users, which are listed on a foreign exchange, must apply for a cybersecurity review with the Cybersecurity Review Office of the PRC; and (iii) the Cybersecurity Review Office of the PRC will conduct a cybersecurity review on critical information infrastructure operators and network platform operators in accordance with the laws if it considers necessary.
AllBright Law Offices (Fuzhou), our PRC legal counsel, has advised us that, as of the date of this annual report, the PRC operating entities are not subject to cybersecurity review with the CAC, since they currently do not have over one million users’ personal information and do not anticipate that they will be collecting over one million users’ personal information in the foreseeable future, which we understand might otherwise subject the PRC operating entities to the cybersecurity review with the CAC.
Laws and Regulations Related to Personal Information Protection
The Personal Information Protection Law of the PRC (the “Personal Informational Protection Law”) was promulgated by the SCNPC on August 20, 2021 and became effective on November 1, 2021. The Personal Informational Protection Law stipulates, among others, that (i) the processing of personal information should have a clear and reasonable purpose, which should be directly related to the processing purpose, in a method that has the least impact on personal rights and interests, and (ii) the collection of personal information shall be limited to the minimum scope necessary for achieving the processing purpose and shall not be excessive. Personal information processors shall bear responsibilities and take necessary measures to guarantee the security of the personal information they handle. Otherwise, the personal information processors could be ordered to correct, suspend or terminate services, and face confiscation of illegal income, fines, or other penalties.
AllBright Law Offices (Fuzhou), our PRC legal counsel has advised us that, as of the date of this annual report, neither we nor our PRC subsidiaries have received any notification of non-compliance related to personal information protection from any Chinese authorities.
Regulation in relation to Intellectual Property Rights
In terms of international conventions, China has entered into (including but not limited to) the Agreement on Trade-Related Aspects of Intellectual Property Rights (《与贸易有关的知识产权协定》), the Paris Convention for the Protection of Industrial Property (《保护工业产权巴黎公约》), the Madrid Agreement Concerning the International Registration of Marks (《商标国际注册马德里协定》) and the Patent Cooperation Treaty (《专利合作协定》).
Patents
Pursuant to the Patent Law of the PRC (《中华人民共和国专利法》), or the Patent Law, promulgated by the SCNPC on March 12, 1984 and last amended on October 17, 2020 and effective from June 1, 2021 and the Implementation Rules of the Patent Law of the PRC (《中华人民共和国专利法实施细则》), promulgated by the State Council on June 15, 2001 and amended on December 28, 2002 and January 9, 2010, respectively, patents in China fall into three categories: invention patents, utility model patents and design patents. The term of patent protection starts from the date of application and lasts 20 years for invention patents and 10 years for utility model patents and design patents. Any individual or entity that utilizes a patent or conducts any other activity that infringes a patent without the patent holder’s authorization shall pay compensation to the patent holder and be subject to a fine imposed by regulatory authorities and, if such behavior constitutes a crime, shall be held criminally liable in accordance with applicable laws. According to the Patent Law, for public health purposes, the State Intellectual Property Office of the PRC, or SIPO, may grant a compulsory license for manufacturing patented drugs and exporting them to countries or regions covered under relevant international treaties to which PRC has acceded. In addition, under the Patent Law, any organization or individual that applies for a patent in a foreign country for an invention or utility model patent established in China is required to report to the SIPO for confidentiality examination. Patent holders may apply for extending the terms of patented drugs to compensate for commercialization delays due to regulatory review, and may seek punitive damages for willful patent infringement under severe circumstances.
Trade Secrets
Pursuant to the PRC Anti-Unfair Competition Law (《中华人民共和国反不正当竞争法》) promulgated by the SCNPC in September 1993, as amended on November 4, 2017 and April 23, 2019 respectively, the term “trade secrets” refers to technical and business information that is unknown to the public, has utility, may create business interests or profits for its legal owners or holders, and is maintained as a secret by its legal owners or holders. Under the PRC Anti-Unfair Competition Law, business persons are prohibited from infringing others’ trade secrets by: (1) obtaining trade secrets from the legal owners or holders by any unfair methods, such as theft, bribery, fraud, coercion, electronic intrusion, or any other illicit means; (2) disclosing, using or permitting others to use the trade secrets obtained illegally under item (1) above; or (3) disclosing, using or permitting others to use the trade secrets, in violation of any contractual agreements or any requirements of the legal owners or holders to keep such trade secrets in confidence. If a third party knows or should have known of the above- mentioned illegal conduct but nevertheless obtains, uses or discloses trade secrets of others, the third party may be deemed to have committed a misappropriation of the others’ trade secrets. The parties whose trade secrets are being misappropriated may petition for administrative corrections, and regulatory authorities may stop any illegal activities and impose fines on the infringing parties.
Trademarks
In accordance with the Trademark Law of the PRC (《中华人民共和国商标法》) (the “Trademark Law”), which was promulgated by the SCNPC on August 23, 1982, and was last amended on April 23, 2019 and came into effect on November 1, 2019, any trademark which is registered with the approval of the Trademark Office is a registered trademark, including commodity trademark, service trademark, collective trademark, certification trademark, and the trademark registrant has the exclusive right to use a registered trademark and such right is protected by law. A registered trademark is valid for a period of 10 years commencing from the date on which the registration is approved. Upon expiration of the trademark, the registrant shall apply for renewal within twelve months prior to the expiration date if it intends to maintain exclusive use of the trademark. If the registrant fails to apply for renewal, a grace period of six months may be granted. In the absence of a renewal upon the expiration of a trademark registration, the registered trademark shall be canceled. Use of a trademark that is identical with or similar to a registered trademark, for the same kind of or similar commodities, without authorization of the trademark registrant, constitutes infringement of the exclusive right to use a registered trademark. Industrial and commercial administrative authorities have the authority to investigate any behavior that may constitute an infringement of the exclusive right under a registered trademark.
Domain names
Domain names are protected under the Administrative Measures on the Internet Domain Names (《互联网域名管理办法》), which was promulgated by the Ministry of Industry and Information Technology, or the MIIT, on August 24, 2017 and came into effect on November 1, 2017, and the Implementing Rules of China Internet Network Information Center on the Registration of Domain Names (《中国互联网络信息中心域名注册实施细则》) issued by China Internet Network Information Center (the “CNNIC”) on May 28, 2012 and came into effect on May 29, 2012. Domain name registrations are handled through domain name service agencies established under the relevant regulations, and the applicant becomes domain name holder upon successful registration. Domain name disputes shall be submitted to an organization authorized by CNNIC for resolution.
Other laws
Product Liability
The Product Quality Law of the PRC (《中华人民共和国产品质量法》), promulgated by the SCNPC on February 22, 1993 and last amended on December 29, 2018, governs the supervision and administration of product quality and specifies the liabilities of manufacturers and sellers. A manufacture shall be liable for compensating for any bodily injuries or property damages, other than the defective product itself, resulting from the defects in the product, unless the manufacturer is able to prove that: (1) the product has never been distributed; (2) the defects causing injuries or damage did not exist at the time when the product was distributed; or (3) the science and technology at the time when the product was distributed was at a level incapable of detecting the defects. A seller shall pay compensation if it fails to indicate either the manufacturer or the supplier of the defective product. A person who is injured or whose property is damaged by the defects in the product may claim for compensation from the manufacturer or the seller.
Pursuant to the Civil Code of the People’s Republic of China (《中华人民共和国民法典》), promulgated by the SCNPC on May 28, 2020 and became effective on January 1, 2021, manufacturers shall assume tort liabilities where the defects in products cause damage to others. Sellers shall assume tort liability where the defects in products that have caused damage to others are attributable to the sellers. The aggrieved party may claim for compensation from the manufacturer or the seller of the defected product that has caused damage.
Environmental Protection
Pursuant to the Environmental Protection Law of the PRC (《中华人民共和国环境保护法》) promulgated by the SCNPC on December 26, 1989 and amended on April 24, 2014, the Environmental Impact Assessment Law of the PRC (《中华人民共和国环境影响评价法》), promulgated by the SCNPC on October 28, 2002 and amended on July 2, 2016 and December 29, 2018 respectively, the Administrative Regulations on the Environmental Protection of Construction Project (《建设项目环境保护管理条例》) promulgated by the State Council on November 29, 1998 and amended on July 16, 2017, and other applicable environmental laws and regulations, an enterprise with a project construction plan shall submit an environmental impact assessment report, stating the environmental impacts the project is likely to have, to the administrative authority of environmental protection for approval. Enterprises shall engage qualified institutions to issue the environmental impact assessment reports.
According to the Law of the PRC on the Prevention and Control of Water Pollution (《中华人民共和国水污染防治法》) promulgated by the SCNPC on May 11, 1984 and last amended on June 27, 2017, and effective on January 1, 2018, the Law of the PRC on the Prevention and Control of Atmospheric Pollution (《中华人民共和国大气污染防治法》) promulgated by the SCNPC on September 5, 1987 and last amended on October 26, 2018, the Law of the PRC on the Prevention and Control of Pollution from Environmental Noise (《中华人民共和国环境噪声污染防治法》) promulgated by the SCNPC on October 29, 1996 and amended on December 29, 2018, and the Law of the PRC on the Prevention and Control of Environmental Pollution of Solid Waste (《中华人民共和国固体废物污染环境防治法》), promulgated by the SCNPC on October 30, 1995 and last amended on April 29, 2020, all the enterprises that may cause environmental pollution in the course of their business operation shall implement preventive and curative environmental protection measures in their plants and establish a reliable environmental protection system.
We strictly complied with the applicable environmental laws and regulations in constructing our factory. On December 8, 2004, the environmental protection bureau of local government determined that the environmental protection facilities we constructed for our factory satisfied the relevant standards. According to the certificate issued by the ecological environment bureau of local government (the “Bureau”), our factory has not been assessed on its environmental impacts since its establishment in 2004. Although there were certain procedural defects in the original construction process, we constructed our environmental protection facilities for our factory in strict compliance with the requirements of applicable PRC environmental laws and regulations. Our environmental protection facilities were approved by the Bureau in December 2004 and have since been under normal operations. As of the date of the date of this annual report, we have not been found in violation of applicable environmental laws or regulations, or imposed of administrative penalties by environmental protection authorities in the past three years. No environmental pollution incident has occurred on our manufacturing facility.
Foreign Exchange Control
Pursuant to the Foreign Exchange Administration Regulations of the PRC (《中华人民共和国外汇管理条例》), as amended on August 5, 2008, and the Regulation on the Administration of the Foreign Exchange Settlement, Sales and Payment (《结汇、售汇及付汇管理规定》), or the Settlement Regulations, promulgated by the People’s Bank of China on June 20, 1996 and came into effect on July 1, 1996, foreign exchanges required for profit distributions and dividend payments may be purchased from designated foreign exchange banks in the PRC upon presentation of a board resolution authorizing distribution of profits or payment of dividends.
According to the Notice of SAFE on Further Improving and Adjusting Foreign Exchange Administration Policies on Direct Investment (《国家外汇管理局关于进一步改进和调整直接投资外汇管理政策的通知》) (the “Circular No. 59”), promulgated on November 19, 2012 and last amended on December 30, 2019 by the State Administration of Exchange Control, or the SAFE, (1) the opening of and payment into foreign exchange accounts under direct investment accounts are no longer subject to approval by the SAFE; (2) reinvestment with legal income of foreign investors in China is no longer subject to approval by SAFE; (3) the procedures for capital verification and confirmation that foreign-funded enterprises need to go through are simplified; (4) purchase and external payment of foreign exchange under direct investment accounts are no longer subject to approval by SAFE; (5) domestic transfer of foreign exchange under direct investment account is no longer subject to approval by SAFE; and (6) the administration over the conversion of foreign exchange capital of foreign-invested enterprises is improved.
Pursuant to the Circular on Further Simplifying and Improving the Direct Investment-related Foreign Exchange Administration Policies (《关于进一步简化和改进直接投资外汇管理政策的通知》) (the “SAFE Circular No. 13”), which was promulgated on February 13, 2015 and became effective on June 1, 2015, the foreign exchange registration under domestic direct investment and the foreign exchange registration under foreign direct investment is directly reviewed and handled by banks in accordance with the Circular No. 13, and the SAFE and its branches shall perform indirect regulation over the foreign exchange registration via banks.
Pursuant to the Circular on the Reform of the Management Method for the Settlement of Foreign Exchange Capital of Foreign-invested Enterprises (《国家外汇管理局关于改革外商投资企业外汇资本金结汇管理方式的通知》) promulgated by the SAFE on March 30, 2015 and became effective on June 1, 2015, and the Circular on the Reform and Standardization of the Management Policy of the Settlement of Capital Projects (《国家外汇管理局关于改革和规范资本项目结汇管理政策的通知》) promulgated by the SAFE on June 9, 2016, the settlement of foreign exchange by foreign invested enterprises shall be governed by the policy of foreign exchange settlement on a discretionary basis. However, the settlement of foreign exchange shall only be used for its own operation purposes within the business scope of the foreign invested enterprises in accordance with the principle of authenticity.
Pursuant to the Circular 37, a PRC resident shall register with the local SAFE branch before he or she contributes assets or equity interests in an overseas special purpose vehicle (“Overseas SPV”), which is directly established or controlled by the PRC Resident for the purpose of conducting investment for financing. Failure to comply with the SAFE registration requirements could result in penalties for evasion of foreign exchange controls. The Circular No. 13 provides that banks can directly handle the initial foreign exchange registration and amendment registration under the Circular 37. Mr. Gang Lai completed the initial foreign registration on June 3, 2019.
Labor and Social Insurance
Pursuant to the Labor Contract Law (《中华人民共和国劳动合同法》), which was promulgated by the SCNPC on June 29, 2007 and became effective on January 1, 2008, and amended on December 28, 2012 and became effective on July 1, 2013, and the Implementing Regulations of the Labor Contracts Law of the PRC (《中华人民共和国劳动合同法实施条例》), which was promulgated by the State Council on September 18, 2008, labor contracts shall be concluded in writing if employment relationships are to be or have been established between employers and employees. In addition, employee wages cannot be lower than local standards on minimum wages.
Pursuant to the Labor Law of the PRC (《中华人民共和国劳动法》), which was promulgated by the SCNPC on July 5, 1994 and last amended and came into effect on December 29, 2018, employers shall establish and improve their system of workplace safety and sanitation, strictly abide by state rules and standards on workplace safety, educate employees in occupational safety and sanitation in the PRC. Occupational safety and sanitation facilities shall comply with state-fixed standards. Enterprises and institutions shall provide employees whose work involves occupational hazards with health examinations on a regular basis.
According to the Social Insurance Law, the Interim Regulations on the Collection and Payment of Social Security Funds (《社会保险费征缴暂行条例》), which was promulgated by the State Council on January 22, 1999 and amended on March 24, 2019, and the Administrative Regulations on the Housing Provident Funds (《住房公积金管理条例》), which was promulgated by the State Council on April 3, 1999 and last amended on March 24, 2019, employers are required to make contributions, on behalf of their employees, to a number of social security funds, including funds for basic pension insurance, unemployment insurance, basic medical insurance, occupational injury insurance, maternity insurance and to housing provident funds. Any employer who fails to make contributions may be fined and ordered to make good the deficit within a stipulated time limit.
Prior to April 2020, we only contributed to the social insurance and housing provident funds for some, but not all, of our employees. There is a risk that the labor security administration authority may take enforcement action to collect from us all the outstanding contributions of the social insurance and housing provident funds required to be made for the employees in the past, and we may be subject to a late charge at the rate of 0.2% per day on the total outstanding contribution. We started to contribute to the social insurance and housing provident funds for all of our employees since April 2020.
Since April 2020, we have been contributing to the social insurance and housing provident funds for our employees in accordance with the minimum contribution requirements. Pursuant to the aforementioned applicable laws and regulations, the government or an employee has the right to demand us to contribute to the employee’s social insurance and housing provident funds calculated based on his or her actual salary, and an employee who has not received contributions from us has the right to demand us to contribute to his or her social insurance and housing provident funds. As confirmed in writing by the local government, our contributions of the social insurance and housing provident funds are in compliance with the PRC laws and the local regulations and policies, and therefore the local government is very unlikely to impose any penalty on us for our contributions since April 2020.
Enterprise Income Tax
According to the EIT Law, promulgated by the National People’s Congress on March 16, 2007, effective on January 1, 2008 and last amended on December 29, 2018, and the Implementation Regulations for the Enterprise Income Tax Law of the PRC (《中华人民共和国企业所得税法实施条例》) promulgated by the State Council on December 6, 2007 and amended on April 23, 2019, other than a few exceptions, the income tax rate for both domestic enterprises and foreign-invested enterprises is 25%. Enterprise taxpayers are classified as either resident enterprises or non-resident enterprises. Resident enterprises are defined as enterprises that are established in China in accordance with PRC laws, or that are established in accordance with the laws of foreign countries but whose actual or de facto management bodies are located in China. Non-resident enterprise refers to an entity established under foreign law whose de facto management bodies are not within the PRC but which have an establishment or place of business in the PRC, or which do not have an establishment or place of business in the PRC but have income sourced within the PRC. An income tax rate of 10% will normally be applicable to dividends declared to non-PRC resident enterprise investors that do not have an establishment or place of business in the PRC, or that have such establishment or place of business but the relevant income is not effectively connected with the establishment or place of business, to the extent such dividends are derived from sources within the PRC.
Pursuant to the Arrangement between the Mainland of China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Incomes (《内地和香港特别行政区关于对所得避免双重征税和防止偷漏税的安排》), or the Double Tax Avoidance Arrangement, and other applicable PRC laws, 5% withholding tax rate shall apply to the dividends paid by a PRC company to a Hong Kong resident, provided that such Hong Kong resident directly holds at least 25% of the equity interests in the PRC company, and 10% of withholding tax rate shall apply if the Hong Kong resident holds less than 25% of the equity interests in the PRC company. However, pursuant to the Circular on Certain Issues Relating to the Implementation of Dividend Provisions in Tax Treaties (《关于执行税收协定股息条款有关问题的通知》) issued on February 20, 2009 by the SAT, if a PRC tax authority determines, in its discretion, that a company benefits from such reduced income tax rate as a result of an arrangement that is primarily tax-driven, such PRC tax authority may adjust the preferential tax treatment of the company. Based on the Announcement on Certain Issues with Respect to the Beneficial Owner in Tax Treaties (《国家税务总局关于税收协定中受益所有人有关问题的公告》) issued by the SAT on February 3, 2018 and effective on April 1, 2018, if an applicant’s business activities do not constitute substantive business activities, it could result in the negative determination of the applicant’s status as a beneficial owner, and consequently, the applicant could be precluded from enjoying the above-mentioned reduced income tax rate of 5% under the Double Tax Avoidance Arrangement.
C. Organizational Structure
See “—A. History and Development of the Company.”
D. Property, Plants and Equipment
See “—B. Business Overview—Properties and Facilities.”
Item 4A. UNRESOLVED STAFF COMMENTS
Not applicable.
Item 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
The following discussion of our financial condition and results of operations is based upon and should be read in conjunction with our consolidated financial statements and their related notes included elsewhere in this annual report. This report contains forward-looking statements. In evaluating our business, you should carefully consider the information provided under the caption “Item 3. Key Information—D. Risk Factors” in this annual report. We caution you that our businesses and financial performance are subject to substantial risks and uncertainties.
A. Operating Results
Overview
Through the PRC operating entities in China, the Company is a pharmaceutical company specializing in the development, manufacturing, marketing and sale of 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 in 30 provinces in China as of the date of this annual report. In addition, we also sell biomedical drugs, medical instruments, 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, and 23 other provinces in China.
Key Factors that Affect Our Results of Operations
We believe the following key factors may affect our financial condition and results of operations:
Our Ability to Attract Additional Customers and Increase the Spending Per Customer
Our major customers are pharmaceutical distributors, hospitals, clinics and drugstore chains. We currently sell our products to these customers in 261 cities in 30 provinces in China, with significant customers located in Jiangxi Province, Jiangsu Province, Guangdong Province, Hubei Province, Fujian Province, Guangxi Province and Shandong Province in China. Our top 10 customers in the aggregate accounted for 22.5%, 27.2% and 32.2% of our total revenues for the fiscal years ended September 30, 2024, 2023 and 2022, respectively. No single customer contributed to more than 10% of our total revenues for the fiscal years ended September 30, 2024, 2023 and 2022. Our dependence on a small number of larger customers could expose us to the risk of substantial losses if any single large customer stops purchasing our products, purchases fewer of our products or goes out of business and we cannot find substitute customers on equivalent terms. If any of our significant customers reduces the quantity of the products they purchase from us or stops purchasing from us, our net revenues would be materially and adversely affected. Therefore, the success of our business in the future depends on our effective marketing efforts to expand our distribution network including additional cities and rural areas in the PRC in an effort to increase our geographic appearance. The success of expansion will depend upon many factors, including our ability to form relationships with, and manage an increasing number of, customers base and optimize our distribution network. If our marketing efforts fail to convince customers to accept our products, we may find it difficult to maintain the existing level of sales or to increase such sales. Should this happen, our net revenues would decline and our growth prospects would be severely impaired.
Our Ability to Increase Awareness of Our Brand and Develop Customer Loyalty
Our brands, such as “Bai Nian Dan (百年丹)” and “Hu Zhuo Ren (胡卓仁)”, are well-recognized among our clients and other Chinese medicine industry players. Our brand is integral to our sales and marketing efforts. We believe that maintaining and enhancing our brand name recognition in a cost-effective manner is critical to achieving widespread acceptance of our current and future products and is an important element in our effort to increase our customer base. Successful promotion of our brand name will depend largely on our marketing efforts and ability to provide reliable and quality products at competitive prices. Brand promotion activities may not necessarily yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in marketing activities. If we fail to successfully promote and maintain our brand, if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, or if we fail to generate the desired level of brand recognition and awareness through our recent television advertising efforts, or at all, we may fail to attract new customers or retain our existing customers, in which case our business, operating results and financial condition, would be materially adversely affected.
Our Ability to Control Costs and Expenses and Improve Our Operating Efficiency
Our business growth is dependent on our ability to attract and retain qualified and productive employees, identify business opportunities, secure new contracts with customers, and our ability to control costs and expenses to improve our operating efficiency. Our inventory costs (including raw materials, labor, packaging cost, depreciation and amortization, freight costs, overhead and third-party products purchase costs) have a direct impact on our profitability. The raw materials used in manufacturing of our TCMD products are subject to price volatility and inflationary pressures. Our success is dependent, in part, on our ability to reduce our exposure to increase in those costs through a variety of ways, while maintaining and improving margins and market share. We also rely on third-party manufacturers as a source for a portion of the components used for producing our products. These manufacturers are also subject to price volatility, labor costs and other inflationary pressures, which may, in turn, result in an increase in the amount we pay for sourced products. Raw materials and sourced product price increases may offset our productivity gains and price increases and may adversely impact our financial results. In addition, our staffing costs (including payroll and employee benefit expense) and administrative expenses also have a direct impact on our profitability. Our ability to drive the productivity of our staff and enhance our operating efficiency affects our profitability. To the extent that the costs we are required to pay to our suppliers and our staffs exceed our estimates, our profit may be impaired. If we fail to implement initiatives to control costs and improve our operating efficiency over time, our profitability will be negatively impacted.
Our Ability to Compete Successfully
The Chinese patent medicine industry we are in is highly competitive and evolving in China. 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. We will face competition with respect to our current and future pharmaceutical product candidates from major pharmaceutical companies in China. Potential competitors also include academic institutions, government agencies and other public and private research organizations that conduct research, seek patent protection and establish collaborative arrangements for research, development, manufacturing and commercialization of pharmaceutical products. Some of our current or potential competitors may have significantly greater financial resources and expertise in research and development, manufacturing, product testing, obtaining regulatory approvals and marketing approved products than we do, and in the event that any of these happens, our competitors may be able to establish a strong market position before our new products are able to enter the market. Additionally, technologies developed by our competitors may render our product candidates uneconomical or obsolete. If we do not compete effectively, our operating results could be harmed.
The Recent Wave of Tariffs and Other Trade Controls Could Materially and Adversely Affect Our Business and Our Financial Condition
The trade war between the United States and China has reached unprecedented levels. After President Donald Trump announced widespread tariffs on April 2, 2025, China retaliated with similar measures. Within a week, both countries had imposed additional tariffs of 125% on each other's imports. Reciprocal tariffs of over 100% are anticipated to make trade between the two countries prohibitively expensive. The risk of recession, both for the U.S. economy and the global economy, has increased significantly. Economic conditions in China are sensitive to global economic conditions, as well as changes in domestic economic and political policies and the expected or perceived overall economic growth rate in China. Any severe or prolonged slowdown in the global or Chinese economy would likely materially and adversely affect our business, results of operations and financial condition. In addition, continued turbulence in the international markets may adversely affect our ability to access capital markets to meet liquidity needs.
Key Financial Performance Indicators
In assessing our financial performance, we consider a variety of financial performance measures, including principal growth in net revenue and gross profit, our ability to control costs and operating expenses 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, allowing our business to respond promptly to competitive market conditions and different demands and preferences from 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 other credits or sales incentive to customers. Our revenue is driven by sales volume, selling price, and mix of products sold.
| For the Fiscal Years Ended September 30, | Variance comparing Fiscal Year 2024 to Fiscal Year 2023 |
Variance comparing Fiscal Year 2023 to Fiscal Year 2022 |
||||||||||||||||||
| 2024 | 2023 | 2022 | % | % | ||||||||||||||||
| Revenue from sales of self-manufactured TCMD products | 60.9 | % | 57.5 | % | 59.8 | % | 3.4 | % | (2.3 | )% | ||||||||||
| Revenue from sales of third-party products | 39.1 | % | 42.5 | % | 40.2 | % | (3.4 | )% | 2.3 | % | ||||||||||
| Total revenue | 100.0 | % | 100.0 | % | 100.0 | % | ||||||||||||||
| Sales volume by unit- TCMD products | 11,881,087 | 16,753,432 | 10,799,254 | (29.1 | )% | 55.1 | % | |||||||||||||
| Sales volume by unit- third party products | 6,321,624 | 8,777,877 | 9,226,027 | (28.0 | )% | (4.9 | )% | |||||||||||||
| Total sales volume | 18,202,711 | 25,531,309 | 20,025,281 | (28.7 | )% | 27.5 | % | |||||||||||||
| Average selling price per unit- TCMD products | $ | 1.18 | $ | 1.11 | $ | 2.22 | 6.3 | % | (50.0 | )% | ||||||||||
| Average selling price per unit- Third-party products | $ | 1.42 | $ | 1.56 | $ | 1.75 | (9.0 | )% | (10.9 | )% | ||||||||||
Revenues from sales of TCMD products manufactured by us accounted for 60.9%, 57.5% and 59.8% of our total revenues for the fiscal years ended September 30, 2024, 2023 and 2022, respectively. The 13 TCMD products manufactured by us fall into two categories: (i) treatment 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 tables, 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 39.1%, 42.5% and 40.2% of our total revenues for the fiscal years ended September 30, 2024, 2023 and 2022, 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 products purchase price, freight costs and overhead). Cost of goods sold generally changes as our production costs change, as these are affected by factors including the market price of raw materials, labor productivity, or the purchase price of third-party products, and as the customer and product mix changes. Our cost of revenues accounted for 73.6%, 68.1% and 45.5% of our total revenue for the fiscal years ended September 30, 2024, 2023 and 2022, respectively. We expect our cost of revenues to increase as we further expand our operations in the foreseeable future.
Our gross margin was 26.4%, 31.9% and 54.5% for the fiscal years ended September 30, 2024, 2023 and 2022, respectively. Our gross profit and gross margin are affected by the different product mix, the average selling price and unit cost of those products sold during each fiscal year. See detailed discussion under “––Results of Operation”.
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, expenses incurred for our business travel, meals and other sales promotion and marketing activities related expenses. Our selling expenses accounted for 35.5%, 21.0% and 47.5% of our total revenue for the fiscal years ended September 30, 2024, 2023 and 2022, respectively. We expect our overall selling expenses, including but not limited to, advertising expenses and brand promotion expenses and salaries, to increase in the foreseeable future and facilitate the growth of our business, especially when we continue to expand our business and promote our products to customers located at extended 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 were 12.6%, 8.2% and 5.4% of our revenue for the fiscal years ended September 30, 2024, 2023 and 2022, 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.
The Chinese patent medicine industry is characterized by rapid and frequent changes in customer demand and launches 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 on our revenues and operating results. Our research and development expenses primarily consist of salaries, welfare and insurance expenses paid to our employees involved in the 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 13.2%, 15.0% and 19.0% of our revenue for the fiscal years ended September 30, 2024, 2023 and 2022, 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.
Fiscal year ended September 30, 2024 compared to fiscal year ended September 30, 2023
The following table summarizes the results of our operations during the fiscal years ended September 30, 2024 and 2023, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % of revenue |
Amount | % of revenue |
Amount | % | |||||||||||||||||||
| REVENUE | $ | 23,024,458 | 100.0 | % | $ | 32,308,735 | 100.0 | % | $ | (9,284,277 | ) | (28.7 | )% | |||||||||||
| COST OF REVENUE | 16,952,556 | 73.6 | % | 21,993,601 | 68.1 | % | (5,041,045 | ) | (22.9 | )% | ||||||||||||||
| GROSS PROFIT | 6,071,902 | 26.4 | % | 10,315,134 | 31.9 | % | (4,243,232 | ) | (41.1 | )% | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Selling expenses | 8,170,975 | 35.5 | % | 6,783,703 | 21.0 | % | 1,387,272 | 20.5 | % | |||||||||||||||
| General and administrative expenses | 2,889,652 | 12.6 | % | 2,638,984 | 8.2 | % | 250,668 | 9.5 | % | |||||||||||||||
| Research and development expenses | 3,031,115 | 13.2 | % | 4,858,548 | 15.0 | % | (1,827,433 | ) | (37.6 | )% | ||||||||||||||
| Total operating expenses | 14,091,742 | 61.2 | % | 14,281,235 | 44.2 | % | (189,493 | ) | (1.3 | )% | ||||||||||||||
| LOSS FROM OPERATIONS | (8,019,840 | ) | (34.8 | )% | (3,966,101 | ) | (12.3 | )% | (4,053,739 | ) | 102.2 | % | ||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||
| Interest expense, net | (278,172 | ) | (1.2 | )% | (156,788 | ) | (0.5 | )% | (121,384 | ) | 77.4 | % | ||||||||||||
| Other income (expense), net | 145,476 | 0.6 | % | (235,614 | ) | (0.7 | )% | 381,090 | (161.7 | )% | ||||||||||||||
| Equity investment income | 31,942 | 0.1 | % | 31,072 | 0.1 | % | 870 | 2.8 | % | |||||||||||||||
| Total other expense, net | (100,754 | ) | (0.4 | )% | (361,330 | ) | (1.1 | )% | 260,576 | (72.1 | )% | |||||||||||||
| LOSS BEFORE INCOME TAX | (8,120,594 | ) | (35.3 | )% | (4,327,431 | ) | (13.4 | )% | (3,793,163 | ) | 87.7 | % | ||||||||||||
| INCOME TAX EXPENSE | 606,704 | 2.6 | % | 2,253,593 | 7.0 | % | (1,646,889 | ) | (73.1 | )% | ||||||||||||||
| NET LOSS | $ | (8,727,298 | ) | (37.9 | )% | $ | (6,581,024 | ) | (20.4 | )% | $ | (2,146,274 | ) | 32.6 | % | |||||||||
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 Fiscal Years Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Revenue from sales of self-manufactured TCMD products | $ | 14,026,049 | $ | 18,572,658 | $ | (4,546,609 | ) | (24.5 | )% | |||||||
| Revenue from sales of third-party products | 8,998,409 | 13,736,077 | (4,737,668 | ) | (34.5 | )% | ||||||||||
| Total revenue | $ | 23,024,458 | $ | 32,308,735 | $ | (9,284,277 | ) | (28.7 | )% | |||||||
Our revenues decreased by $9,284,277, or 28.7%, to $23,024,458 for the fiscal year ended September 30, 2024, from $32,308,735 for the fiscal year ended September 30, 2023.
Revenue from sales of our TCMD products
Sales of TCMD products decreased by $4,546,609, or 24.5%, to $14,026,049 for the fiscal year ended September 30, 2024, from $18,572,658 for the fiscal year ended September 30, 2023. The decrease in the sales of our TCMD product was due to the following specific reasons:
| a) | Global economic slowdown has led to a decline in customers’ spending power, and sales volume of our TCMD products decreased by 29.1%, to 11,881,087 units sold for the year ended September 30, 2024, from 16,753,432 units sold for the year ended September 30, 2023. |
| b) | The average selling price of our TCMD products increased by $0.07 per unit, or 6.3%, to $1.18 per unit for the fiscal year ended September 30, 2024, from $1.11 per unit for the fiscal year ended September 30, 2023, due to a change in product mix. |
| c) | The exchange rate between RMB and US$ was US$1.00 to RMB7.2043 for the fiscal year ended September 30, 2023 as compared to US$1.00 to RMB7.0533 for the fiscal year ended September 30, 2024. The depreciation of RMB against US$ had a 2.1% negative impact on our reported revenues. |
Revenue from sales of third-party products
Sales of third-party products decreased by $4,737,668, or 34.5%, to $8,998,409 for the fiscal year ended September 30, 2024, from $13,736,077 for the fiscal year ended September 30, 2023. Sales volume of third-party products decreased by 28.0%, to 6,321,624 units sold in the fiscal year ended September 30, 2024, from 8,777,877 units sold in the fiscal year ended September 30, 2023. Average selling price of third-party products decreased by $0.14 per unit, or 9.0%, to $1.42 per unit in the fiscal year ended September 30, 2024, from $1.56 per unit in the fiscal year ended September 30, 2023, due to a change in our product mix and the 2.1% negative impact from foreign currency fluctuation as discussed above.
Cost of Revenues. Our cost of revenues primarily consists of inventory costs (raw materials, labor, packaging cost, depreciation and amortization, third-party products purchase price, freight costs and overhead) and business tax. Cost of revenues generally changes as our production costs change, which are affected by factors including the market price of raw materials, labor productivity, and the purchase price of third-party products, and as the customer and product mix changes.
| For the Fiscal Years Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Cost of revenue- TCMD products | $ | 11,145,847 | $ | 13,404,804 | $ | (2,258,957 | ) | (16.9 | )% | |||||||
| Cost of revenue- third-party products | 5,806,709 | 8,588,797 | (2,782,088 | ) | (32.4 | )% | ||||||||||
| Total cost of revenue | $ | 16,952,556 | $ | 21,993,601 | $ | (5,041,045 | ) | (22.9 | )% | |||||||
Cost of revenues decreased by $5,041,045, or 22.9%, to $16,952,556 for the fiscal year ended September 30, 2024, from $21,993,601 for the fiscal year ended September 30, 2023, mainly due to a decrease in sales volume.
Cost of revenues of TCMD products
Cost of revenues of TCMD products accounted for 65.7% and 60.9% of our total costs of revenues for the fiscal years ended September 30, 2024 and 2023, respectively. Cost of revenues of TCMD products decreased by $2,258,957, or 16.9%, from $13,404,804 for the fiscal year ended September 30, 2023 to $11,145,847 for the fiscal year ended September 30, 2024. 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 29.1%, to 11,881,087 units sold in the fiscal year ended September 30, 2024, from 16,753,432 units sold in the fiscal year ended September 30, 2023. |
| (2) | In the summer of 2023, a severe flood in Anhui Province and Hubei Province of China, which are two main producing areas of traditional Chinese medicinal materials, led to a decrease in the supply of such materials, and the prices of the traditional Chinese medicine raw materials increased during the fiscal year ended September 30, 2024. The average per unit cost of our TCMD products increased by $0.14, or 17.2%, from $0.80 per unit for the fiscal year ended September 30, 2023 to $0.94 per unit for the fiscal year ended September 30, 2024. |
| (3) | The 2.1% negative impact from foreign currency fluctuation as discussed above. |
Cost of revenues of third-party products
Cost of revenues of third-party products accounted for 34.3% and 39.1% of our total costs of revenues for the fiscal years ended September 30, 2024 and 2023, respectively. Cost of revenues of third-party products decreased by $2,782,088, or 32.4%, from $8,588,797 for the fiscal year ended September 30, 2023 to $5,806,709 for the fiscal year ended September 30, 2024, because of the decrease in sales volume of third-party products by 28.0%, from 8,777,877 units sold in the fiscal year ended September 30, 2023 to 6,321,624 units sold in the fiscal year ended September 30, 2024. The average per unit cost of third-party products decreased by $0.06 per unit, or 6.1%, from $0.98 per unit for the fiscal year ended September 30, 2023 to $0.92 per unit for the fiscal year ended September 30, 2024, due to a change in product mix and the 2.1% negative impact from foreign currency fluctuation as discussed above.
Gross profit
Our gross profit decreased by $4,243,232, to $6,071,902 for the fiscal year ended September 30, 2024, from $10,315,134 for the fiscal year ended September 30, 2023. Our margin decreased by 5.5%, to 26.4% for the fiscal year ended September 30, 2024, from 31.9% for the fiscal year ended September 30, 2023.
| For the Fiscal Years Ended September 30, | ||||||||||||||||
| 2024 | 2023 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Gross profit- TCMD products | $ | 2,880,202 | $ | 5,167,854 | $ | (2,287,652 | ) | (44.3 | )% | |||||||
| Gross profit- third-party products | 3,191,700 | 5,147,280 | (1,955,580 | ) | (38.0 | )% | ||||||||||
| Total gross profit | $ | 6,071,902 | $ | 10,315,134 | $ | (4,243,232 | ) | (41.1 | )% | |||||||
| Gross margin- TCMD products | 20.5 | % | 27.8 | % | (7.3 | )% | ||||||||||
| Gross margin- third party products | 35.5 | % | 37.5 | % | (2.0 | )% | ||||||||||
| Total gross margin | 26.4 | % | 31.9 | % | (5.5 | )% | ||||||||||
| Average selling price per unit- TCMD products | $ | 1.18 | $ | 1.11 | $ | 0.07 | 6.3 | % | ||||||||
| Average cost per unit- TCMD products | $ | 0.94 | $ | 0.80 | $ | 0.14 | 17.2 | % | ||||||||
| Average selling price per unit- third party products | $ | 1.42 | $ | 1.56 | $ | (0.14 | ) | (9.0 | )% | |||||||
| Average cost per unit - third party products | $ | 0.92 | $ | 0.98 | $ | (0.06 | ) | (6.1 | )% | |||||||
Gross profit from the sales of our TCMD products decreased by $2,287,652, or 44.3%, from $5,167,854 for the fiscal year ended September 30, 2023 to $2,880,202 for the fiscal year ended September 30, 2024, and the gross margin of our TCMD products decreased by 7.3 percentage point, from 27.8% for the fiscal year ended September 30, 2023 to 20.5% for the fiscal year ended September 30, 2024. The decrease in our gross profit from the sales of TCMD products was affected by the decrease in sales volume, increase in the average per unit cost, and partially offset by the increase in the average unit selling price.
Gross profit from third-party product sales decreased by $1,955,580, or 38.0%, from $5,147,280 for the fiscal year ended September 30, 2023 to $3,191,700 for the fiscal year ended September 30, 2024, while the gross margin of third-party product sales slightly decreased by 2.0%, from 37.5% for the fiscal year ended September 30, 2023 to 35.5% for the fiscal year ended September 30, 2024. The decrease in our gross profit from third-party products was affected by the decrease in sales volume and the average unit selling price, and partially offset by the decrease in the average per unit cost.
Operating expenses
The following table sets forth the breakdown of our operating expenses for the fiscal years ended September 30, 2024 and 2023:
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % of revenue |
Amount | % of revenue |
Amount | % | |||||||||||||||||||
| Total revenue | $ | 23,024,458 | 100.0 | % | $ | 32,308,735 | 100.0 | % | $ | (9,284,277 | ) | (28.7 | )% | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 8,170,975 | 35.5 | % | 6,783,703 | 21.0 | % | 1,387,272 | 20.5 | % | |||||||||||||||
| General and administrative expenses | 2,889,652 | 12.6 | % | 2,638,984 | 8.2 | % | 250,668 | 9.5 | % | |||||||||||||||
| Research and development expenses | 3,031,115 | 13.2 | % | 4,858,548 | 15.0 | % | (1,827,433 | ) | (37.6 | )% | ||||||||||||||
| Total operating expenses | $ | 14,091,742 | 61.2 | % | $ | 14,281,235 | 44.2 | % | $ | (189,493 | ) | (1.3 | )% | |||||||||||
Selling expenses
Our selling expenses primarily include salaries and welfare benefit expenses paid to our sales personnel, advertising expenses to increase our brand awareness, shipping and delivery expenses, expenses incurred for our business travel, meals and other sales promotion and marketing activities related expenses.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses | $ | 915,850 | 11.2 | % | $ | 778,138 | 11.5 | % | $ | 137,712 | 17.7 | % | ||||||||||||
| Advertising expenses | 5,144,579 | 63.0 | % | 4,653,633 | 68.6 | % | 490,946 | 10.5 | % | |||||||||||||||
| Shipping and delivery expenses | 1,183,046 | 14.5 | % | 1,033,213 | 15.2 | % | 149,833 | 14.5 | % | |||||||||||||||
| Business travel and meals expenses | 239,237 | 2.9 | % | 208,108 | 3.1 | % | 31,129 | 15.0 | % | |||||||||||||||
| Market research expenses | 567,312 | 6.9 | % | - | % | 567,312 | 100 | % | ||||||||||||||||
| Other sales promotion related expenses | 120,951 | 1.5 | % | 110,611 | 1.6 | % | 10,340 | 9.3 | % | |||||||||||||||
| Total selling expenses | $ | 8,170,975 | 100.0 | % | $ | 6,783,703 | 100.0 | % | $ | 1,387,272 | 20.5 | % | ||||||||||||
Our selling expenses increased by $1,387,272, or 20.5%, to $8,170,975 for the fiscal year ended September 30, 2024, from $6,783,703 for the fiscal year ended September 30, 2023, primarily attributable to (i) an increase in advertising expenses by $490,946 and increase in market research expenses by $567,312. We entered into advertising service agreement with Health Headline to promote our brand on Health Headline’s website and mobile app. Due to global economic slowdown and intense competition in the Chinese patent medicine industry, we increased advertising and market research expenses to increase our brand awareness, maintain existing customer base and attract new customers. Customer number increased from 2,541 during the fiscal year ended September 30, 2023 to 2,561 during the fiscal year ended September 30, 2024. Although our revenue decreased during the fiscal year ended September 30, 2024, these market efforts will help us to achieve long-term revenue growth; (ii) an increase in shipping and delivery expenses by $149,833, due to increased freight costs and rising fuel prices during the fiscal year ended September 30, 2024; and (iii) an increase in salary and employee benefit expenses by $137,712, or 17.7%, as we recruited new employees in the marketing department to promote sales of our products.
General and Administrative Expenses
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.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expense | $ | 729,515 | 25.2 | % | $ | 728,499 | 27.6 | % | $ | 1,016 | 0.1 | % | ||||||||||||
| Depreciation and amortization | 209,604 | 7.3 | % | 195,451 | 7.4 | % | 14,153 | 7.2 | % | |||||||||||||||
| Bad debt reserve expenses | 131,581 | 4.6 | - | - | 131,581 | 100 | % | |||||||||||||||||
| Land and property tax | 1,573 | 0.1 | % | 96,412 | 3.7 | % | (94,839 | ) | (98.4 | )% | ||||||||||||||
| Office supply and utility expense | 180,347 | 6.2 | % | 440,873 | 16.7 | % | (260,526 | ) | (59.1 | )% | ||||||||||||||
| Transportation, business travel and meals expense | 152,086 | 5.3 | % | 121,122 | 4.6 | % | 30,964 | 25.6 | % | |||||||||||||||
| Consulting fee | 1,211,434 | 41.9 | % | 926,694 | 35.1 | % | 284,740 | 30.7 | % | |||||||||||||||
| Inspection and maintenance fee | 28,844 | 1.0 | % | 47,154 | 1.8 | % | (18,310 | ) | (38.8 | )% | ||||||||||||||
| Stamp tax and other expenses | 244,668 | 8.4 | % | 82,779 | 3.1 | % | 161,889 | 195.6 | % | |||||||||||||||
| Total general and administrative expenses | $ | 2,889,652 | 100.0 | % | $ | 2,638,984 | 100.0 | % | $ | 250,668 | 9.5 | % | ||||||||||||
General and administrative expenses increased by $250,668, or 9.5%, to $2,889,652 for the fiscal year ended September 30, 2024, from $2,638,984 for the fiscal year ended September 30, 2023, primarily attributable to (i) an increase in consulting fees by $284,740 due to increased legal fees in connection with our self-underwritten public offering closed in July 2024; (ii) bad debt reserve expense increased by $131,581, because we accrued bad debt expenses based on our assessment of the collectability of the accounts receivable; and partially offset by (iii) a decrease in office supply and utility expense by $260,526 due to decreased investor relations management expense.
Research and development expenses
Our research and development expenses primarily consist of salaries, welfare and insurance expenses paid to our employees involved in the research and development activities, materials and supplies used in the development and testing new TCMD products, depreciation and other miscellaneous expenses.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2024 | 2023 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses to research and development staff | $ | 137,423 | 4.5 | % | $ | 140,528 | 2.9 | % | $ | (3,105 | ) | (2.2 | )% | |||||||||||
| Materials used in research and development activities | 134,532 | 4.4 | % | 881,753 | 18.1 | % | (747,221 | ) | (84.7 | )% | ||||||||||||||
| Expenditure on new product development | 2,720,597 | 89.8 | % | 3,794,464 | 78.1 | % | (1,073,867 | ) | (28.3 | )% | ||||||||||||||
| Depreciation and others | 38,563 | 1.3 | % | 41,803 | 0.9 | % | (3,240 | ) | (7.8 | )% | ||||||||||||||
| Total research and development expenses | $ | 3,031,115 | 100.0 | % | $ | 4,858,548 | 100.0 | % | $ | (1,827,433 | ) | (37.6 | )% | |||||||||||
Research and development expenses decreased by $1,827,433, or 37.6%, to $3,031,115 for the fiscal year ended September 30, 2024, from $4,858,548 for the fiscal year ended September 30, 2023, primarily attributable to (i) a decrease in development expenditure on improving production process of our Chinese medicine products in the amount of $1,073,867. We entered into several cooperative agreements with external academic and research institutions to jointly conduct development of eight production process to improve production efficiency and product quality, with activities beginning in August 2022, and incurred significant amount of research and development expense in connection with such efforts during the fiscal year ended September 30, 2023. These development activities were completed and results were integrated in production in September 2023, and development expenditure decreased significantly during the fiscal year ended September 30, 2024; and (ii) a decrease in the materials used in the research and development activities by $747,221 in connection with development activities on improving production process.
Other income (expenses), net
Total other expenses, net, decreased by $260,576, to $100,754 for the fiscal year ended September 30, 2024 from $361,330 for the fiscal year ended September 30, 2023.
Income Tax Expense
Income tax expense was $606,704 for the fiscal year ended September 30, 2024, representing a decrease of $1,646,889, or 73.1%, from $2,253,593 for the fiscal year ended September 30, 2023, due to decreased taxable income. As our principal PRC subsidiaries, Jiangxi Universe and Universe Trade, incurred net loss during the fiscal years ended September 30, 2024 and 2023, we evaluated the likelihood of the realization of deferred tax assets, determined that deferred tax assets arising from net operating loss carry-forwards in previous fiscal years might not be realized, and therefore recognized $606,704 and $1,567,656 in valuation allowance for deferred tax assets during the fiscal years ended September 30, 2024 and 2023, respectively.
Net Loss
Net loss was $8,727,298 for the fiscal year ended September 30, 2024, representing a $2,146,274 increase from net loss of $6,581,024 for the fiscal year ended September 30, 2023.
Basic and diluted loss per share were $15.67 for the fiscal year ended September 30, 2024, compared with basic and diluted loss per share of $27.23 for the fiscal year ended September 30, 2023.
Fiscal year ended September 30, 2023 compared to fiscal year ended September 30, 2022
The following table summarizes the results of our operations during the fiscal years ended September 30, 2023 and 2022, respectively, and provides information regarding the dollar and percentage increase or (decrease) during such periods.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of revenue |
Amount | % of revenue |
Amount | % | |||||||||||||||||||
| REVENUE | $ | 32,308,735 | 100.0 | % | $ | 40,143,151 | 100.0 | % | $ | (7,834,416 | ) | (19.5 | )% | |||||||||||
| COST OF REVENUE | 21,993,601 | 68.1 | % | 18,251,815 | 45.5 | % | 3,741,786 | 20.5 | % | |||||||||||||||
| GROSS PROFIT | 10,315,134 | 31.9 | % | 21,891,336 | 54.5 | % | (11,576,202 | ) | (52.9 | )% | ||||||||||||||
| OPERATING EXPENSES | ||||||||||||||||||||||||
| Selling expenses | 6,783,703 | 21.0 | % | 19,083,135 | 47.5 | % | (12,299,432 | ) | (64.5 | )% | ||||||||||||||
| General and administrative expenses | 2,638,984 | 8.2 | % | 2,183,270 | 5.4 | % | 455,714 | 20.9 | % | |||||||||||||||
| Research and development expenses | 4,858,548 | 15.0 | % | 7,644,375 | 19.0 | % | (2,785,827 | ) | (36.4 | )% | ||||||||||||||
| Total operating expenses | 14,281,235 | 44.2 | % | 28,910,780 | 72.0 | % | (14,629,545 | ) | (50.6 | )% | ||||||||||||||
| LOSS FROM OPERATIONS | (3,966,101 | ) | (12.3 | )% | (7,019,444 | ) | (17.5 | )% | 3,053,343 | (43.5 | )% | |||||||||||||
| OTHER INCOME (EXPENSE) | ||||||||||||||||||||||||
| Interest expense, net | (156,788 | ) | (0.5 | )% | (162,400 | ) | (0.4 | )% | 5,612 | (3.5 | )% | |||||||||||||
| Other income (expense), net | (235,614 | ) | (0.7 | )% | 48,940 | 0.1 | % | (284,554 | ) | (581.4 | )% | |||||||||||||
| Equity investment income | 31,072 | 0.1 | % | 38,588 | 0.1 | % | (7,516 | ) | (19.5 | )% | ||||||||||||||
| Total other expense, net | (361,330 | ) | (1.1 | )% | (74,872 | ) | (0.2 | )% | (286,458 | ) | 382.6 | % | ||||||||||||
| LOSS BEFORE INCOME TAX | (4,327,431 | ) | (13.4 | )% | (7,094,316 | ) | (17.7 | )% | 2,766,885 | (39.0 | )% | |||||||||||||
| INCOME TAX EXPENSE | 2,253,593 | 7.0 | % | 815,322 | 2.0 | % | 1,438,271 | 176.4 | % | |||||||||||||||
| NET LOSS | $ | (6,581,024 | ) | (20.4 | )% | $ | (7,909,638 | ) | (19.7 | )% | $ | 1,328,614 | (16.8 | )% | ||||||||||
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 Fiscal Years Ended September 30, | ||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Revenue - TCMD products sales | $ | 18,572,658 | $ | 23,988,177 | $ | (5,415,519 | ) | (22.6 | )% | |||||||
| Revenue – third-party products sales | 13,736,077 | 16,154,974 | (2,418,897 | ) | (15.0 | )% | ||||||||||
| Total revenue | $ | 32,308,735 | $ | 40,143,151 | $ | (7,834,416 | ) | (19.5 | )% | |||||||
Our revenues decreased by $7,834,416, or 19.5%, to $32,308,735 for the fiscal year ended September 30, 2023, from $40,143,151 for the fiscal year ended September 30, 2022.
Revenue from sales of our TCMD products
Sales of TCMD products decreased by $5,415,519, or 22.6%, to $18,572,658 for the fiscal year ended September 30, 2023, from $23,988,177 for the fiscal year ended September 30, 2022. The decrease in the sales of our TCMD product was due to the following specific reasons:
| a) | Slowdown in economy caused by the COVID-19 pandemic has led to a decline in customers’ spending power, and we changed our pricing strategy decrease the per unit price of our TCMD products in an effort to increase sales volume and market share during this challenging period. Average selling price of our TCMD products decreased by $1.11 per unit, or 50.0%, to $1.11 per unit for the fiscal year ended September 30, 2023, from $2.22 per unit for the fiscal year ended September 30, 2022. |
| b) | As a result of our new pricing strategy, sales volume of TCMD products increased by 55.1%, to 16,753,432 units sold for the fiscal year ended September 30, 2023, from 10,799,254 units sold for the fiscal year ended September 30, 2022. |
| c) | The average exchange rate between RMB and US$ was US$1.00 to RMB7.0533 for the fiscal year ended September 30, 2023 as compared to US$1.00 to RMB6.5532 for the fiscal year ended September 30, 2022. The depreciation of RMB against US$ had a 7.6% negative impact on our reported revenues. |
Revenue from sales of third-party products
Sales of third-party products decreased by $2,418,897, or 15.0%, to $13,736,077 for the fiscal year ended September 30, 2023, from $16,154,974 for the fiscal year ended September 30, 2022. Sales volume of third-party products decreased by 4.9%, to 8,777,877 units sold in the fiscal year ended September 30, 2023, from 9,226,027 units sold in the fiscal year ended September 30, 2022. Average selling price of third-party products decreased by $0.19 per unit, or 10.9%, to $1.56 per unit for the fiscal year ended September 30, 2023, from $1.75 per unit for the fiscal year ended September 30, 2022, due to a change in our product mix and the 7.6% negative impact from foreign currency fluctuation as discussed above.
Cost of Revenues. Our cost of revenues primarily consists of inventory costs (raw materials, labor, packaging costs, depreciation and amortization, third-party products purchase price, freight costs and overhead) and business tax. Cost of revenues generally changes as our production costs change, which are affected by factors including the market price of raw materials, labor productivity, and the purchase price of third-party products, and as the customer and product mix changes.
| For the Fiscal Years Ended September 30, | ||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Cost of revenue- TCMD products | $ | 13,404,804 | $ | 8,187,182 | $ | 5,217,622 | 63.7 | % | ||||||||
| Cost of revenue- third-party products | 8,588,797 | 10,064,633 | (1,475,836 | ) | (14.7 | )% | ||||||||||
| Total cost of revenue | $ | 21,993,601 | $ | 18,251,815 | $ | 3,741,786 | 20.5 | % | ||||||||
Cost of revenues increased by $3,741,786, or 20.5%, to $21,993,601 for the fiscal year ended September 30, 2023, from $18,251,815 for the fiscal year ended September 30, 2022, due to an increase in sales volume and rising prices of traditional Chinese medicine raw materials caused by the imbalance between supply and demand starting from the fourth quarter of 2022.
Cost of revenues of TCMD products
Cost of revenues of TCMD products accounted for 60.9% and 44.9% of our total costs of revenues for the fiscal years ended September 30, 2023 and 2022, respectively. Cost of revenues of TCMD products increased by $5,217,622, or 63.7%, from $8,187,182 for the fiscal year ended September 30, 2022 to $13,404,804 for the fiscal year ended September 30, 2023. The increase in cost of revenues of our TCMD products was due to the following reasons:
| (1) | As a result of our new pricing strategy to promote sales, sales volume of TCMD products increased by 55.1%, to 16,753,432 units sold for the fiscal year ended September 30, 2023, from 10,799,254 units sold for the fiscal year ended September 30, 2022. |
| (2) | The average unit cost of our TCMD products increased by $0.04, or 5.5%, from $0.76 per unit for the fiscal year ended September 30, 2022 to $0.80 per unit for the fiscal year ended September 30, 2023. A severe drought in the Yangtze River Basin in China in 2022 led to a decrease in the supply of traditional Chinese medicinal materials, and the COVID-19 pandemic resulted in increased demand of traditional Chinese medicinal materials for recuperating and improving immunity. Due to imbalance between supply and demand starting from the fourth quarter of 2022, prices of the traditional Chinese medicine raw materials increased by about 14% for the fiscal year ended September 30, 2023 as compared to the fiscal year ended September 30, 2022. |
| (3) | The average exchange rate between RMB and US$ was US$1.00 to RMB7.0533 for the fiscal year ended September 30, 2023 as compared to US$1.00 to RMB6.5532 for the fiscal year ended September 30, 2022. The depreciation of RMB against US$ had a 7.6% negative impact on our reported cost of revenues. |
Cost of revenues of third-party products
Cost of revenues of third-party products accounted for 39.1% and 55.1% of our total costs of revenues for the fiscal years ended September 30, 2023 and 2022, respectively. Cost of revenues of third-party products decreased by $1,475,836, or 14.7%, from $10,064,633 for the fiscal year ended September 30, 2022 to $8,588,797 for the fiscal year ended September 30, 2023. Sales volume of third-party products decreased by 4.9% from 9,226,027 units sold for the fiscal year ended September 30, 2022 to 8,777,877 units sold for the fiscal year ended September 30, 2023. Average unit cost of third-party products decreased by $0.11 per unit, or 10.3%, from $1.09 per unit for the fiscal year ended September 30, 2022 to $0.98 per unit for the fiscal year ended September 30, 2023, due to change in product mix and the 7.6% negative impact from foreign currency fluctuation as discussed above.
Gross profit
Our gross profit decreased by $11,576,202 to $10,315,134 for the fiscal year ended September 30, 2023, from $21,891,336 for the fiscal year ended September 30, 2022. Our margin decreased by 22.6% to 31.9% for the fiscal year ended September 30, 2023, from 54.5% for the fiscal year ended September 30, 2022.
| For the Fiscal Years Ended September 30, | ||||||||||||||||
| 2023 | 2022 | Change | ||||||||||||||
| Amount | Amount | Amount | % | |||||||||||||
| Gross profit- TCMD products | $ | 5,167,854 | $ | 15,800,995 | $ | (10,633,141 | ) | (67.3 | )% | |||||||
| Gross profit- third-party products | 5,147,280 | 6,090,341 | (943,061 | ) | (15.5 | )% | ||||||||||
| Total gross profit | $ | 10,315,134 | $ | 21,891,336 | $ | (11,576,202 | ) | (52.9 | )% | |||||||
| Gross margin- TCMD products | 27.8 | % | 65.9 | % | (38.0 | )% | ||||||||||
| Gross margin- third party products | 37.5 | % | 37.7 | % | (0.2 | )% | ||||||||||
| Total gross margin | 31.9 | % | 54.5 | % | (22.6 | )% | ||||||||||
| Average selling price per unit- TCMD products | $ | 1.11 | $ | 2.22 | $ | (1.11 | ) | (50.0 | )% | |||||||
| Average cost per unit- TCMD products | $ | 0.80 | $ | 0.76 | $ | 0.04 | 5.3 | % | ||||||||
| Average selling price per unit- third party products | $ | 1.56 | $ | 1.75 | $ | (0.19 | ) | (10.9 | )% | |||||||
| Average cost per unit - third party products | $ | 0.98 | $ | 1.09 | $ | (0.11 | ) | (10.1 | )% | |||||||
Gross profit from the sales of our TCMD products decreased by $10,633,141, or 67.3%, from $15,800,995 for the fiscal year ended September 30, 2022 to $5,167,854 for the fiscal year ended September 30, 2023, and the gross margin of our TCMD products decreased by 38.0 percentage point, from 65.9% for the fiscal year ended September 30, 2022 to 27.8% for the fiscal year ended September 30, 2023. The decrease in our gross profit from the sales of TCMD products was due to the following reasons: (i) as discussed above, we changed our pricing strategy to decrease the per unit price of our TCMD products in an effort to promote sales, and average selling price of our TCMD products decreased by $1.11 per unit, or 50.0%, to $1.11 per unit for the fiscal year ended September 30, 2023, from $2.22 per unit for the fiscal year ended September 30, 2022; (ii) average unit cost of our TCMD products increased by $0.04, or 5.5%, from $0.76 per unit for the fiscal year ended September 30, 2022 to $0.80 per unit for the fiscal year ended September 30, 2023, due to increased price of traditional Chinese medicine raw materials, and (iii) the depreciation of RMB against US$ had a 7.6% negative impact on our gross profit from sales of TCMD products.
Gross profit from third-party product sales decreased by $943,061, or 15.5%, from $6,090,341 for the fiscal year ended September 30, 2022 to $5,147,280 for the fiscal year ended September 30, 2023, while the gross margin of third-party product sales slightly decreased by 0.2%, from 37.7% for the fiscal year ended September 30, 2022 to 37.5% for the fiscal year ended September 30, 2023. The decrease in our gross profit from third-party products was affected by the decrease in sales volume and the 7.6% negative impact from depreciation of RMB against US$.
Operating expenses
The following table sets forth the breakdown of our operating expenses for the fiscal years ended September 30, 2023 and 2022:
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % of revenue |
Amount | % of revenue |
Amount | % | |||||||||||||||||||
| Total revenue | $ | 32,308,735 | 100.0 | % | $ | 40,143,151 | 100.0 | % | $ | (7,834,416 | ) | (19.5 | )% | |||||||||||
| Operating expenses: | ||||||||||||||||||||||||
| Selling expenses | 6,783,703 | 21.0 | % | 19,083,135 | 47.5 | % | (12,299,432 | ) | (64.5 | )% | ||||||||||||||
| General and administrative expenses | 2,638,984 | 8.2 | % | 2,183,270 | 5.4 | % | 455,714 | 20.9 | % | |||||||||||||||
| Research and development expenses | 4,858,548 | 15.0 | % | 7,644,375 | 19.0 | % | (2,785,827 | ) | (36.4 | )% | ||||||||||||||
| Total operating expenses | $ | 14,281,235 | 44.2 | % | $ | 28,910,780 | 72.0 | % | $ | (14,629,545 | ) | (50.6 | )% | |||||||||||
Selling expenses
Our selling expenses primarily include salaries and welfare benefit expenses paid to our sales personnel, advertising expenses to increase our brand awareness, shipping and delivery expenses, expenses incurred for our business travel, meals and other sales promotion and marketing activities related expenses.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses | $ | 778,138 | 11.5 | % | $ | 778,656 | 4.1 | % | $ | (518 | ) | (0.1 | )% | |||||||||||
| Advertising expenses | 4,653,633 | 68.6 | % | 17,527,318 | 91.8 | % | (12,873,685 | ) | (73.4 | )% | ||||||||||||||
| Shipping and delivery expenses | 1,033,213 | 15.2 | % | 638,286 | 3.3 | % | 394,927 | 61.9 | % | |||||||||||||||
| Business travel and meals expenses | 208,108 | 3.1 | % | 125,553 | 0.7 | % | 82,555 | 65.8 | % | |||||||||||||||
| Other sales promotion related expenses | 110,611 | 1.6 | % | 13,322 | 0.1 | % | 97,289 | 730.3 | % | |||||||||||||||
| Total selling expenses | $ | 6,783,703 | 100.0 | % | $ | 19,083,135 | 100.0 | % | $ | (12,299,432 | ) | (64.5 | )% | |||||||||||
Our selling expenses decreased by $12,299,432, or 64.5%, to $6,783,703 for the fiscal year ended September 30, 2023, from $19,083,135 for the fiscal year ended September 30, 2022, primarily attributable to (i) a decrease in advertising expenses by $12,873,685, or 73.4%, from $17,527,318 for the fiscal year ended September 30, 2022, to $4,653,633 for the fiscal year ended September 30, 2023. In September 2021, we entered into an advertising service agreement with a third party, Guangdong Fengyang Legend Consulting Co., Ltd. (“Fengyang Legend”) to promote the sales of our major TCMD products, Bai Nian Dan and Guben Yanling Pill with a service period of one year, from October 1, 2021 to September 30, 2022. In March 2022, we entered into an advertising service agreement with a third-party, Health Headline to promote our brand on the Health Headline’s website and mobile app, with a service period of ten months from March 1, 2022 to December 31, 2022. In March 2023, we renewed the advertising services arrangement with Health Headline by entering a new service agreement with Health Headline with a service period of ten months from March 1, 2023 to December 31, 2023. As our agreement with Fengyang Legend expired in September 2022, advertising expenses decreased significantly during the fiscal year ended September 30, 2023; and (ii) partially offset by an increase in shipping and delivery expenses by $394,927, or 61.9%, from $638,286 for the fiscal year ended September 30, 2022 to $1,033,213 for the fiscal year ended September 30, 2023, due to an increase in our sales volume, increased freight cost and rising fuel prices during the fiscal year ended September 30, 2023.
General and Administrative Expenses
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.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expense | $ | 728,499 | 27.6 | % | $ | 641,622 | 29.4 | % | $ | 86,877 | 13.5 | % | ||||||||||||
| Depreciation and amortization | 195,451 | 7.4 | % | 185,169 | 8.5 | % | 10,282 | 5.6 | % | |||||||||||||||
| Land and property tax | 96,412 | 3.7 | % | 103,769 | 4.8 | % | (7,357 | ) | (7.1 | )% | ||||||||||||||
| Office supply and utility expense | 440,873 | 16.7 | % | 307,883 | 14.1 | % | 132,990 | 43.2 | % | |||||||||||||||
| Transportation, business travel and meals expense | 121,122 | 4.6 | % | 83,029 | 3.8 | % | 38,093 | 45.9 | % | |||||||||||||||
| Consulting fee | 926,694 | 35.1 | % | 720,430 | 33.0 | % | 206,264 | 28.6 | % | |||||||||||||||
| Inspection and maintenance fee | 47,154 | 1.8 | % | 39,555 | 1.8 | % | 7,599 | 19.2 | % | |||||||||||||||
| Stamp tax and other expenses | 82,779 | 3.1 | % | 101,813 | 4.7 | % | (19,034 | ) | (18.7 | )% | ||||||||||||||
| Total general and administrative expenses | $ | 2,638,984 | 100.0 | % | $ | 2,183,270 | 100.0 | % | $ | 455,714 | 20.9 | % | ||||||||||||
General and administrative expenses increased by $455,714, or 20.9%, to $2,638,984 for the fiscal year ended September 30, 2023 from $2,183,270 for the fiscal year ended September 30, 2022, primarily attributable to (i) an increase in consulting fee by $206,264, or 28.6% due to consulting services retained to improve product knowledge and sales tactics of our employees; and (ii) an increase in office supplies and utility expense by $132,990, or 43.2% due to the registration fees paid to U.S. Securities and Exchange Commission, annual listings fees paid to the Nasdaq Stock Market, and increased investor relations expense for the fiscal year ended September 30, 2023.
Research and development expenses
Our research and development expenses primarily consist of salaries, welfare and insurance expenses paid to our employees involved in the research and development activities, materials and supplies used in the development and testing new TCMD products, depreciation and other miscellaneous expenses.
| For the Fiscal Years Ended September 30, | ||||||||||||||||||||||||
| 2023 | 2022 | Variance | ||||||||||||||||||||||
| Amount | % | Amount | % | Amount | % | |||||||||||||||||||
| Salary and employee benefit expenses to research and development staff | $ | 140,528 | 2.9 | % | $ | 159,924 | 2.1 | % | $ | (19,396 | ) | (12.1 | )% | |||||||||||
| Materials used in research and development activities | 881,753 | 18.1 | % | 489,692 | 6.4 | % | 392,061 | 80.1 | % | |||||||||||||||
| Expenditure on new product development | 3,794,464 | 78.1 | 6,973,683 | 91.2 | (3,179,219 | ) | (45.6 | )% | ||||||||||||||||
| Depreciation and others | 41,803 | 0.9 | % | 21,076 | 0.3 | % | 20,727 | 98.3 | % | |||||||||||||||
| Total research and development expenses | $ | 4,858,548 | 100.0 | % | $ | 7,644,375 | 100.0 | % | $ | (2,785,827 | ) | (36.4 | )% | |||||||||||
Research and development expenses decreased by $2,785,827, or 36.4%, to $4,858,548 for the fiscal year ended September 30, 2023, from $7,644,375 for the fiscal year ended September 30, 2022, primarily attributable to a decrease in research and development expense of $3,179,219 to develop and test new Chinese medicine products in order to diversify our future product portfolio. During the fiscal year ended September 30, 2022, we cooperated with external academic and research institutions to jointly develop and test eight new Chinese medicine products and accordingly incurred significant amount of research and development expense in connection with such efforts. As these development activities reached their final stage, expenditure on new product development decreased significantly in the fiscal year ended September 30, 2023; and (ii) an increase in the materials used in the research and development activities by $392,061. In order to develop new products and improve the formulation of several existing products, we conducted more testing on product stability and safety, and as a result, more materials were used in research and development activities for the fiscal year ended September 30, 2023 than in the fiscal year ended September 30, 2022.
Other expenses, net
Total other expenses, net, increased by $286,458, to $361,330 for the fiscal year ended September 30, 2023 from $74,872 for the fiscal year ended September 30, 2022.
Income Tax Expense
Income tax expense was $2,253,593 for the fiscal year ended September 30, 2023, representing an increase of $1,438,271, or 176.4%, from $815,322 for the fiscal year ended September 30, 2022. As our principal PRC subsidiaries, Jiangxi Universe and Universe Trade, incurred net loss during the fiscal years ended September 30, 2023 and 2022, we evaluated the likelihood of the realization of deferred tax assets, determined that deferred tax assets arose from net operating loss carry-forwards in previous fiscal years might not be fully realized, and recognized $1,567,656 valuation allowance for deferred tax assets during the fiscal year ended September 30, 2023.
Net Loss
Net loss was $6,581,024 for the fiscal year ended September 30, 2023, representing a $1,328,614 decrease from net loss of $7,909,638 for the fiscal year ended September 30, 2022.
B. Liquidity and Capital Resources
As of September 30, 2024, we had $29.5 million of cash on hand and $12.9 million in accounts receivable. Our accounts receivable primarily include balance due from customers for our pharmaceutical products sold and delivered to customers. As of date of this report, approximately 98.4%, or $12.8 million, of our net accounts receivable balance as of September 30, 2024 has been subsequently collected. Collected accounts receivable will be used as working capital in our operations, if necessary.
As of September 30, 2024, our inventory balance amounted to $1.7 million, primarily consisting of raw materials, work-in-progress and finished TCMD products, which we believe are able to be sold quickly based on the analysis of the current trends in demand for our products.
On June 25, 2021, we signed a construction sub-contract with sub-contractor Jiangxi Chenyuan Construction Project Co., Ltd. (“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 $23.5 million). As of September 30, 2024, we had made a prepayment of approximately RMB69.2 million (approximately $9.9 million) to Chenyuan and future additional capital expenditure on this constriction-in-process (“CIP”) project was estimated to be approximately RMB95.8 million (equivalent to $13.7 million), among which approximately $7.1 million is required for the next 12 months. 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 a related party, Jiangxi Yueshang Investment Co., Ltd. (“Jiangxi Yueshang”), an entity in which our chief executive officer, Mr. Gang Lai, owned 5% of its equity interests as of the date of that agreement. Pursuant to this purchase agreement, Jiangxi Yueshang will sell and we will 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 September 30, 2024, we had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025.
As of September 30, 2024, we also had short-term bank loans of $5.9 million and long-term bank loans of $2.1 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 September 30, 2024, our working capital balance was $31.3 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 annual report.
The following table sets forth summary of our cash flows for the periods indicated:
| For the Fiscal Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Net cash provided by (used in) operating activities | $ | (9,506,683 | ) | $ | 1,116,775 | $ | (1,301,555 | ) | ||||
| Net cash used in investing activities | (361,285 | ) | (44,169 | ) | (3,908,105 | ) | ||||||
| Net cash (used in) provided by financing activities | 33,954,326 | (1,390,646 | ) | 3,317,943 | ||||||||
| Effect of exchange rate change on cash | 126,088 | (108,171 | ) | (474,733 | ) | |||||||
| Net increase (decrease) in cash | 24,212,446 | (426,211 | ) | (2,366,450 | ) | |||||||
| Cash, beginning of year | 5,285,247 | 5,711,458 | 8,077,908 | |||||||||
| Cash, end of year | $ | 29,497,693 | $ | 5,285,247 | $ | 5,711,458 | ||||||
Operating Activities
Net cash used in operating activities was $9,506,683 for the fiscal year ended September 30, 2024, primarily consisted of the following:
| ● | Net loss of $8,727,298 for the period. |
| ● | A decrease in inventories of $1,643,131 due to our efforts to accelerate inventory turnover. |
| ● | An increase in accounts receivable of $1,547,834. We provided longer credit terms for our regular customers to maintain customer relationship and promote sales. As of date of this report, approximately 98.4%, or $12.8 million of our net accounts receivable balance as of September 30, 2024 has been subsequently collected. |
| ● | A decrease in accrued expenses and other current liabilities of $1,167,206 due to decreased unpaid advertising expense. |
Net cash provided by operating activities was $1,116,775 for the fiscal year ended September 30, 2023, primarily consisted of the following:
| ● | Net loss of $6,581,024 for the fiscal year. |
| ● | A decrease in accounts receivable of $4,718,118. Our accounts receivable primarily includes balance due from customers for our pharmaceutical products sold and delivered to customers. We enhanced our accounts receivable management and shortened accounts receivable collection period during the fiscal year ended September 30, 2023. |
| ● | An increase in accounts payable of $1,641,426 due to pending invoices from suppliers for raw materials purchased in the third quarter of 2023. |
| ● | An increase in inventory balance of $1,183,823 because we increased inventory stockpiles to reduce the negative impact from increased market price of Chinese traditional medicine raw materials. |
Net cash used in operating activities was $1,301,555 for the fiscal year ended September 30, 2022, primarily consisted of the following:
| ● | Net loss of $7,909,638 for the fiscal year. |
| ● | An increase in accounts receivable of $1,526,243. Our accounts receivable primarily includes balance due from customers for our pharmaceutical products sold and delivered to customers. As of September 30, 2022, most of our outstanding accounts receivable aged below six months. Collected accounts receivable will be used as working capital in our operations, if necessary. |
| ● | A decrease in advance to suppliers of $2,681,214 because we made significant advance payments to suppliers for raw material purchase as of September 30, 2021 and we received purchased raw materials valued at approximately $2.7 million during the fiscal year ended September 30, 2022. |
| ● | A decrease in prepayment for advertising of $7,385,695. In September 2021, we engaged a third-party advertising agency to develop and produce TV advertisement for promoting the sales of our major TCMD product, Bai Nian Dan and Guben Yanling Pill, and coordinate with a TV channel to broadcast the advertisement to targeted geographic market areas. Such prepayment was charged to expense when our TV advertisement was broadcasted in the fiscal year ended September 30, 2022. |
| ● | An increase in other receivable of $1,030,121 related to VAT of advertising expense deductible upon receipt of invoice, as well as prepaid income tax deductible from future taxable income. |
| ● | A decrease in accounts payable of $1,919,690 because we made payment to raw material suppliers when we received the invoices from them. |
Investing Activities
Net cash used in investing activities amounted to $361,285 for the fiscal year ended September 30, 2024, mainly due to purchase of fixed assets of $208,320, prepayments for construction in progress of $37,478 and purchase of intangible asset of $117,291.
Net cash used in investing activities amounted to $44,169 for the fiscal year ended September 30, 2023 due to purchase of fixed assets.
Net cash used in investing activities amounted to $3,908,105 for the fiscal year ended September 30, 2022, which primarily included prepayment for acquisition of $3,814,925. On September 26, 2022, we entered into a letter of intent for an equity transfer with an individual, Mr. Xibo Liu, pursuant to which Mr. Xibo Liu shall transfer his 51% ownership in Yunnan Faxi to us in consideration for RMB72 million (approximately $10.1 million). We prepaid RMB25 million (approximately $3.9 million) in the fiscal year ended September 30, 2022.
Financing Activities
Net cash provided by financing activities amounted to $33,954,326 for the fiscal year ended September 30, 2024, primarily include the following:
| ● | Net proceeds from issuance of ordinary shares of $24,999,992. |
| ● | Proceeds from bank loans of $7,787,016 and repayment of bank loans of $5,552,240. |
| ● | Proceeds from related party borrowings of $6,719,557. 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. |
Net cash used in financing activities amounted to $1,390,646 for the fiscal year ended September 30, 2023, primarily include the following:
| ● | Proceeds from short-term bank loans of $5,671,104 and repayment of bank loans of $3,969,773. |
| ● |
Repayment of related party borrowings of $3,091,977. The balance due to related party mainly consisted of advances from Mr. Gang Lai, the chairman of our board of directors and our chief executive officer, 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 $3,317,943 for the fiscal year ended September 30, 2022, primarily including the following:
| ● |
Proceeds from short-term bank loans in the amount of $4,272,716 and repayment of bank loans in the amount of $4,272,716. |
|
| ● | Proceeds from related party borrowings of $3,317,943. 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 fiscal years ended September 30, 2024, 2023 and 2022, we did not have any material legal claims or litigation that, individually or in aggregate, could have a material adverse impact on our consolidated financial position, results of operations and cash flows.
As of September 30, 2024, we had the following contractual obligations:
| Payments Due by Period | ||||||||||||||||
| Contractual Obligations | Total | Less than 1 year |
1-2 years | 2-3 years | ||||||||||||
| (1) Debt Obligations | $ | 7,994,186 | $ | 5,856,703 | $ | 2,137,483 | $ | - | ||||||||
| (2) Capital expenditure commitment on CIP project | 13,651,391 | 7,124,943 | 5,350,832 | 1,175,616 | ||||||||||||
| (3) Capital expenditure commitment for purchase of property | 2,279,982 | 2,279,982 | - | - | ||||||||||||
| Total | $ | 23,925,559 | $ | 15,261,628 | $ | 7,488,315 | $ | 1,175,616 | ||||||||
| (1) | As of September 30, 2024, we had total of $5,856,703 in short-term borrowings and $2,137,483 in long-term borrowings from several PRC banks (see Footnotes 13 and 14 of our consolidated financial statements and footnotes included elsewhere in this annual report 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 $23.5 million). As of September 30, 2024, we had made a prepayment of approximately RMB69.2 million (approximately $9.9 million) to Chenyuan and future additional capital expenditure on this CIP project was estimated to be approximately RMB95.8 million (approximately $13.7 million) (see Footnote 11 of our consolidated financial statements and footnotes included elsewhere in this annual report, Prepayment for CIP project, for details). |
| (3) | On May 6, 2021, we entered into a real estate property purchase agreement with a related party, Jiangxi Yueshang, an entity in which our chief executive officer, Mr. Gang Lai, owned 5% of its equity interests as of the date of that agreement. Pursuant to this purchase agreement, Jiangxi Yueshang will sell and we will 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 September 30, 2024, we had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025 (see Footnote 12 of our consolidated financial statements and footnotes included elsewhere in this annual report, 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 September 30, 2024 and 2023.
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.
C. Research and Development, Patents and Licenses, etc.
See “Item 4. Information on the Company—B. Business Overview—Intellectual Property” and “Item 4. Information on the Company—B. Business Overview—Research and Development.”
D. Trend Information
Other than as disclosed below and elsewhere in this annual report on Form 20-F, we are not aware of any trends, uncertainties, demands, commitments, or events for the period from October 1, 2023 to September 30, 2024 that are reasonably likely to have a material adverse effect on our net revenue, income, profitability, liquidity, or capital resources, or that caused the disclosed financial information to be not necessarily indicative of future operating results or financial condition.
E. Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”), which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenues and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenues and expenses incurred during the financial reporting period. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe critical accounting policies as disclosed in this annual report reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.
Risks and Uncertainties
Through our PRC subsidiaries, we conduct our operations in the PRC. Accordingly, our 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. Our results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although we have not experienced losses from these situations and believes that we are in compliance with existing laws and regulations including our organization and structure, 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. We may face competition with respect to our current and future pharmaceutical product candidates from major pharmaceutical companies in China.
Our 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 our operations.
The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:
Uses of estimates
In preparing the consolidated financial statements in conformity with 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 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 consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, the realizability of advance to suppliers, inventory valuation, useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates.
Accounts receivable, net
Accounts receivables are presented net of allowance for doubtful accounts. We determine the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. We establish a provision for doubtful receivables when there is objective evidence that we may not be able to collect the amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable. Allowance for uncollectable balances amounted to $135,082 and $Nil as of September 30, 2024 and 2023, respectively.
Inventories, net
Inventories are stated at net realizable value using weighted average method. Costs include the costs of raw materials, freight, direct labor and related production overhead. Any excess of the costs over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. We evaluate 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. We recorded inventory reserve of $124,512 and $69,746 as of September 30, 2024 and 2023, respectively.
Revenue recognition
To determine revenue recognition for contracts with customers, we perform 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) we satisfy the performance obligation.
We recognize revenue when we transfer our goods and services to customers in an amount that reflects the consideration to which we expect to be entitled in such exchange. We account for the revenue generated from sales of our TCMD and third-party products on a gross basis as we are acting as a principal in these transactions, are subject to inventory risk, have latitude in establishing prices, and are responsible for fulfilling the promise to provide customers the specified goods, which we have control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. All of our contracts have one single performance obligation as the promise is to transfer the individual goods to customers, and there are no separately identifiable other promises in the contracts. Our revenue streams are recognized at a point in time when the title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. Our products are sold with no right of return and we do not provide other credits or sales incentives to customers. Revenue is reported net of all VAT.
Income Tax
We account for current income tax in accordance with the laws of the relevant tax authorities. Deferred income tax 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 fiscal years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes were incurred during the fiscal years ended September 30, 2024, 2023 and 2022. We do not believe there was any uncertain tax provision as of September 30, 2024 and 2023.
Our operating subsidiaries in China are subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the fiscal years ended September 30, 2024, 2023 and 2022. As of September 30, 2024 and 2023, all of our tax returns of our PRC subsidiaries remained open for statutory examination by PRC tax authorities.
Recently Issued Accounting Pronouncements
We consider 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”), we meet 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 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The guidance should be adopted retrospectively. We are currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. We are currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
In March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amended guidance added an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The amendments guidance is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The guidance can be applied either prospectively or retrospectively. We are currently in the process of evaluating the impact this amended guidance may have on our consolidated financial statements.
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. We are currently in the process of evaluating the impact this amended guidance may have on the footnotes to our consolidated financial statements.
In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The amended guidance is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The guidance can be applied either prospectively or retrospectively. We are currently in the process of evaluating the impact this amended guidance may have on our consolidated financial statements.
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. We are currently in the process of evaluating the impact this amended guidance may have on the footnotes to our 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. We do not discuss recent standards that are not anticipated to have an impact on or are unrelated to our consolidated financial condition, results of operations, cash flows or disclosures.
Item 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
The following table sets forth information regarding our directors and executive officers as of the date of this annual report.
| Name | Age | Position(s) | ||
| Gang Lai | 57 | Chairman of the Board of Directors and Chief Executive Officer | ||
| Lin Yang | 49 | Chief Financial Officer and Director | ||
| Baochang Liu | 45 | Chief Operating Officer | ||
| Jiawen Pang | 57 | Independent Director | ||
| Yongping Yu | 57 | Independent Director | ||
| Ding Zheng | 47 | Independent Director |
The following is a brief biography of each of our executive officers and directors:
Mr. Gang Lai is our chief executive officer and chairman of the board. Mr. Lai has served as the chief executive officer of Jiangxi Universe since 2004 and founded Universe Trade in 2010. Before joining us, Mr. Lai was a successful entrepreneur. He founded Jiangxi Lvzhouyuan Timber Joint Stock Co., Ltd. in 2001, a company listed on PRC National Equities Exchange and Quotations (NEEQ: 838893), and has since served as its chairman of the board. Mr. Lai graduated from Jingdezhen Ceramic Institute in China with a bachelor’s degree in mechanical engineering in 1988.
Ms. Lin Yang is our chief financial officer and director. Ms. Lin Yang has served as the financial director of Jiangxi Universe since April 2006 and the financial director of Universe Trade since its formation in 2010. Before joining us, Ms. Yang served as an accountant at Jiangxi Automobile Engineering Plastic Co., Ltd. from 1998 to March 2006. Ms. Yang graduated from Jiangxi University of Finance and Economics in China with a bachelor’s degree in accounting in1991.
Mr. Baochang Liu has served as our chief operating officer since December 2021. Mr. Liu has over 17 years of experience in pharmaceutical marketing. From January 2020 to December 2021, Mr. Baochang Liu worked as the vice president of marketing at China Shineway Pharmaceutical Group Ltd. (HKEX: 2877), responsible for designing and implementing the company’s overall marketing strategies. From November 2015 to December 2019, Mr. Baochang Liu served as the general manager of OTC department and director of marketing at Chengdu Kanghong Pharmaceutical Group Co., Ltd. (SHE: 002773), responsible for overseeing the implementation of the company’s marketing strategies and brand building. Mr. Baochang Liu obtained his bachelor’s degree in accounting and in marketing management from Harbin University of Commerce in 2004 and his master of business administration from Fudan University in 2020.
Mr. Jiawen Pang has served as our independent director since March 2021. Since January 2021, Mr. Jiawen Pang has served as the vice president at Guangzhou Dahua Food Technology Co., Ltd., a food manufacturing company, where Mr. Pang is responsible for overseeing the company’s general management and marketing function. From January 2018 to December 2020, Mr. Jiawen Pang served the general manager at Pangbei (Shanghai) Medical Technology Center, a medical device company, where Mr. Pang was responsible for overseeing the general management and marketing function of the company. Mr. Jiawen Pang graduated from Tianjin University of Commerce in China with a bachelor’s degree in refrigeration and food freezing engineering in 1989 and from Sun Yat-sen University in China with a master of business administration in healthcare and medicine in 2004.
Mr. Yongping Yu has served as our independent director since May 2023. Mr. Yongping Yu has served as the General Manager of Zhuhai Qirong Venture Capital Investment Management Co., Ltd. since August 2019, a venture capital company focused on the healthcare industry. Mr. Yongping Yu served as a director and Executive Deputy General Manager of Xinhua Kangmei Health Think Tank Co., Ltd. from May 2017 to July 2019. Mr. Yu obtained a Bachelor of Medicine degree from Nanchang University in the PRC in 1992 and obtained Bachelor of Arts degree in in Chinese language and literature from Tsinghua University in the PRC in 1995.
Mr. Ding Zheng has served as our independent director since March 2021. Mr. Ding Zheng has served as the chairman of the board at Guangzhou Roujing Sunshade Energy-saving Technology Co., Ltd. since 2018. Mr. Zheng has also served as the general manager at Hande Manufacturing (China) Co., Ltd., since 2015. Mr. Zheng obtained a bachelor’s degree in technology economics from Shanghai Jiao Tong University in China in 2000 and a master of business administration degree from Tsinghua University in China in 2005. Mr. Zheng studied business administration at New York University from September 2024 to January 2005. Mr. Zheng is a member of the China Institute of Certified Public Accountants (CICPA).
Board Diversity
The table below provides certain information regarding the diversity of our board of directors as of the date of this annual report.
Board Diversity Matrix
| Country of Principal Executive Offices: | China | |||
| Foreign Private Issuer | Yes | |||
| Disclosure Prohibited under Home Country Law | No | |||
| Total Number of Directors | 5 |
| Female | Male | Non- Binary | Did Not Disclose Gender |
||||
| Part I: Gender Identity | |||||||
| Directors | 1 | 4 | 0 | 0 | |||
| Part II: Demographic Background | |||||||
| Underrepresented Individual in Home Country Jurisdiction | 0 | ||||||
| LGBTQ+ | 0 | ||||||
| Did Not Disclose Demographic Background | 0 | ||||||
Family Relationships
None of our directors or executive officers has a family relationship as defined in Item 401 of Regulation S-K.
B. Compensation
For the fiscal year ended September 30, 2024, we paid an aggregate of approximately US$241 thousand as compensation to our executive officers and directors. None of our non-employee directors have any service contracts with us that provide for benefits upon termination of employment. We have not set aside or accrued any amount to provide pension, retirement, or other similar benefits to our directors and executive officers. Our PRC subsidiaries are required by law to make contributions equal to certain percentages of each employee’s salary for his or her pension insurance, medical insurance, unemployment insurance, and other statutory benefits and a housing provident fund.
C. Board Practices
Board of Directors
Our board of directors consists of five directors, including three independent directors. A director is not required to hold any shares in our company to qualify to serve as a director. A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which they have an interest which (together with any interest of any person connected with them) is a material interest (otherwise then by virtue of their interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, the Company) and if they shall do so their vote shall not be counted, nor in relation thereto shall they be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to: (a) the giving of any security, guarantee or indemnity in respect of: (i) money lent or obligations incurred by them or by any other person for the benefit of the Company or any of its subsidiaries; or (ii) a debt or obligation of the Company or any of its subsidiaries for which a director has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; (b) where the Company or any of its subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate; (c) any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with them) does not to their knowledge hold an interest representing one per cent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate; (d) any act or thing done or to be done in respect of any arrangement for the benefit of the employees of the Company or any of its subsidiaries under which they are not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; (e) any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Companies Act (Revised) of the Cayman Islands) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure; or (f) any contract, transaction, arrangement or proposal in which the director has an interest which is not a material interest. The directors may exercise all the powers of the company to borrow money, mortgage its undertaking, property and uncalled capital, and issue debentures or other securities whenever money is borrowed or as security for any obligation of the company or of any third party.
Committees of the Board of Directors
We have established three committees under the board of directors: an audit committee, a compensation committee, and a nominating and corporate governance committee. We have adopted a charter for each of the three committees. Each committee’s members and functions are described below.
Audit Committee. Our audit committee consists of Jiawen Pang, Yongping Yu, and Ding Zheng. Ding Zheng serves as the chairman of our audit committee. We have determined that Jiawen Pang, Yongping Yu, and Ding Zheng satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10A-3 under the Securities Exchange Act. Our board also has determined that Ding Zheng qualifies as an audit committee financial expert within the meaning of the SEC rules or possesses financial sophistication within the meaning of the Nasdaq corporate governance rules. The audit committee oversees our accounting and financial reporting processes and the audits of the financial statements of our company. The audit committee is responsible for, among other things:
| ● | appointing the independent auditors and pre-approving all auditing and non-auditing services permitted to be performed by the independent auditors; | |
| ● | reviewing with the independent auditors any audit problems or difficulties and management’s response; | |
| ● | discussing the annual audited financial statements with management and the independent auditors; |
| ● | reviewing the adequacy and effectiveness of our accounting and internal control policies and procedures and any steps taken to monitor and control major financial risk exposures; | |
| ● | reviewing and approving all proposed related party transactions; | |
| ● | meeting separately and periodically with management and the independent auditors; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Compensation Committee. Our compensation committee consists of Jiawen Pang, Yongping Yu, and Ding Zheng. Jiawen Pang serves as the chairperson of our compensation committee. We have determined that Jiawen Pang, Yongping Yu, and Ding Zheng satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and Rule 10C-1 under the Securities Exchange Act. The compensation committee assists the board in reviewing and approving the compensation structure, including all forms of compensation, relating to our directors and executive officers. Our chief executive officer may not be present at any committee meeting during which his compensation is deliberated. The compensation committee is responsible for, among other things:
| ● | reviewing and approving the total compensation package for our most senior executive officers; | |
| ● | approving and overseeing the total compensation package for our executives other than the most senior executive officers; | |
| ● | reviewing and recommending to the board with respect to the compensation of our directors; | |
| ● | reviewing periodically and approving any long-term incentive compensation or equity plans; | |
| ● | selecting compensation consultants, legal counsel or other advisors after taking into consideration all factors relevant to that person’s independence from management; and | |
| ● | reviewing programs or similar arrangements, annual bonuses, employee pension and welfare benefit plans. |
Nominating and Corporate Governance Committee. Our nominating and corporate governance committee consists of Jiawen Pang, Yongping Yu and Ding Zheng. Yongping Yu serves as the chairperson of our nominating and corporate governance committee. Jiawen Pang, Yongping Yu, and Ding Zheng satisfy the “independence” requirements of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The nominating and corporate governance committee assists the board of directors in selecting individuals qualified to become our directors and in determining the composition of the board and its committees. The nominating and corporate governance committee is responsible for, among other things:
| ● | identifying and recommending nominees for election or re-election to our board of directors or for appointment to fill any vacancy; | |
| ● | reviewing annually with our board of directors its current composition in light of the characteristics of independence, age, skills, experience and availability of service to us; | |
| ● | identifying and recommending to our board the directors to serve as members of committees; | |
| ● | advising the board periodically with respect to significant developments in the law and practice of corporate governance as well as our compliance with applicable laws and regulations, and making recommendations to our board of directors on all matters of corporate governance and on any corrective action to be taken; and | |
| ● | monitoring compliance with our code of business conduct and ethics, including reviewing the adequacy and effectiveness of our procedures to ensure proper compliance. |
Duties of Directors
Under Cayman Islands law, all of our directors owe three types of duties to us: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Companies Act (Revised) of the Cayman Islands imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however, the courts of the Cayman Islands have held that a director owes the following fiduciary duties: (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our amended and restated articles of association. We have the right to seek damages if a duty owed by any of our directors is breached.
Our board of directors has all powers necessary for managing, and for directing and supervising, our business affairs. The functions and powers of our board of directors include, among others:
| ● | convening shareholders’ annual general meetings and reporting its work to shareholders at such meetings; | |
| ● | declaring dividends and distributions; | |
| ● | appointing officers and determining the terms of office of the officers; | |
| ● | exercising the borrowing powers of our company and mortgaging the property of our Company; and | |
| ● | approving the transfer of shares in our Company, including the registration of such shares in our share register. |
Terms of Directors and Executive Officers
Our directors may be elected by a resolution of our board of directors or by an ordinary resolution of our shareholders. Unless re-appointed or removed from office pursuant to the provisions of our amended and restated articles of association, each director shall be appointed for a term expiring at the next-following annual general meeting of the Company. A director will cease to be a director if, among other things, the director (i) becomes bankrupt or makes any arrangement or composition with his creditors; (ii) in the opinion of a registered medical practitioner by whom the director is being treated, the director becomes physically or mentally incapable of acting as a director; (iii) resigned his or her office by notice in writing to the company; or (iv) without the consent of the other directors, is absent from meetings of directors for a continuous period of six months.
Our officers are elected by and serve at the discretion of the board of directors.
Qualification
There is currently no shareholding qualification for directors, although a shareholding qualification for directors may be fixed by our shareholders by ordinary resolution.
Employment Agreements and Indemnification Agreements
We have entered into employment agreements with each of our executive officers. Pursuant to these employment agreements, we agree to employ each of our executive officers for a specified time period, which may be renewed automatically unless either party gives the other party a two-month prior written notice before the end of the current employment term. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, including but not limited to, the commitments of any serious or persistent breach or non-observance of the terms and conditions of the employment, conviction of a criminal offense, willful disobedience of a lawful and reasonable order, fraud or dishonesty, receipt of bribery, or severe neglect of his or her duties. An executive officer may terminate his or her employment at any time with two months’ prior written notice. Each executive officer agrees to hold, both during and after the employment agreement expires, in strict confidence and not to use or disclose to any person, corporation or other entity without written consent, any confidential information.
We have also entered into indemnification agreements with each of our directors and executive officers. Under these agreements, we agree to indemnify our directors and executive officers against certain liabilities and expenses incurred by such persons in connection with claims made by reason of their being a director or officer of our Company.
Insider Participation Concerning Executive Compensation
Our director, Mr. Gang Lai, was making all determinations regarding executive officer compensation from the inception of the Company until our Compensation Committee was set up in March 2021.
Code of Business Conduct and Ethics
Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers, and employees. Our code of business conduct and ethics is publicly available on our website.
Compensation Recovery Policy
We have adopted a compensation recovery policy to provide for the recovery of erroneously-awarded incentive compensation, as required by the Dodd-Frank Wall Street Reform and Consumer Protection Act, final SEC rules and applicable listing standards.
D. Employees
See “Item 4. Information on the Company—B. Business Overview—Employees.”
E. Share Ownership
The following table sets forth information with respect to the beneficial ownership, within the meaning of Rule 13d-3 under the Exchange Act, of our ordinary shares as of the date of this annual report for:
| ● | each of our directors and executive officers; and | |
| ● | each person known to us to own beneficially more than 5% of our ordinary shares. |
Beneficial ownership includes voting or investment power with respect to the securities. Except as indicated below, and subject to applicable community property laws, the persons named in the table have sole voting and investment power with respect to all ordinary shares shown as beneficially owned by them. Percentage of beneficial ownership of each listed person is based on 563,338 ordinary shares outstanding as of the date of this annual report.
Information with respect to beneficial ownership has been furnished by each director, officer, or beneficial owner of 5% or more of our ordinary shares. Beneficial ownership is determined in accordance with the rules of the SEC and generally requires that such person have voting or investment power with respect to securities. In computing the number of ordinary shares beneficially owned by a person listed below and the percentage ownership of such person, ordinary shares underlying options, warrants, or convertible securities held by each such person that are exercisable or convertible within 60 days of the date of this annual report are deemed outstanding, but are not deemed outstanding for computing the percentage ownership of any other person.
| Ordinary Shares Beneficially Owned |
Voting Power |
|||||||||||
| Number | % | % | ||||||||||
| Directors and Executive Officers*: | ||||||||||||
| Gang Lai(1) | 3,467 | 0.615 | % | 0.615 | % | |||||||
| Lin Yang | — | — | — | |||||||||
| Baochang Liu | — | — | — | |||||||||
| Jiawen Pang | — | — | — | |||||||||
| Yongping Yu | — | — | — | |||||||||
| Ding Zheng | — | — | — | |||||||||
| All directors and executive officers as a group: | 3,467 | 0.615 | % | 0.615 | % | |||||||
| 5% Shareholders: | ||||||||||||
| Sununion Holding Group Limited(1) | 3,467 | 0.615 | % | 0.615 | % | |||||||
| * | Unless otherwise indicated, the business address of each of our directors and officers is 265 Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an, Jiangxi, People’s Republic of China. |
| (1) | Represents 3,467 ordinary shares held by Sununion Holding Group Limited, a business company incorporated in the British Virgin Islands, which is owned as to 100% and controlled by Gang Lai. The registered address of Sununion Holding Group Limited is Vistra Corporate Services Centre, Wickhams Cay II, Road Town, Tortola, VG1110, British Virgin Islands. |
As of the date of this annual report, approximately 99.385% of our issued and outstanding ordinary shares are held in the United States by four record holders, including Cede and Company.
We are not aware of any other arrangement that may, at a subsequent date, result in a change of control of our Company.
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
Item 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
See “Item 6. Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
Employment Agreements
See “Item 6. Directors, Senior Management and Employees—C. Board Practices—Employment Agreements and Indemnification Agreements.”
Material Transactions with Related Parties
(a) Nature of relationships with related parties
| Name | Relationship with the Company | |
| Mr. Gang Lai | Chief Executive Officer and chairman of the Company’s Board of Directors | |
| Mr. Yajun Hu | General Manager of Jiangxi Universe | |
| Ms. Lin Yang | Chief Financial Officer of the Company | |
| Guangzhou Ningjing Investment Co., Ltd (“Guangzhou Ningjing”) | Under common control of Mr. Gang Lai |
(b) Due from related parties
| As of September 30, | ||||||||
| Name | 2024 | 2023 | ||||||
| Mr. Yajun Hu | $ | - | $ | 61,678 | ||||
| Total due from related parties | $ | - | $ | 61,678 | ||||
As of September 30, 2023, the balance due from related parties consisted of advanced funds to the Company’s director and general manager, Mr. Yajun Hu. These advances were non-interest bearing and fully repaid on October 12, 2023.
(c) Due to related parties
| As of September 30, | ||||||||
| Name | 2024 | 2023 | ||||||
| Mr. Gang Lai | $ | 6,900,499 | $ | 540,096 | ||||
| Ms. Lin Yang | 85 | - | ||||||
| Total due to related parties | $ | 6,900,584 | $ | 540,096 | ||||
As of September 30, 2024, 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 non-interest bearing and due on demand.
(d) Loan guarantee provided by related parties
In connection with the Company’s bank borrowings from commercial banks in China, Mr. Gang Lai, the Company’s chairman of the board of directors and chief executive officer, signed guarantee agreements with these banks to provide credit guarantee for the Company’s certain loans (see Note 13 and 14 of our audited consolidated financial statements and footnotes included elsewhere in this annual report).
(e) Prepayment to related party for property purchase
As disclosed in Note 12 of our audited consolidated financial statements and footnotes included elsewhere in this annual report, on May 6, 2021, the Company entered into a real estate property purchase agreement with a related party, Jiangxi Yueshang, to purchase certain residential apartment and commercial office space totaling 2,749.30 square meters with total purchase price of RMB32 million (approximately $4.6 million). As of September 30, 2024, the Company had made a prepayment of RMB16 million ($2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025.
On January 13, 2022, Mr. Gang Lai transferred the 5% equity interest he owned in Jiangxi Yueshang to a third party. As such, after this date, Jiangxi Yueshang is no longer the Company’s related party.
(f) Prepaid expenses-related party, non-current
As of September 30, 2024 and 2023, the Company prepaid Guangzhou Ningjing nil and $35,864 for right to use trademarks, respectively.
C. Interests of Experts and Counsel
Not applicable.
Item 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
We have appended consolidated financial statements filed as part of this annual report. See “Item 18. Financial Statements.”
Legal Proceedings
From time to time, we may become a party to various legal or administrative proceedings arising in the ordinary course of our business, including actions with respect to intellectual property infringement, violation of third-party licenses or other rights, breach of contract, and labor and employment claims. We are currently not a party to, and we are not aware of any threat of, any legal or administrative proceedings that, in the opinion of our management, are likely to have any material and adverse effect on our business, financial condition, cash flow, or results of operations.
Dividend Policy
As of the date of this annual report, none of our subsidiaries have made any dividends or distributions to Universe Pharmaceuticals INC and Universe Pharmaceuticals INC has not made any dividends or distributions to U.S. investors. We intend to keep any future earnings to finance the expansion of our business, and we do not anticipate that any cash dividends will be paid in the foreseeable future. Subject to the PFIC rules, the gross amount of distributions we make to investors with respect to our ordinary shares (including the amount of any taxes withheld therefrom) will be taxable as a dividend, to the extent that the distribution is paid out of our current or accumulated earnings and profits, as determined under U.S. federal income tax principles.
Our board of directors has discretion on whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that the company may only pay dividends out of profits or share premium, and provided always that in no circumstances may a dividend be paid if this would result in the company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to pay dividends, the form, frequency and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions and other factors that the board of directors may deem relevant.
We are an exempted company with limited liability incorporated in the Cayman Islands. We may rely on dividends from our subsidiaries in China for our cash requirements, including any payment of dividends to our shareholders. PRC regulations may restrict the ability of our PRC subsidiaries to pay dividends to us, and as a holding company, we will be dependent on receipt of funds from our Hong Kong subsidiary, Universe HK.
Current PRC regulations permit our indirect PRC subsidiaries to pay dividends to Universe HK only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. In addition, each of our subsidiaries in China is required to set aside at least 10% of its after-tax profits each year, if any, to fund a statutory reserve until such reserve reaches 50% of its registered capital. Each of such entity in China is also required to further set aside a portion of its after-tax profits to fund the employee welfare fund, although the amount to be set aside, if any, is determined at the discretion of its board of directors. Although the statutory reserves can be used, among other ways, to increase the registered capital and eliminate future losses in excess of retained earnings of the respective companies, the reserve funds are not distributable as cash dividends except in the event of liquidation.
The PRC government also imposes controls on the conversion of RMB into foreign currencies and the remittance of currencies out of the PRC. Therefore, we may experience difficulties in complying with the administrative requirements necessary to obtain and remit foreign currency for the payment of dividends from our profits, if any. Furthermore, if our subsidiaries and affiliates in the PRC incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments. If we or our subsidiaries are unable to receive all of the revenue from our operations, we may be unable to pay dividends on our ordinary shares.
Cash dividends, if any, on our ordinary shares will be paid in U.S. dollars. Universe HK may be considered a non-resident enterprise for tax purposes, so that any dividends our PRC subsidiaries pay to Universe HK may be regarded as China-sourced income and as a result may be subject to PRC withholding tax at a rate of up to 10%. See “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation.”
In order for us to pay dividends to our shareholders, we will rely on payments made from Universe Technology’s subsidiary, Jiangxi Universe, to Universe Technology and from Universe Technology to Universe HK and then to our Company. According to the EIT Law, such payments from subsidiaries to parent companies in China are subject to the PRC enterprise income tax at a rate of 25%. In addition, if Jiangxi Universe or its subsidiary or branches incur debt on their own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other distributions to us.
Pursuant to the Double Tax Avoidance Arrangement, the 10% withholding tax rate may be lowered to 5% if a Hong Kong resident enterprise owns no less than 25% of a PRC project. The 5% withholding tax rate, however, does not automatically apply and certain requirements must be satisfied, including without limitation that (a) the Hong Kong project must be the beneficial owner of the relevant dividends; and (b) the Hong Kong project must directly hold no less than 25% share ownership in the PRC project during the 12 consecutive months preceding its receipt of the dividends. In current practice, a Hong Kong project must obtain a tax resident certificate from the Hong Kong tax authority to apply for the 5% lower PRC withholding tax rate. As the Hong Kong tax authority will issue such a tax resident certificate on a case-by-case basis, we cannot assure you that we will be able to obtain the tax resident certificate from the relevant Hong Kong tax authority and enjoy the preferential withholding tax rate of 5% under the Double Taxation Arrangement with respect to any dividends paid by our PRC subsidiaries to its immediate holding company, Universe HK. As of the date of this annual report, we have not applied for the tax resident certificate from the relevant Hong Kong tax authority. Universe HK intends to apply for the tax resident certificate if and when Universe Technology plan to declare and pay dividends to Universe HK. See “Item 3. Key Information—D. Risk Factors— There are significant uncertainties under the Enterprise Income Tax Law, or the EIT Law, relating to the withholding tax liabilities of our PRC subsidiaries, and dividends payable by our PRC subsidiaries to our offshore subsidiaries may not qualify to enjoy certain treaty benefits.”
B. Significant Changes
Except as disclosed elsewhere in this annual report, we have not experienced any significant changes since the date of our audited consolidated financial statements included elsewhere in this annual report.
Item 9. THE OFFER AND LISTING
A. Offer and Listing Details.
Our ordinary shares were listed on the Nasdaq Global Market from March 23, 2021 to January 31, 2024, and have been listed on the Nasdaq Capital Market since February 1, 2024 under the symbol “UPC.”
B. Plan of Distribution
Not applicable.
C. Markets
Our ordinary shares were listed on the Nasdaq Global Market from March 23, 2021 to January 31, 2024, and have been listed on the Nasdaq Capital Market since February 1, 2024 under the symbol “UPC.”
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not applicable.
Item 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We are an exempted company incorporated under the laws of the Cayman Islands and our affairs are governed by our amended and restated memorandum and articles of association, as amended and restated from time to time, and Companies Act (As Revised) of the Cayman Islands, which we refer to as the Companies Act below, and the common law of the Cayman Islands.
We incorporate by reference into this annual report the description of our fourth amended and restated memorandum of association and our second amended and restated articles of association, which is filed as Exhibit 1.1 to this annual report on Form 20-F.
Registered Office
Our registered office in the Cayman Islands is located at Vistra (Cayman) Limited, P.O. Box 31119 Grand Pavilion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KYI – 1205 Cayman Islands, and the phone number of our registered office is +1-(345)769-9372.
Board of Directors
See “Item 6. Directors, Senior Management and Employees.”
Ordinary Shares
General
All of our issued and outstanding ordinary shares are fully paid and non-assessable. Our ordinary shares are issued in registered form, and are issued when registered in our register of members. Unless the board of directors determine otherwise, each holder of our ordinary shares will not receive a certificate in respect of such ordinary shares. Our shareholders who are non-residents of the Cayman Islands may freely hold and vote their ordinary shares. We may not issue shares or warrants to bearer.
Our authorized share capital is $140,625,000 divided into 11,250,000 ordinary shares, par value $11.25 per share and 1,250,000 preferred shares, par value $11.25 per share. Subject to the provisions of the Companies Act and our articles regarding redemption and purchase of the shares, the directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued shares to such persons, at such times and on such terms and conditions as they may decide. Such authority could be exercised by the directors to allot shares which carry rights and privileges that are preferential to the rights attaching to ordinary shares. No share may be issued at a discount except in accordance with the provisions of the Companies Act. The directors may refuse to accept any application for shares, and may accept any application in whole or in part, for any reason or for no reason.
Dividends
Subject to the provisions of the Companies Act and any rights attaching to any class or classes of shares under and in accordance with the articles:
| (a) | the directors may declare dividends or distributions out of our funds which are lawfully available for that purpose; and |
| (b) | the Company’s shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors. |
Subject to the requirements of the Companies Act regarding the application of a company’s share premium account and with the sanction of an ordinary resolution, dividends may also be declared and paid out of any share premium account. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
Unless provided by the rights attached to a share, no dividend shall bear interest.
Voting Rights
Subject to any rights or restrictions as to voting attached to any shares, unless any share carries special voting rights, on a show of hands every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote per ordinary share. On a poll, every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting of the holders of that class of shares. Votes may be given either personally or by proxy.
Variation of Rights of Shares
Whenever our capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class.
Alteration of Share Capital
Subject to the Companies Act, our shareholders may, by ordinary resolution:
| (a) | increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution; |
| (b) | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; |
| (c) | convert all or any of our paid up shares into stock, and reconvert that stock into paid up shares of any denomination; |
| (d) | sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and |
| (e) | cancel shares which, at the date of the passing of that ordinary resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled or, in the case of shares without nominal par value, diminish the number of shares into which our capital is divided. |
Subject to the Companies Act and to any rights for the time being conferred on the shareholders holding a particular class of shares, our shareholders may, by special resolution, reduce its share capital in any way.
Calls on Shares and Forfeiture
Subject to the terms of allotment, the directors may make calls on the shareholders in respect of any monies unpaid on their shares including any premium and each shareholder shall (subject to receiving at least 14 clear days’ notice specifying when and where payment is to be made), pay to us the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of ten percent per annum. The directors may, at their discretion, waive payment of the interest wholly or in part.
We have a first and paramount lien on all shares (whether fully paid up or not) registered in the name of a shareholder (whether solely or jointly with others). The lien is for all monies payable to us by the shareholder or the shareholder’s estate:
| (a) | either alone or jointly with any other person, whether or not that other person is a shareholder; and |
| (b) | whether or not those monies are presently payable. |
At any time the directors may declare any share to be wholly or partly exempt from the lien on shares provisions of the articles.
We may sell, in such manner as the directors may determine, any share on which the sum in respect of which the lien exists is presently payable, if due notice that such sum is payable has been given (as prescribed by the articles) and, within 14 days of the date on which the notice is deemed to be given under the articles, such notice has not been complied with.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the company.
Forfeiture or Surrender of Shares
If a shareholder fails to pay any capital call, the directors may give to such shareholder not less than 14 clear days’ notice requiring payment and specifying the amount unpaid including any interest which may have accrued, any expenses which have been incurred by us due to that person’s default and the place where payment is to be made. The notice shall also state the place where payment is to be made and contain a warning that if the notice is not complied with, the shares in respect of which the call is made will be liable to be forfeited.
If such notice is not complied with, the directors may, before the payment required by the notice has been received, resolve that any share the subject of that notice be forfeited (which forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before such forfeiture).
A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the directors determine and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the directors think fit.
A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding such forfeiture, remain liable to pay to us all monies which at the date of forfeiture were payable by him to us in respect of the shares, together with all expenses and interest from the date of forfeiture or surrender until payment, but his liability shall cease if and when we receive payment in full of the unpaid amount. The directors, however, may waive payment wholly or in part.
A declaration, whether statutory or under oath, made by a director or the secretary shall be conclusive evidence that the person making the declaration is our director or secretary and that the particular shares have been forfeited or surrendered on a particular date.
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the shares.
Share Premium Account
The directors shall establish a share premium account and shall carry the credit of such account from time to time to a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed or such other amounts required by the Companies Act.
Redemption and Purchase of Own Shares
Subject to the Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, we may by action of our directors:
| (a) | issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner our directors determine before the issue of those shares; | |
| (b) | with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and | |
| (c) | purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase. |
We may make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Transfer of Shares
Provided that a transfer of ordinary shares complies with applicable rules of Nasdaq, a shareholder may transfer ordinary shares to another person by completing an instrument of transfer in a common form or in a form prescribed by Nasdaq or in any other form approved by the directors, executed:
| (a) | where the ordinary shares are fully paid, by or on behalf of that shareholder; and |
| (b) | where the ordinary shares are partly paid, by or on behalf of that shareholder and the transferee. |
The transferor shall be deemed to remain the holder of an ordinary share until the name of the transferee is entered into the register of members of the Company.
Our board of directors may, in its absolute discretion, decline to register any transfer of any ordinary share that has not been fully paid up or is subject to a company lien. Our board of directors may also decline to register any transfer of such ordinary share unless:
| (a) | the instrument of transfer is lodged with the Company, accompanied by the certificate for the ordinary shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; |
| (b) | the instrument of transfer is in respect of only one class of shares; | |
| (c) | the instrument of transfer is properly stamped, if required; |
| (d) | the ordinary shares transferred is fully paid and free of any lien in favor of us; | |
| (e) | any fee related to the transfer has been paid to us; and | |
| (f) | the transfer is not to more than four joint holders. |
If our directors refuse to register a transfer, they are required, within three months after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.
This, however, is unlikely to affect market transactions of the ordinary shares purchased by investors in the public offering. The legal title to such ordinary shares and the registration details of those ordinary shares in the Company’s register of members will remain with Depository Trust Company (“DTC”). All market transactions with respect to those ordinary shares will then be carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the DTC systems.
The registration of transfers may, on 14 calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and our register of members closed at such times and for such periods as our board of directors may from time to time determine. The registration of transfers, however, may not be suspended, and the register may not be closed, for more than 30 days in any year.
Inspection of Books and Records
Holders of our ordinary shares will have no general right under the Companies Act to inspect or obtain copies of our register of members or our corporate records.
General Meetings
As a Cayman Islands exempted company, we are not obligated by the Companies Act to call shareholders’ annual general meetings; accordingly, we may, but shall not be obliged to, in each year hold a general meeting as an annual general meeting. Any annual general meeting held shall be held at such time and place as may be determined by our board of directors. All general meetings other than annual general meetings shall be called extraordinary general meetings.
The directors may convene general meetings whenever they think fit. General meetings shall also be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than ten percent of the rights to vote at such general meeting in accordance with the notice provisions in the articles, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than 21 clear days’ after the date of receipt of the written requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of 21 clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us.
At least 14 days’ notice of an extraordinary general meeting and 21 days’ notice of an annual general meeting shall be given to shareholders entitled to attend and vote at such meeting. The notice shall specify the place, the day and the hour of the meeting and the general nature of that business. In addition, if a resolution is proposed as a special resolution, the text of that resolution shall be given to all shareholders. Notice of every general meeting shall also be given to the directors and our auditors.
Subject to the Companies Act and with the consent of the shareholders who, individually or collectively, hold at least 90 percent of the voting rights of all those who have a right to vote at a general meeting, a general meeting may be convened on shorter notice.
A quorum shall consist of the presence (whether in person or represented by proxy) of one or more shareholders holding shares that represent not less than one-third of the outstanding shares carrying the right to vote at such general meeting.
If, within 15 minutes from the time appointed for the general meeting, or at any time during the meeting, a quorum is not present, the meeting, if convened upon the requisition of shareholders, shall be cancelled. In any other case it shall stand adjourned to the same time and place seven days or to such other time or place as is determined by the directors.
The chairman may, with the consent of a meeting at which a quorum is present, adjourn the meeting. When a meeting is adjourned for seven days or more, notice of the adjourned meeting shall be given in accordance with the articles.
At any general meeting a resolution put to the vote of the meeting shall be decided on a show of hands, unless a poll is (before, or on, the declaration of the result of the show of hands) demanded by the chairman of the meeting or by at least two shareholders having the right to vote on the resolutions or one or more shareholders present who together hold not less than ten percent of the voting rights of all those who are entitled to vote on the resolution. Unless a poll is so demanded, a declaration by the chairman as to the result of a resolution and an entry to that effect in the minutes of the meeting, shall be conclusive evidence of the outcome of a show of hands, without proof of the number or proportion of the votes recorded in favor of, or against, that resolution.
If a poll is duly demanded it shall be taken in such manner as the chairman directs and the result of the poll shall be deemed to be the resolution of the meeting at which the poll was demanded.
In the case of an equality of votes, whether on a show of hands or on a poll, the chairman of the meeting at which the show of hands takes place or at which the poll is demanded, shall not be entitled to a second or casting vote.
Directors
We may by ordinary resolution, from time to time, fix the maximum and minimum number of directors to be appointed. Under the articles, we are required to have a minimum of one director and the maximum number of directors shall be unlimited.
A director may be appointed by ordinary resolution or by the directors. Any appointment may be to fill a vacancy or as an additional director.
Unless the remuneration of the directors is determined by the shareholders by ordinary resolution, the directors shall be entitled to such remuneration as the directors may determine.
The shareholding qualification for directors may be fixed by our shareholders by ordinary resolution and unless and until so fixed no share qualification shall be required.
Unless removed or re-appointed, each director shall be appointed for a term expiring at the next-following annual general meeting, if one is held. At any annual general meeting held, our directors will be elected by an ordinary resolution of our shareholders. At each annual general meeting, each director so elected shall hold office for a one-year term and until the election of their respective successors in office or removed.
A director may be removed by ordinary resolution.
A director may at any time resign or retire from office by giving us notice in writing. Unless the notice specifies a different date, the director shall be deemed to have resigned on the date that the notice is delivered to us.
Subject to the provisions of the articles, the office of a director may be terminated forthwith if:
| (a) | he is prohibited by the law of the Cayman Islands from acting as a director; |
| (b) | he is made bankrupt or makes an arrangement or composition with his creditors generally; |
| (c) | he resigns his office by notice to us; |
| (d) | he only held office as a director for a fixed term and such term expires; |
| (e) | in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a director; |
| (f) | he is given notice by the majority of the other directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such director); |
| (g) | he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or |
| (h) | without the consent of the other directors, he is absent from meetings of directors for continuous period of six months. |
Each of the compensation committee and the nominating and corporate governance committee shall consist of at least three directors and the majority of the committee members shall be independent within the meaning of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market. The audit committee shall consist of at least three directors, all of whom shall be independent within the meaning of Rule 5605(a)(2) of the Listing Rules of the Nasdaq Stock Market and will meet the criteria for independence set forth in Rule 10A-3 or Rule 10C-1 of the Exchange Act.
Powers and Duties of Directors
Subject to the provisions of the Companies Act and our memorandum and articles of association, our business shall be managed by the directors, who may exercise all our powers. No prior act of the directors shall be invalidated by any subsequent alteration of our memorandum or articles of association. To the extent allowed by the Companies Act, however, shareholders may by special resolution validate any prior or future act of the directors which would otherwise be in breach of their duties.
The directors may delegate any of their powers to any committee consisting of one or more persons who need not be shareholders and may include non-directors so long as the majority of those persons are directors; any committee so formed shall in the exercise of the powers so delegated conform to any regulations that may be imposed on it by the directors. Our board of directors have established an audit committee, compensation committee, and nomination and corporate governance committee.
The board of directors may establish any local or divisional board of directors or agency and delegate to it its powers and authorities (with power to sub-delegate) for managing any of our affairs whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional board of directors, or to be managers or agents, and may fix their remuneration.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, either generally or in respect of any specific matter, to be our agent with or without authority for that person to delegate all or any of that person’s powers.
The directors may from time to time and at any time by power of attorney or in any other manner they determine appoint any person, whether nominated directly or indirectly by the directors, to be our attorney or our authorized signatory and for such period and subject to such conditions as they may think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the directors under the articles.
The board of directors may remove any person so appointed and may revoke or vary the delegation.
The directors may exercise all of our powers to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital or any part thereof, to issue debentures and other securities whether outright or as collateral security for any debt, liability or obligation of ours or our parent undertaking (if any) or any subsidiary undertaking of us or of any third party.
A director shall not, as a director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise than by virtue of his interests, direct or indirect, in shares or debentures or other securities of, or otherwise in or through, us) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to:
| (a) | the giving of any security, guarantee or indemnity in respect of: |
| (i) | money lent or obligations incurred by him or by any other person for our benefit or any of our subsidiaries; or |
| (ii) | a debt or obligation of ours or any of our subsidiaries for which the director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
| (b) | where we or any of our subsidiaries is offering securities in which offer the director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the director is to or may participate; |
| (c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one percent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to shareholders of the relevant body corporate; |
| (d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of us or any of our subsidiaries under which he is not accorded as a director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
| (e) | any matter connected with the purchase or maintenance for any director of insurance against any liability or (to the extent permitted by the Companies Act) indemnities in favor of directors, the funding of expenditure by one or more directors in defending proceedings against him or them or the doing of anything to enable such director or directors to avoid incurring such expenditure. |
A director may, as a director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or as described above.
Capitalization of Profits
The directors may resolve to capitalize:
| (a) | any part of our profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
| (b) | any sum standing to the credit of our share premium account or capital redemption reserve, if any. |
The amount resolved to be capitalized must be appropriated to the shareholders who would have been entitled to it had it been distributed by way of dividend and in the same proportions.
Liquidation Rights
If we are wound up, the shareholders may, subject to the articles and any other sanction required by the Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
| (a) | to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and |
| (b) | to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up. |
The directors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf without the sanction of a resolution passed at a general meeting.
Register of Members
Under the Companies Act, we must keep a register of members and there should be entered therein:
| ● | the names and addresses of our shareholders, a statement of the shares held by each shareholder, and of the amount paid or agreed to be considered as paid, on the shares of each shareholder; | |
| ● | the date on which the name of any person was entered on the register as a shareholder; and | |
| ● | the date on which any person ceased to be a shareholder. |
Under the Companies Act, the register of members of our company is prima facie evidence of the matters set out therein (that is, the register of members will raise a presumption of fact on the matters referred to above unless rebutted) and a shareholder registered in the register of members is deemed as a matter of the Companies Act to have legal title to the shares as set against its name in the register of members.
If the name of any person is incorrectly entered in or omitted from our register of members, or if there is any default or unnecessary delay in entering on the register the fact of any person having ceased to be a shareholder of our company, the person or shareholder aggrieved (or any shareholder of our company or our company itself) may apply to the Grand Court of the Cayman Islands for an order that the register be rectified, and the Court may either refuse such application or it may, if satisfied of the justice of the case, make an order for the rectification of the register.
Preferred Shares
The directors are empowered to designate and issue from time to time one or more classes or series of preference shares and to fix and determine the relative rights, preferences, designations, qualifications, privileges, options, conversion rights, limitations and other special or relative rights of each such class or series so authorized. Such action could adversely affect the voting power and other rights of the holders of our ordinary shares or could have the effect of discouraging any attempt by a person or group to obtain control of us.
As of the date of this annual report, no preferred shares are issued and outstanding.
C. Material Contracts
We have not entered into any material contracts other than in the ordinary course of business and other than those described in “Item 4. Information on the Company” or elsewhere in this annual report.
D. Exchange Controls
See “Item 4. Information on the Company—B. Business Overview—Regulations—Other Laws—Foreign Exchange Control.”
E. Taxation
People’s Republic of China Taxation
The following brief description of Chinese enterprise laws is designed to highlight the enterprise-level taxation on our earnings, which will affect the amount of dividends, if any, we are ultimately able to pay to our shareholders.
Enterprise Income Tax
According to the Enterprise Income Tax Law of the People’s Republic of China, or the EIT Law, which was promulgated by the SCNPC on March 16, 2007, and became effective on January 1, 2008, and then amended on February 24, 2017, and the Implementation Rules of the EIT Law, or the Implementation Rules, which were promulgated by the State Council on December 6, 2007, effective on January 1, 2008, and amended on April 23, 2019, enterprises are divided into resident enterprises and non-resident enterprises. Resident enterprises pay enterprise income tax on their incomes obtained in and outside the PRC at the rate of 25%. Non-resident enterprises setting up institutions in the PRC pay enterprise income tax on the incomes obtained by such institutions in and outside the PRC at the rate of 25%. Non-resident enterprises with no institutions in the PRC, and non-resident enterprises with income having no substantial connection with their institutions in the PRC, pay enterprise income tax on their income obtained in the PRC at a reduced rate of 10%.
We are an exempted company incorporated with limited liability in the Cayman Islands and we gain substantial income by way of dividends paid to us from our PRC subsidiaries, Universe Technology, Jiangxi Universe, and Universe Trade. The EIT Law and its implementation rules provide that China-sourced income of foreign enterprises, such as dividends paid by a PRC subsidiary to its equity holders that are non-resident enterprises, will normally be subject to PRC withholding tax at a rate of 10%, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with China that provides for a preferential tax rate or a tax exemption.
Under the EIT Law, an enterprise established outside of China with a “de facto management body” within China is considered a “resident enterprise,” which means that it is treated in a manner similar to a Chinese enterprise for enterprise income tax purposes. Although the implementation rules of the EIT Law define “de facto management body” as a managing body that actually, comprehensively manage and control the production and operation, staff, accounting, property and other aspects of an enterprise, the only official guidance for this definition currently available is set forth in SAT Notice 82, which provides guidance on the determination of the tax residence status of a Chinese-controlled offshore incorporated enterprise, defined as an enterprise that is incorporated under the laws of a foreign country or territory and that has a PRC enterprise or enterprise group as its primary controlling shareholder. Although the Company does not have a PRC enterprise or enterprise group as our primary controlling shareholder and is therefore not a Chinese-controlled offshore incorporated enterprise within the meaning of SAT Notice 82, in the absence of guidance specifically applicable to us, we have applied the guidance set forth in SAT Notice 82 to evaluate the tax residence status of the Company and its subsidiaries organized outside the PRC.
According to SAT Notice 82, a Chinese-controlled offshore incorporated enterprise will be regarded as a PRC tax resident by virtue of having a “de facto management body” in China and will be subject to PRC enterprise income tax on its worldwide income only if all of the following criteria are met: (i) the places where senior management and senior management departments that are responsible for daily production, operation and management of the enterprise perform their duties are mainly located within the territory of China; (ii) financial decisions (such as money borrowing, lending, financing and financial risk management) and personnel decisions (such as appointment, dismissal and salary and wages) are decided or need to be decided by organizations or persons located within the territory of China; (iii) main property, accounting books, corporate seal, the board of directors and files of the minutes of shareholders’ meetings of the enterprise are located or preserved within the territory of China; and (iv) one half (or more) of the directors or senior management staff having the right to vote habitually reside within the territory of China.
We believe that we do not meet some of the conditions outlined in the immediately preceding paragraph. For example, as a holding company, the key assets and records of the Company, including the resolutions and meeting minutes of our board of directors and the resolutions and meeting minutes of our shareholders, are located and maintained outside the PRC. In addition, we are not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities. Accordingly, we believe that the Company and its offshore subsidiaries should not be treated as a “resident enterprise” for PRC tax purposes if the criteria for “de facto management body” as set forth in SAT Notice 82 were deemed applicable to us. However, as the tax residency status of an enterprise is subject to determination by the PRC tax authorities and uncertainties remain with respect to the interpretation of the term “de facto management body” as applicable to our offshore entities, we will continue to monitor our tax status.
The implementation rules of the EIT law provides that, (i) if the enterprise that distributes dividends is domiciled in the PRC or (ii) if gains are realized from transferring equity interests of enterprises domiciled in the PRC, then such dividends or gains are treated as China-sourced income. It is not clear how “domicile” may be interpreted under the EIT Law, and it may be interpreted as the jurisdiction where the enterprise is a tax resident. Therefore, if we are considered as a PRC tax resident enterprise for PRC tax purposes, any dividends we pay to our overseas shareholders which are non-resident enterprises as well as gains realized by such shareholders from the transfer of our shares may be regarded as China-sourced income and as a result become subject to PRC withholding tax at a rate of up to 10%. AllBright Law Offices (Fuzhou), our PRC counsel, is unable to provide a “will” opinion because it believes that it is more likely than not that we and our offshore subsidiaries would be treated as non-resident enterprises for PRC tax purposes because we do not meet some of the conditions outlined in SAT Notice 82. In addition, AllBright Law Offices (Fuzhou) is not aware of any offshore holding companies with a corporate structure similar to ours that has been deemed a PRC “resident enterprise” by the PRC tax authorities as of the date of this annual report. Therefore, AllBright Law Offices (Fuzhou) believes that it is possible but highly unlikely that the income received by our overseas shareholders will be regarded as China-sourced income. See “Item 3. Key Information—Risk Factors—Risks Related to Doing Business in China—Under the EIT Law, we may be classified as a ‘Resident Enterprise’ of China. Such classification will likely result in unfavorable tax consequences to us and our non-PRC shareholders.”
Currently, as resident enterprises in the PRC, Universe Technology as well as Jiangxi Universe and its subsidiaries in PRC are subject to the enterprise income tax at the rate of 25%, except that once an enterprise meets certain requirements and is identified as a small-scale minimal profit enterprise, the part of its taxable income not more than RMB1 million is subject to a reduced rate of 5% and the part between RMB1 million and 3 million is subject to a reduced rate of 10%. The EIT is calculated based on the entity’s global income as determined under PRC tax laws and accounting standards. If the PRC tax authorities determine that Jiangxi Universe is a PRC resident enterprise for enterprise income tax purposes, we may be required to withhold a 10% withholding tax from dividends we pay to our shareholders that are non-resident enterprises. In addition, non-resident enterprise shareholders may be subject to a 10% PRC withholding tax on gains realized on the sale or other disposition of our ordinary shares, if such income is treated as sourced from within the PRC. It is unclear whether our non-PRC individual shareholders would be subject to any PRC tax on dividends or gains obtained by such non-PRC individual shareholders in the event we are determined to be a PRC resident enterprise. If any PRC tax were to apply to dividends or gains realized by non-PRC individuals, it would generally apply at a rate of 20% unless a reduced rate is available under an applicable tax treaty. However, it is also unclear whether our non-PRC shareholders would be able to claim the benefits of any tax treaties between their country of tax residence and the PRC in the event that we are treated as a PRC resident enterprise. There is no guidance from the PRC government to indicate whether or not any tax treaties between the PRC and other countries would apply in circumstances where a non-PRC company was deemed to be a PRC tax resident, and thus there is no basis for expecting how tax treaty between the PRC and other countries may impact non-resident enterprises.
Value-added Tax
Pursuant to the Provisional Regulations on Value-Added Tax of the PRC (《中华人民共和国增值税暂行条例》), or the VAT Regulations, which were promulgated by the State Council on December 13, 1993, and amended on November 10, 2008, February 6, 2016, and November 19, 2017, respectively, and the Implementation Rules of the Provisional Regulations on Value Added Tax of the PRC (《中华人民共和国增值税暂行条例实施细则》) promulgated by the MOF on December 25, 1993 and amended on December 15, 2008 and October 28, 2011, respectively, entities and individuals that sell goods or labor services of processing, repair or replacement, sell services, intangible assets, or immovables, or import goods within the territory of the People’s Republic of China are taxpayers of value-added tax. The VAT rate is 17% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise specified; 11% for taxpayers selling goods, labor services, or tangible movable property leasing services or importing goods, except otherwise specified; 6% for taxpayers selling services or intangible assets.
According to Provisions in the Notice on Adjusting the Value added Tax Rates (Cai Shui [2018] No. 32), or the Notice, issued by the SAT and the MOF, where taxpayers make VAT taxable sales or import goods, the applicable tax rates shall be adjusted from 17% to 16% and from 11% to 10%, respectively. The Notice took effect on May 1, 2018, and the adjusted VAT rates took effect at the same time.
On March 23, 2016, the MOF and the SAT jointly issued the Circular of Full Implementation of Business Tax to VAT Reform (the “Circular 36”) (《关于全面推开营业税改征增值税试点的通知》), which confirms that business tax will be completely replaced by VAT from May 1, 2016. The Notice of the MOF and the SAT on the Adjustment to VAT Rates (《关于调整增值税税率的通知》), promulgated on April 4, 2018 and effective as of May 1, 2018, adjusted the applicative rate of VAT. The deduction rates of 17% and 11% applicable to the taxpayers who have VAT taxable sales activities or imported goods are adjusted to 16% and 10%, respectively. For the export goods to which a tax rate of 17% was originally applicable and the export rebate rate was 17%, the export rebate rate is adjusted to 16%. For the export goods and cross-border taxable activities to which a tax rate of 11% was originally applicable and the export rebate rate was 11%, the export rebate rate is adjusted to 10%. Pursuant to such circular, the Value Added Tax Pilot Program has been applicable nationwide since May 1, 2016.
Subsequently, the Notice on Policies for Deepening Reform of Value-added Tax was issued by the SAT, the MOF and the General Administration of Customs on March 30, 2019 and took effective on April 1, 2019, which further adjusted the applicable tax rate for taxpayers making VAT taxable sales or importing goods. The applicable tax rates shall be adjusted from 16% to 13% and from 10% to 9%, respectively.
According to the VAT Regulations and the related rules, as of the date of this annual report, as taxpayers selling goods, Jiangxi Universe and its consolidated affiliated entities are generally subject to 13% VAT rate.
Dividend Withholding Tax
Pursuant to the Arrangement between Mainland China and Hong Kong for the Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income (《内地和香港特别行政区关于所得税避免双重征税和防止偷税漏税的安排》) effective on August 21, 2006, no more than 5% withholding tax rate applies to dividends paid by a PRC company to a Hong Kong resident, provided that the recipient is a company that holds at least 25% of the capital of the PRC company. The 10% withholding tax rate applies to dividends paid by a PRC company to a Hong Kong resident if the recipient is a company that holds less than 25% of the capital of the PRC company.
Furthermore, pursuant to the Notice of the SAT on Issues Relating to the Implementation of Dividend Clauses in Tax Treaties (Guo Shui Han [2009] No.81) (《国家税务总局关于执行税收协定股息条款有关问题的通知》（国税函[2009] 81号）), which was promulgated and effective on February 20, 2009, all of the following requirements should be satisfied where a fiscal resident of the other party to the tax agreement needs to be entitled to such tax agreement treatment as being taxed at a tax rate specified in the tax agreement for the dividends paid to it by a PRC resident company: (1) such a fiscal resident who obtains dividends should be a company as provided in the tax agreement; (2) owner’s equity interests and voting shares of the PRC resident company directly owned by such a fiscal resident reaches a specified percentage; and (3) the equity interests of the PRC resident company directly owned by such a fiscal resident, at any time during the 12 months prior to the acquisition of the dividends, reaches a percentage specified in the tax agreement.
In addition, according to the Administrative Measures on Non-resident Taxpayers Enjoying Treaty Benefits (《非居民纳税人享受协定待遇管理办法》) promulgated by the SAT on October 14, 2019 and became effective on January 1, 2020, non-resident taxpayers claiming treaty benefits shall adhere to the principle of “self-assessment, claiming benefits, retention of the relevant materials for future inspection.” Where a non-resident taxpayer self-assesses and concludes that it satisfies the criteria for claiming treaty benefits, it may enjoy treaty benefits at the time of tax declaration or withholding. However such non-resident taxpayers shall retain relevant tax-reporting materials pursuant to the provisions of these Measures for potential future inspection, and accept follow-up administration by relevant tax authorities.
As of the date of this annual report, when considered as a non-PRC resident investor, which is much more likely to happen than not, Universe HK shall be subject to the dividend withholding tax at the rate of 10%. Upon identified as the Hong Kong resident enterprise stipulated by the Double Tax Avoidance Arrangement and other applicable laws, the withholding tax may be reduced to 5%.
Hong Kong Taxation
The following summary of certain relevant taxation provisions under the laws of Hong Kong is based on current law and practice and is subject to changes therein. This summary does not purport to address all possible tax consequences relating to purchasing, holding or selling the ordinary shares, and does not take into account the specific circumstances of any particular investors, some of whom may be subject to special rules. Accordingly, holders or prospective purchasers (particularly those subject to special tax rules, such as banks, dealers, insurance companies and tax-exempt entities) should consult their own tax advisors regarding the tax consequences of purchasing, holding or selling the Ordinary Shares. Under the current laws of Hong Kong:
| ● | No profit tax is imposed in Hong Kong in respect of capital gains from the sale of the ordinary shares. | |
| ● | Revenue gains from the sale of ordinary shares by persons carrying on a trade, profession or business in Hong Kong where the gains are derived from or arise in Hong Kong from the trade, profession or business will be chargeable to Hong Kong profits tax, which is currently imposed at the rate of 16.5% on corporations and at a maximum rate of 15% on individuals and unincorporated businesses. | |
| ● | Gains arising from the sale of ordinary Shares, where the purchases and sales of ordinary shares are effected outside of Hong Kong such as, for example, on the Nasdaq, should not be subject to Hong Kong profits tax. |
According to the current tax practice of the Hong Kong Inland Revenue Department, dividends paid on the ordinary shares would not be subject to any Hong Kong tax.
No Hong Kong stamp duty is payable on the purchase and sale of the ordinary shares.
United States Federal Income Taxation
The following brief summary does not address the tax consequences to any particular investor or to persons in special tax situations such as:
| ● | banks; | |
| ● | financial institutions; | |
| ● | insurance companies; | |
| ● | regulated investment companies; | |
| ● | real estate investment trusts; | |
| ● | broker-dealers; | |
| ● | persons that elect to mark their securities to market; | |
| ● | U.S. expatriates or former long-term residents of the U.S.; | |
| ● | governments or agencies or instrumentalities thereof; | |
| ● | tax-exempt entities; | |
| ● | persons liable for alternative minimum tax; | |
| ● | persons holding our ordinary shares as part of a straddle, hedging, conversion or integrated transaction; | |
| ● | persons that actually or constructively own 10% or more of our voting power or value (including by reason of owning our ordinary shares); | |
| ● | persons who acquired our ordinary shares pursuant to the exercise of any employee share option or otherwise as compensation; | |
| ● | persons holding our ordinary shares through partnerships or other pass-through entities; | |
| ● | beneficiaries of a trust holding our ordinary shares; or | |
| ● | persons holding our ordinary shares through a trust. |
The brief discussion set forth below is addressed only to U.S. Holders (defined below) that purchased our ordinary shares. Purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign, and other tax consequences to them of the purchase, ownership, and disposition of our ordinary shares.
Material U.S. Federal Tax Consequences Applicable to U.S. Holders of Our Ordinary Shares
The following brief summary sets forth the material U.S. federal income tax consequences related to the ownership and disposition of our ordinary shares. It is directed to U.S. Holders (as defined below) of our ordinary shares and is based upon laws and relevant interpretations thereof in effect as of the date of this annual report, all of which are subject to change. This brief summary description does not deal with all possible tax consequences relating to ownership and disposition of our ordinary shares or U.S. tax laws, other than the U.S. federal income tax laws, such as the tax consequences under non-U.S. tax laws, state, local, and other tax laws.
The following brief description applies only to U.S. Holders (defined below) that hold ordinary shares as capital assets and that have the U.S. dollar as their functional currency. This brief description is based on the federal income tax laws of the United States in effect as of the date of this annual report and on U.S. Treasury regulations in effect or, in some cases, proposed, as of the date of this annual report, as well as judicial and administrative interpretations thereof available on or before such date. All of the foregoing authorities are subject to change, which change could apply retroactively and could affect the tax consequences described below.
The brief description below of the U.S. federal income tax consequences to “U.S. Holders” will apply to you if you are a beneficial owner of ordinary shares and you are, for U.S. federal income tax purposes,
| ● | an individual who is a citizen or resident of the United States; | |
| ● | a corporation (or other entity taxable as a corporation for U.S. federal income tax purposes) organized under the laws of the United States, any state thereof or the District of Columbia; | |
| ● | an estate whose income is subject to U.S. federal income taxation regardless of its source; or | |
| ● |
a trust that (1) is subject to the primary supervision of a court within the United States and the control of one or more U.S. persons for all substantial decisions or (2) has a valid election in effect under applicable U.S. Treasury regulations to be treated as a U.S. person.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our ordinary shares are urged to consult their tax advisors regarding an investment in our ordinary shares. |
Taxation of Dividends and Other Distributions on Our Ordinary Shares
Subject to the PFIC rules discussed below, the gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations. There were no cash dividends paid during the years ended September 30, 2024, 2023 and 2022.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a PFIC for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the ordinary shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, ordinary shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on certain exchanges, which presently includes the NYSE and the Nasdaq Stock Market. Our ordinary shares have been listed on the Nasdaq Stock Market since March 23, 2021 under the symbol “UPC.” You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares, including the effects of any change in law after the date of this annual report.
Dividends will constitute foreign source income for foreign tax credit limitation purposes. If the dividends are taxed as qualified dividend income (as discussed above), the amount of the dividend taken into account for purposes of calculating the foreign tax credit limitation will be limited to the gross amount of the dividend, multiplied by the reduced rate divided by the highest rate of tax normally applicable to dividends. The limitation on foreign taxes eligible for credit is calculated separately with respect to specific classes of income. For this purpose, dividends distributed by us with respect to our ordinary shares will constitute “passive category income” but could, in the case of certain U.S. Holders, constitute “general category income.”
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Ordinary Shares
Subject to the PFIC rules discussed below, you will recognize taxable gain or loss on any sale, exchange, or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you will generally be eligible for reduced tax rates. The deductibility of capital losses is subject to limitations. Any such gain or loss that you recognize will generally be treated as United States source income or loss for foreign tax credit limitation purposes which will generally limit the availability of foreign tax credits.
Passive Foreign Investment Company (PFIC) Consequences
A non-U.S. corporation is considered a PFIC, as defined in Section 1297(a) of the U.S. Internal Revenue Code, for any taxable year if either:
| ● | at least 75% of its gross income for such taxable year is passive income; or | |
| ● | at least 50% of the value of its assets (based on an average of the quarterly values of the assets during a taxable year) is attributable to assets that produce or are held for the production of passive income (the “asset test”). |
Passive income generally includes dividends, interest, rents and royalties (other than rents or royalties derived from the active conduct of a trade or business), and gains from the disposition of passive assets. We will be treated as owning our proportionate share of the assets and earning our proportionate share of the income of any other corporation in which we own, directly or indirectly, at least 25% (by value) of the stock. In determining the value and composition of our assets for purposes of the PFIC asset test, the value of our assets must be determined based on the market value of our ordinary shares from time to time, which could cause the value of our non-passive assets to be less than 50% of the value of all of our assets on any particular quarterly testing date for purposes of the asset test.
Based on our operations and the composition of our assets, we are not a PFIC this fiscal year ended, under the current PFIC rules. We must make a separate determination each year as to whether we are a PFIC, however, and there can be no assurance with respect to our status as a PFIC for any future taxable years. Depending on the amount of assets held for the production of passive income, it is possible that, for any subsequent taxable year, more than 50% of our assets may be assets held for the production of passive income. We will make this determination following the end of any particular tax year. In addition, because the value of our assets for purposes of the asset test will generally be determined based on the market price of our ordinary shares, our PFIC status will depend in large part on the market price of our ordinary shares. Accordingly, fluctuations in the market price of the ordinary shares may cause us to become a PFIC. In addition, the application of the PFIC rules is subject to uncertainty in several respects and the composition of our income and assets will be affected by how, and how quickly, we spend our liquid assets. We are under no obligation to take steps to reduce the risk of our being classified as a PFIC, and as stated above, the determination of the value of our assets will depend upon material facts (including the market price of our ordinary shares from time to time) that may not be within our control. If we are a PFIC for any year during which you hold ordinary shares, we will continue to be treated as a PFIC for all succeeding years during which you hold ordinary shares. If we cease to be a PFIC and you did not previously make a timely “mark-to-market” election as described below, you may avoid some of the adverse effects of the PFIC regime by making a “purging election” (as described below) with respect to the ordinary shares.
If we are a PFIC for your taxable year(s) during which you hold ordinary shares, you will be subject to special tax rules with respect to any “excess distribution” that you receive and any gain you realize from a sale or other disposition (including a pledge) of the ordinary shares, unless you make a “mark-to-market” election as discussed below. Distributions you receive in a taxable year that are greater than 125% of the average annual distributions you received during the shorter of the three preceding taxable years or your holding period for the ordinary shares will be treated as an excess distribution. Under these special tax rules:
| ● | the excess distribution or gain will be allocated ratably over your holding period for the ordinary shares; | |
| ● | the amount allocated to your current taxable year, and any amount allocated to any of your taxable year(s) prior to the first taxable year in which we were a PFIC, will be treated as ordinary income, and | |
| ● | the amount allocated to each of your other taxable year(s) will be subject to the highest tax rate in effect for that year and the interest charge generally applicable to underpayments of tax will be imposed on the resulting tax attributable to each such year. |
The tax liability for amounts allocated to years prior to the year of disposition or “excess distribution” cannot be offset by any net operating losses for such years, and gains (but not losses) realized on the sale of the ordinary shares cannot be treated as capital, even if you hold the ordinary shares as capital assets.
A U.S. Holder of “marketable stock” (as defined below) in a PFIC may make a mark-to-market election under Section 1296 of the US Internal Revenue Code for such stock to elect out of the tax treatment discussed above. If you make a mark-to-market election for first taxable year which you hold (or are deemed to hold) ordinary shares and for which we are determined to be a PFIC, you will include in your income each year an amount equal to the excess, if any, of the fair market value of the ordinary shares as of the close of such taxable year over your adjusted basis in such ordinary shares, which excess will be treated as ordinary income and not capital gain. You are allowed an ordinary loss for the excess, if any, of the adjusted basis of the ordinary shares over their fair market value as of the close of the taxable year. Such ordinary loss, however, is allowable only to the extent of any net mark-to-market gains on the ordinary shares included in your income for prior taxable years. Amounts included in your income under a mark-to-market election, as well as gain on the actual sale or other disposition of the ordinary shares, are treated as ordinary income. Ordinary loss treatment also applies to any loss realized on the actual sale or disposition of the ordinary shares, to the extent that the amount of such loss does not exceed the net mark-to-market gains previously included for such ordinary shares. Your basis in the ordinary shares will be adjusted to reflect any such income or loss amounts. If you make a valid mark-to-market election, the tax rules that apply to distributions by corporations which are not PFICs would apply to distributions by us, except that the lower applicable capital gains rate for qualified dividend income discussed above under “—Taxation of Dividends and Other Distributions on our Ordinary Shares” generally would not apply.
The mark-to-market election is available only for “marketable stock,” which is stock that is traded in other than de minimis quantities on at least 15 days during each calendar quarter (“regularly traded”) on a qualified exchange or other market (as defined in applicable U.S. Treasury regulations), including the Nasdaq Capital Market. If the ordinary shares continue to be regularly traded on the Nasdaq Capital Market and if you are a holder of ordinary shares, the mark-to-market election would be available to you were we to be or become a PFIC. Our ordinary shares have been listed on the Nasdaq Global Market from March 23, 2021 to January 31, 2024 and since February 1, 2024 under the symbol “UPC.”
Alternatively, a U.S. Holder of stock in a PFIC may make a “qualified electing fund” election under Section 1295(b) of the US Internal Revenue Code with respect to such PFIC to elect out of the tax treatment discussed above. A U.S. Holder who makes a valid qualified electing fund election with respect to a PFIC will generally include in gross income for a taxable year such holder’s pro rata share of the corporation’s earnings and profits for the taxable year. The qualified electing fund election, however, is available only if such PFIC provides such U.S. Holder with certain information regarding its earnings and profits as required under applicable U.S. Treasury regulations. We do not currently intend to prepare or provide the information that would enable you to make a qualified electing fund election. If you hold ordinary shares in any taxable year in which we are a PFIC, you will be required to file U.S. Internal Revenue Service Form 8621 in each such year and provide certain annual information regarding such ordinary shares, including regarding distributions received on the ordinary shares and any gain realized on the disposition of the ordinary shares.
If you do not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period you hold our ordinary shares, then such ordinary shares will continue to be treated as stock of a PFIC with respect to you even if we cease to be a PFIC in a future year, unless you make a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ordinary shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, you will have a new basis (equal to the fair market value of the ordinary shares on the last day of the last year in which we are treated as a PFIC) and holding period (which new holding period will begin the day after such last day) in your ordinary shares for tax purposes.
IRC Section 1014(a) provides for a step-up in basis to the fair market value for our ordinary shares when inherited from a decedent that was previously a holder of our ordinary shares. However, if we are determined to be a PFIC and a decedent that was a U.S. Holder did not make either a timely qualified electing fund election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) our ordinary shares, or a mark-to-market election and ownership of those ordinary shares are inherited, a special provision in IRC Section 1291(e) provides that the new U.S. Holder’s basis should be reduced by an amount equal to the Section 1014 basis minus the decedent’s adjusted basis just before death. As such if we are determined to be a PFIC at any time prior to a decedent’s passing, the PFIC rules will cause any new U.S. Holder that inherits our ordinary shares from a U.S. Holder to not get a step-up in basis under Section 1014 and instead will receive a carryover basis in those ordinary shares.
You are urged to consult your tax advisors regarding the application of the PFIC rules to your investment in our ordinary shares and the elections discussed above.
Information Reporting and Backup Withholding
Dividend payments with respect to our ordinary shares and proceeds from the sale, exchange, or redemption of our ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding under Section 3406 of the U.S. Internal Revenue Code with at a current flat rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. Transactions effected through certain brokers or other intermediaries, however, may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary shares.
F. Dividends and Paying Agents We are subject to the periodic reporting and other informational requirements of the Exchange Act.
Not applicable.
G. Statement by Experts
Not applicable.
H. Documents on Display
Under the Exchange Act, we are required to file reports and other information with the SEC. Specifically, we are required to file annually a Form 20-F within four months after the end of each fiscal year. The SEC maintains a website at http://www.sec.gov that contains reports, proxy and information statements, and other information regarding registrants that make electronic filings with the SEC using its EDGAR system. As a foreign private issuer, we are exempt from the rules of the Exchange Act prescribing, among other things, the furnishing and content of proxy statements to shareholders, and our executive officers, directors and principal shareholders are exempt from the reporting and short-swing profit recovery provisions contained in Section 16 of the Exchange Act.
I. Subsidiary Information
Not applicable.
J. Annual Report to Security Holders
Not applicable.
Item 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Exchange Risk
Substantially all of our revenues are denominated in Renminbi. The Renminbi is not freely convertible into foreign currencies for capital account transactions. The value of the Renminbi against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions and China’s foreign exchange policies. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar, and the Renminbi appreciated more than 20% against the U.S. dollar over the following three years. Between July 2008 and June 2010, this appreciation halted and the exchange rate between the Renminbi and the U.S. dollar remained within a narrow band. Since June 2010, the Renminbi has fluctuated against the U.S. dollar, at times significantly and unpredictably. It is difficult to predict how market forces or PRC or U.S. government policy may impact the exchange rate between the Renminbi and the U.S. dollar in the future.
To date, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign currency exchange risk. To the extent that we need to convert U.S. dollars we received from our offerings into Renminbi for our operations or capital expenditures, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. Conversely, if we decide to convert our Renminbi into U.S. dollars for the purpose of making payments for dividends on our ordinary shares or for other business purposes, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us.
As of September 30, 2024 and 2023, we had U.S. dollar-denominated cash and cash equivalents of US$29.5 million and US$5.3 million, respectively. A 10% depreciation of U.S. dollar against the Renminbi based on the foreign exchange rate on September 30, 2024 would result in a decrease of RMB17.6 million in cash and cash equivalents. A 10% appreciation of U.S. dollar against the Renminbi based on the foreign exchange rate on September 30, 2024 would result in an increase of RMB17.6 million in cash and cash equivalents.
Credit Risk
Accounts receivable are typically unsecured and derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by our assessment of its customers’ creditworthiness and its ongoing monitoring of outstanding balances.
Interest Rate Risk
We have not used derivative financial instruments to hedge interest rate risk. Interest-earning instruments carry a degree of interest rate risk. We have not been exposed, nor do we anticipate being exposed to material risks due to changes in market interest rates. However, our future interest income may fall short of expectations due to changes in market interest rates.
Inflation Risk
In recent years, inflation has not had a material impact on our results of operations. According to the National Bureau of Statistics of China, the consumer price index in China increased by 2.0%, 0.2% and 0.2% in 2022, 2023 and 2024, respectively. Although we have not in the past been materially affected by inflation since our inception, we can provide no assurance that we will not be affected in the future by higher rates of inflation in China. If inflation rises, it may materially and adversely affect our business.
Item 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
A. Debt Securities
Not applicable.
B. Warrants and Rights
Not applicable.
C. Other Securities
Not applicable.
D. American Depositary Shares
Not applicable.
Part II
Item 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
Item 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
See “Item 10. Additional Information” for a description of the rights of securities holders, which remain unchanged.
Use of Proceeds
In connection with our initial public offering, we issued and sold an aggregate of 5,750,000 ordinary shares, at a price of $5.00 per share with gross proceeds of $28.75 million. Univest Securities, LLC was the underwriter of our initial public offering. We incurred approximately $2,953,114 in expenses in connection with our initial public offering and $178,758 in expenses in connection with the issuance of overallotment shares. None of the transaction expenses included payments to directors or officers of our company or their associates, persons owning more than 10% or more of our equity securities or our affiliates. None of the net proceeds we received from the initial public offering were paid, directly or indirectly, to any of our directors or officers or their associates, persons owning 10% or more of our equity securities or our affiliates.
The net proceeds raised from the initial public offering were $25,618,128 after deducting underwriting discounts and the offering expenses payable by us. For the period from the effectiveness of the registration statement on Form F-1 to September 30, 2024, we used approximately US$7.0 million for research and development purposes, approximately US$6.75 million for upgrading and expanding our manufacturing facilities, and approximately US$6.0 million for brand marketing. We still intend to use the remaining proceeds from our initial public offering in the manner disclosed in our registration statement on Form F-1, as amended (File Number 333-248067). For the period from October 1, 2024 to the date of this annual report, US$280,000 were used for advertising purposes.
On July 15, 2024, we closed our self-underwritten public offering of 20,000,000 ordinary shares. The ordinary shares were priced at $1.25 per share. The Company raised net proceeds of $24.625 million through that offering. For the period from the closing of that offering to September 30, 2024, we did not use any net proceeds received from that offering. As of the date of this annual report, approximately US$2.10 million were used for working capital expenses, approximately $1.44 million were used for upgrading and expanding our manufacturing facilities, and US$0.26 million were used for advertising purposes.
Item 15. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
Our management, with the participation of our chief executive officer and chief financial officer, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act.
Based upon this evaluation, our management has concluded that, as of September 30, 2024, our existing disclosure controls and procedures were ineffective because of a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements in accordance with U.S. GAAP and includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of a company’s assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of consolidated financial statements in accordance with generally accepted accounting principles, and that a company’s receipts and expenditures are being made only in accordance with authorizations of a company’s management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of a company’s assets that could have a material effect on the consolidated financial statements.
Our management, with the participation of our chief executive officer and chief financial officer, conducted an evaluation of the effectiveness of our Company’s internal control over financial reporting as of September 30, 2024 based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO 2013 Framework). Based on this evaluation, we identified one deficiency, which related to a lack of accounting staff and resources with appropriate knowledge of U.S. GAAP and SEC reporting and compliance requirements, and which we believe to be a material weakness as of September 30, 2024.
As a result of the above material weakness, management has concluded that our internal control over financial reporting was not effective as of September 30, 2024. To remedy our identified material weakness as of September 30, 2024, we have undertaken the remedial steps and also plan to adopt certain measures to improve our internal control over financial reporting as set forth below.
Remediation plan of the Material Weakness in Internal Control over Financial Reporting Reported as of September 30, 2024
As of the date of this annual report, we have not fully addressed the above-referenced weakness. However, we have made progress in implementing remedial measures, including:
| (i) | recruiting qualified accounting personnel with relevant U.S. GAAP and SEC reporting experience and qualifications to strengthen the financial reporting function and to set up a financial and system control framework. Since very few companies in Ji’an, Jiangxi Province, the area in which our main PRC operating subsidiaries are located, have sought public listing on a U.S. exchange, we have difficulty identifying qualified accounting candidates with U.S. GAAP experience and expertise. We plan to search for qualified personnel in other regions of China; and |
| (ii) | implementing regular and continuous U.S. GAAP accounting and financial reporting training programs for our accounting and financial reporting personnel. |
Attestation Report of the Registered Public Accounting Firm
This annual report on Form 20-F does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the SEC where domestic and foreign registrants that are non-accelerated filers, which we are, and “emerging growth companies,” which we also are, are not required to provide the auditor attestation report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal controls over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Item 16. [RESERVED]
Item 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Mr. Ding Zheng qualifies as an “audit committee financial expert” as defined in Item 16A of Form 20-F. Mr. Ding Zheng satisfies the “independence” requirements of Section 5605(a)(2) of the Nasdaq Listing Rules as well as the independence requirements of Rule 10A-3 under the Exchange Act.
Item 16B. CODE OF ETHICS
Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers, and employees. Our code of business conduct and ethics is publicly available on our website.
Item 16C. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered and billed by Enrome LLP and YCM CPA INC., our independent registered public accounting firms for the periods indicated.
Enrome LLP
| For the Fiscal Years Ended September 30, |
||||||||
| 2023 | 2024 | |||||||
| Audit fees (1) | $ | 270,000 | $ | 160,000 | ||||
| Audit-related fees (2) | - | - | ||||||
| Tax fees (3) | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 270,000 | $ | 160,000 | ||||
| (1) | Audit fees include the aggregate fees billed for each of the fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements or for the audits of our financial statements and review of the interim financial statements. |
| (2) | Audit related fees include the aggregate fees billed for related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under audit fees. |
| (3) | Tax fees represent the aggregated fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning. |
YCM CPA INC.
| For the Fiscal Years Ended September 30, |
||||||||
| 2023 | 2024 | |||||||
| Audit fees (1) | $ | 265,000 | $ | - | ||||
| Audit-related fees (2) | - | - | ||||||
| Tax fees (3) | - | - | ||||||
| All other fees | - | - | ||||||
| Total | $ | 265,000 | $ | - | ||||
| (1) | Audit fees include the aggregate fees billed for each of the fiscal years for professional services rendered by our independent registered public accounting firm for the audit of our annual financial statements or for the audits of our financial statements and review of the interim financial statements. |
| (2) | Audit related fees include the aggregate fees billed for related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under audit fees. |
| (3) | Tax fees represent the aggregated fees billed for professional services rendered by our independent registered public accounting firm for tax compliance, tax advice, and tax planning. |
The audit committee of our board of directors has established its pre-approval policies and procedures, pursuant to which the audit committee approved the foregoing audit, tax and non-audit services provided by our independent auditors in fiscal years 2023 and 2024. Consistent with our audit committee’s responsibility for engaging our independent auditors, all audit and permitted non-audit services require pre-approval by the audit committee. The full audit committee approves proposed services and fee estimates for these services. One or more independent directors serving on the audit committee may be delegated by the full audit committee to pre-approve any audit and non-audit services. Any such delegation shall be presented to the full audit committee at its next scheduled meeting. Pursuant to these procedures, the audit committee approved the foregoing audit services provided by our independent auditors.
Item 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
Item 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
Item 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT
On October 8, 2024, the Company dismissed YCM CPA INC, the former independent registered public accounting firm. The termination of auditor relationship was disclosed in a Form 6-K dated October 10, 2024. The Company believes that the termination was not the result of any disagreement between the Company and YCM CPA INC.
On October 8, 2024, the Company, following approval by the audit committee, appointed Enrome LLP as its independent public accounting firm. The appointment of auditor was disclosed in a Form 6-K dated October 10, 2024.
During each of the years ended September 30, 2023 and 2022 and the subsequent interim period through October 10, 2024, neither the Company nor anyone on behalf of the Company consulted Enrome LLP regarding (i) the application of accounting principles to a specific transaction, either completed or proposed, or the type of audit opinion that might be rendered on our consolidated financial statements, and neither a written report nor oral advice was provided to us that Enrome LLP concluded was an important factor considered by us in reaching a decision as to any accounting, auditing, or financial reporting issue, (ii) any matter that was the subject of a disagreement pursuant to Item 16F(a)(1)(iv) of Form 20-F, or (iii) any reportable event pursuant to Item 16F(a)(1)(v) of Form 20-F.
Item 16G. CORPORATE GOVERNANCE
As a Cayman Islands company listed on the Nasdaq Capital Market, we are subject to the Nasdaq corporate governance listing standards. Nasdaq rules, however, permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our home country, may differ significantly from the Nasdaq corporate governance listing standards.
Nasdaq Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on Nasdaq prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, Nasdaq Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The Companies Act does not require shareholder approval prior to any of the foregoing types of issuances. We, therefore, are not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. Specifically, our board of directors has elected to follow our home country rules and be exempt from the requirements to obtain shareholder approval for the issuance of 20% or more of our outstanding ordinary shares under Nasdaq Listing Rule 5635(d).
Nasdaq Listing Rule 5605(b)(1) requires listed companies to have, among other things, a majority of its board members be independent. As a foreign private issuer, however, we are permitted to follow home country practice in lieu of the above requirements. The corporate governance practice in our home country, the Cayman Islands, does not require a majority of our board to consist of independent directors. Currently, a majority of our board members are independent. However, if we change our board composition such that independent directors do not constitute a majority of our board of directors, our shareholders may be afforded less protection than they would otherwise enjoy under Nasdaq’s corporate governance requirements applicable to U.S. domestic issuers. See “Item 3. Key Information—D. Risk Factors—Risks Related to Our Ordinary Shares— As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.”
Other than those described above, there are no significant differences between our corporate governance practices and those followed by U.S. domestic companies under Nasdaq corporate governance listing standards.
Item 16H. MINE SAFETY DISCLOSURE
Not applicable.
Item 16I. DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS.
Not applicable.
Item 16J. INSIDER TRADING POLICIES.
We have adopted insider trading policies governing the purchase, sale, and other dispositions of our securities by directors, senior management, and employees. A copy of the insider trading policies is filed as an exhibit to this annual report.
Item 16K. CYBERSECURITY.
We have established cybersecurity risk management to identify, assess, and mitigate cybersecurity risks alongside other business risks. The process is in alignment with our strategic objectives and risk appetite. We may engage assessors, consultants, auditors, or other third parties to enhance our cyber security risk management processes. Any cybersecurity incidents are closely monitored for their potential impact on our business strategy, operations, and financial condition. As of the date of this annual report, we have not experienced any cybersecurity incidents that have materially affected or are reasonably likely to materially affect us, including our business strategy, results of operations, or financial condition. We continuously adapt our business strategy to enhance resilience, strengthen defenses and ensure the sustainability of our operations.
Part III
Item 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
Item 18. FINANCIAL STATEMENTS
The consolidated financial statements of Universe Pharmaceuticals INC and its subsidiaries are included at the end of this annual report.
Item 19. EXHIBITS
EXHIBIT INDEX
| 104* | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |
| * | Filed with this annual report on Form 20-F |
| ** | Furnished with this annual report on Form 20-F |
SIGNATURES
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Universe Pharmaceuticals INC | ||
| By: | /s/ Gang Lai | |
| Gang Lai | ||
| Chief Executive Officer, Director, and | ||
| Chairman of the Board of Directors | ||
| Date: April 29, 2025 | ||
UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Universe Pharmaceuticals INC
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Universe Pharmaceuticals INC and its subsidiaries. (the “Company”) as of September 30, 2024 and 2023, the related consolidated statements of operations and comprehensive loss, changes in shareholders’ equity and cash flows for the year ended September 30, 2024, 2023 and 2022 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of September 30, 2024 and 2023, and the results of its operations and its cash flows for the year ended September 30, 2024, 2023 and 2022, in conformity with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Enrome LLP
We have served as the Company’s auditor since 2024
Singapore
April 29, 2025
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | 29,497,693 | $ | 5,285,247 | ||||
| Accounts receivable, net | 12,905,821 | 11,014,908 | ||||||
| Due from related parties | 61,678 | |||||||
| Inventories, net | 1,737,054 | 3,343,266 | ||||||
| Advance to suppliers | 978,203 | 180,643 | ||||||
| Prepayment for acquisition | 3,426,535 | |||||||
| Other receivable | 5,666,596 | 1,920,251 | ||||||
| Prepaid expenses and other current assets | 852,417 | 37,178 | ||||||
| TOTAL CURRENT ASSETS | 51,637,784 | 25,269,706 | ||||||
| Property, plant and equipment, net | 3,568,050 | 3,699,965 | ||||||
| Prepayments made to a related party for purchase of property | 2,279,982 | 2,192,982 | ||||||
| Prepayments for construction in progress | 9,492,205 | 9,092,996 | ||||||
| Intangible assets, net | 262,878 | 148,584 | ||||||
| Investment in equity securities | 712,494 | 685,307 | ||||||
| Deferred tax assets | 599,078 | |||||||
| Prepaid expenses-related party, non-current | 35,864 | |||||||
| TOTAL NONCURRENT ASSETS | 16,315,609 | 16,454,776 | ||||||
| TOTAL ASSETS | $ | 67,953,393 | $ | 41,724,482 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Short-term bank loans | $ | 5,856,703 | $ | 5,482,456 | ||||
| Accounts payable | 4,914,762 | 4,585,283 | ||||||
| Taxes payable | 1,021,181 | 434,758 | ||||||
| Due to related parties | 6,900,584 | 540,096 | ||||||
| Accrued expenses and other current liabilities | 1,619,739 | 2,711,736 | ||||||
| TOTAL CURRENT LIABILITIES | 20,312,969 | 13,754,329 | ||||||
| Long-term bank loans | 2,137,483 | |||||||
| TOTAL LIABILITIES | 22,450,452 | 13,754,329 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $11.25 par value, 11,250,000 shares authorized, 42,880 and 6,062 shares issued and outstanding as of September 30, 2024 and 2023, respectively * | 482,400 | 67,973 | ||||||
| Additional paid in capital | 53,864,720 | 29,279,155 | ||||||
| Statutory reserve | 2,439,535 | 2,439,535 | ||||||
| Accumulated deficit | (10,171,568 | ) | (1,444,270 | ) | ||||
| Accumulated other comprehensive loss | (1,112,146 | ) | (2,372,240 | ) | ||||
| TOTAL SHAREHOLDERS’ EQUITY | 45,502,941 | 27,970,153 | ||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | 67,953,393 | $ | 41,724,482 | ||||
| * | Retrospectively restated for effect of 15-for-1 and 40-for-1 share consolidations. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Revenue | $ | 23,024,458 | $ | 32,308,735 | $ | 40,143,151 | ||||||
| Cost of revenue | (16,952,556 | ) | (21,993,601 | ) | (18,251,815 | ) | ||||||
| Gross profit | 6,071,902 | 10,315,134 | 21,891,336 | |||||||||
| Operating expenses | ||||||||||||
| Selling expenses | (8,170,975 | ) | (6,783,703 | ) | (19,083,135 | ) | ||||||
| General and administrative expenses | (2,889,652 | ) | (2,638,984 | ) | (2,183,270 | ) | ||||||
| Research and development expenses | (3,031,115 | ) | (4,858,548 | ) | (7,644,375 | ) | ||||||
| Total operating expenses | (14,091,742 | ) | (14,281,235 | ) | (28,910,780 | ) | ||||||
| Loss from operations | (8,019,840 | ) | (3,966,101 | ) | (7,019,444 | ) | ||||||
| Other income (expenses) | ||||||||||||
| Interest expense, net | (278,172 | ) | (156,788 | ) | (162,400 | ) | ||||||
| Other income (expense), net | 145,476 | (235,614 | ) | 48,940 | ||||||||
| Equity investment income | 31,942 | 31,072 | 38,588 | |||||||||
| Total other expense, net | (100,754 | ) | (361,330 | ) | (74,872 | ) | ||||||
| Loss before income tax expense | (8,120,594 | ) | (4,327,431 | ) | (7,094,316 | ) | ||||||
| Income tax expense | (606,704 | ) | (2,253,593 | ) | (815,322 | ) | ||||||
| Net loss | (8,727,298 | ) | (6,581,024 | ) | (7,909,638 | ) | ||||||
| Other comprehensive income (loss) | ||||||||||||
| Foreign currency translation adjustment | 1,260,094 | (779,351 | ) | (3,752,143 | ) | |||||||
| Comprehensive loss | $ | (7,467,204 | ) | $ | (7,360,375 | ) | $ | (11,661,781 | ) | |||
| Net loss per share - Basic and diluted | $ | (626.96 | ) | $ | (1,089.21 | ) | $ | (1,309.11 | ) | |||
| Weighted average number of shares outstanding used in calculating basic and diluted loss per share * | 13,920 | 6,042 | 6,042 | |||||||||
| * | Retrospectively restated for effect of 15-for-1 and 40-for-1 share consolidations. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 2024, 2023 AND 2022
| Ordinary Shares | Additional Paid-in |
Statutory | Retained Earnings (Accumulated |
Accumulated Other Comprehensive |
Total Shareholders’ |
|||||||||||||||||||||||
| Shares * | Amount | Capital | Reserve | Deficit) | Income (Loss) | Equity | ||||||||||||||||||||||
| Balance as of September 30, 2021 | 6,042 | $ | 67,973 | $ | 29,279,155 | $ | 2,439,535 | $ | 13,046,392 | $ | 2,159,254 | $ | 46,992,309 | |||||||||||||||
| Net loss | - | (7,909,638 | ) | (7,909,638 | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | (3,752,143 | ) | (3,752,143 | ) | |||||||||||||||||||||||
| Balance as of September 30, 2022 | 6,042 | $ | 67,973 | $ | 29,279,155 | $ | 2,439,535 | $ | 5,136,754 | $ | (1,592,889 | ) | $ | 35,330,528 | ||||||||||||||
| Net loss | - | (6,581,024 | ) | (6,581,024 | ) | |||||||||||||||||||||||
| Statutory reserve | - | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | (779,351 | ) | (779,351 | ) | |||||||||||||||||||||||
| Balance as of September 30, 2023 | 6,042 | $ | 67,973 | $ | 29,279,155 | $ | 2,439,535 | $ | (1,444,270 | ) | $ | (2,372,240 | ) | $ | 27,970,153 | |||||||||||||
| Issuance of ordinary shares | 33,333 | 374,996 | 24,624,996 | 24,999,992 | ||||||||||||||||||||||||
| Reverse share-split adjustment | 3,505 | 39,431 | (39,431 | ) | ||||||||||||||||||||||||
| Net loss for the year | - | (8,727,298 | ) | (8,727,298 | ) | |||||||||||||||||||||||
| Foreign currency translation adjustment | - | 1,260,094 | 1,260,094 | |||||||||||||||||||||||||
| Balance as of September 30, 2024 | 42,880 | $ | 482,400 | $ | 53,864,720 | $ | 2,439,535 | $ | (10,171,568 | ) | $ | (1,112,146 | ) | $ | 45,502,941 | |||||||||||||
| * | Retrospectively restated for effect of 15-for-1 and 40-for-1 share consolidations. |
The accompanying notes are an integral part of these consolidated financial statements.
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Cash flows from operating activities | ||||||||||||
| Net loss | $ | (8,727,298 | ) | $ | (6,581,024 | ) | $ | (7,909,638 | ) | |||
| Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||||||
| Depreciation and amortization | 485,734 | 508,785 | 533,949 | |||||||||
| Loss from disposal of property, plant and equipment | 3,958 | 114 | 983 | |||||||||
| Allowance for doubtful accounts | 131,581 | - | - | |||||||||
| Allowance (reversal) of inventory reserve | 50,651 | (49,166 | ) | 15,774 | ||||||||
| Deferred income tax expense (benefit) | 606,704 | 1,567,656 | (542,375 | ) | ||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | (1,547,834 | ) | 4,718,118 | (1,526,243 | ) | |||||||
| Inventory, net | 1,643,131 | (1,183,823 | ) | 16,586 | ||||||||
| Advance to suppliers, net | (769,911 | ) | (170,016 | ) | 2,681,214 | |||||||
| Prepayment for advertising | 7,385,695 | |||||||||||
| Advances to related parties | 236,982 | |||||||||||
| Other receivable | (158,011 | ) | 391,568 | (1,030,121 | ) | |||||||
| Prepaid expenses and other current assets | (792,675 | ) | 696,147 | (659,017 | ) | |||||||
| Deferred tax assets | (947,964 | ) | ||||||||||
| Prepaid expenses-related party, non-current | 36,321 | |||||||||||
| Accounts payable | 143,747 | 1,641,426 | (1,919,691 | ) | ||||||||
| Taxes payable | 554,425 | 280,939 | (904,127 | ) | ||||||||
| Accrued expenses and other current liabilities | (1,167,206 | ) | 244,015 | 2,318,474 | ||||||||
| Net cash (used in) provided by operating activities | (9,506,683 | ) | 1,116,775 | (1,301,555 | ) | |||||||
| Cash flows from investing activities | ||||||||||||
| Purchases of property, plant and equipment | (208,320 | ) | (44,169 | ) | (93,703 | ) | ||||||
| Prepayments for construction in progress | (37,478 | ) | 523 | |||||||||
| Purchase of intangible asset | (117,291 | ) | ||||||||||
| Prepayment for acquisition | (3,814,925 | ) | ||||||||||
| Proceeds from disposal of property, plant and equipment | 1,804 | |||||||||||
| Net cash used in investing activities | (361,285 | ) | (44,169 | ) | (3,908,105 | ) | ||||||
| Cash flows from financing activities | ||||||||||||
| Net proceeds from issuance of ordinary shares | 24,999,992 | |||||||||||
| Proceeds from bank loans | 7,787,016 | 5,671,104 | 4,272,716 | |||||||||
| Repayment of bank loans | (5,552,240 | ) | (3,969,773 | ) | (4,272,716 | ) | ||||||
| Proceeds from (prepayments for) related parties borrowings | 6,719,557 | (3,091,977 | ) | 3,317,943 | ||||||||
| Net cash provided by (used in) financing activities | 33,954,325 | (1,390,646 | ) | 3,317,943 | ||||||||
| Effect of exchange rate changes on cash | 126,089 | (108,171 | ) | (474,733 | ) | |||||||
| Net increase (decrease) in cash | 24,212,446 | (426,211 | ) | (2,366,450 | ) | |||||||
| Cash, beginning of year | 5,285,247 | 5,711,458 | 8,077,908 | |||||||||
| Cash, end of year | $ | 29,497,693 | $ | 5,285,247 | $ | 5,711,458 | ||||||
| Supplemental disclosure information | ||||||||||||
| Cash paid for interest | $ | 304,516 | $ | 190,184 | $ | 199,852 | ||||||
| Cash paid for income tax | $ | $ | 863,800 | $ | 2,748,629 | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
NOTES TO 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 December 11, 2019 as an exempted company with limited liability.
Universe INC owns 100% equity interest of Universe Pharmaceuticals (International) Group (“Universe HK”), an entity incorporated on May 21, 2014 in accordance with the laws and regulations in Hong Kong.
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 March 2, 1998 in accordance with PRC laws and is engaged in the research and development and manufacturing of modernized traditional Chinese medicines. Jiangxi Universe owns 100% of the equity interests of Jiangxi Universe Pharmaceuticals Commercial Trade Co., Ltd. (“Universe Trade”), which was incorporated on March 10, 2010 for the purposes of handling the sales and distribution of the pharmaceutical products manufactured by Jiangxi Universe.
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 100% of the equity interests of Jiangxi Universe to Universe Technology. Consequently, Universe INC, through its subsidiary Universe HK, directly controls Universe Technology and Jiangxi Universe, and became the ultimate holding company of all other entities mentioned above.
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 5,000,000 ordinary shares, par value $0.003125 per share at a public offering price of $5.00 per share. On March 29, 2021, the underwriter exercised in full its over-allotment option to purchase an additional 750,000 ordinary shares. The closing for the sale of the over-allotment shares took place on September 30, 2021. Gross proceeds from the IPO totaled $28.75 million. Net proceeds of the IPO, including over-allotment shares, were approximately $25.6 million. In connection with the IPO, the Company’s ordinary shares began trading on the Nasdaq Global Market under the symbol “UPC” on March 23, 2021.
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, 2024 and as of the date of this report, Universe Hanhe has no active business operations.
F-
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$312,500 divided into 90,000,000 ordinary shares of par value US$0.003125 each and 10,000,000 preferred shares of par value US$0.003125 each, to US$3,125,000 divided into 900,000,000 ordinary shares of par value US$0.003125 each and 100,000,000 preferred shares of par value US$0.003125 each; |
| (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$0.003125 each in the capital of the Company (the “2023 Share Consolidation”); and |
| (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 900,000,000 ordinary shares with a par value of US$0.003125 per share to 150,000,000 ordinary shares with a par value of US$0.01875 per share; (b) issued and outstanding ordinary shares from 21,750,000 ordinary shares with a par value of US$0.003125 per share to 3,625,000 ordinary shares with a par value of US$0.01875 per share; and (c) authorized preferred shares from 100,000,000 preferred shares with a par value of US$0.003125 per share to 16,666,666.6666 preferred shares with a par value of US$0.01875 per share.
On July 15, 2024, the Company closed its self-underwritten public offering of 20,000,000 ordinary shares, par value $0.01875 per share. The ordinary shares were priced at $1.25 per share. The Company raised a total of $25 million through that offering, before deducting offering-related expenses, and net proceeds of $24.625 million.
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$3,125,000 divided into 150,000,000 ordinary shares of par value US$0.01875 each and 16,666,666.6666 preferred shares of par value US$0.01875 each, to US$140,625,000 divided into 6,750,000,000 ordinary shares of par value US$0.01875 each and 750,000,000 preferred shares of par value US$0.01875 each (the “Authorized Share Capital Increase”); |
| (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”). |
F-
On November 12, 2024, the Company effected a share consolidation of 15 ordinary shares with par value of US$0.01875 per share each in the Company’s issued and unissued share capital into one (1) ordinary share with par value of US$0.28125. All fractional shares were rounded up to the whole number of shares. Immediately following the 2024 Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 450,000,000 ordinary shares, par value US$0.28125 per share and 50,000,000 preferred shares, par value US$0.28125 per share.
On March 24, 2025, the Company effected a share consolidation of 40 ordinary shares with par value of US$0.28125 per share each in the Company’s issued and unissued share capital into one ordinary share with par value of US$11.25. All fractional shares were rounded up to the whole number of shares (the “2025 Share Consolidation”). Immediately following the Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 11,250,000 ordinary shares, par value US$11.25 per share and 1,250,000 preferred shares, par value US$11.25 per share.
The Company’s consolidated financial statements were retrospectively restated for effect of the 15-for-1 and 40-for-1 share consolidations. Giving effect to the share consolidations, there were 42,880 ordinary shares issued and outstanding as of September 30, 2024.
Details of the subsidiaries of the Company as of September 30, 2024 are set out below:
| Date of | Place of | % of | ||||||
| Name of Entity | Incorporation | Incorporation | Ownership | Principal Activities | ||||
| Universe INC | December 11, 2019 | Cayman Islands | Parent, 100% | Investment holding | ||||
| Universe HK | May 21, 2014 | Hong Kong | 100% | Investment holding | ||||
| Universe Technology | April 18, 2019 | PRC | 100% | WFOE, Investment holding | ||||
| Jiangxi Universe | March 2, 1998 | PRC | 100% | Research and development and manufacturing of modernized traditional Chinese medicines | ||||
| Universe Trade | March 10, 2010 | PRC | 100% | Sales of modernized traditional Chinese medicines | ||||
| Universe Hanhe | May 12, 2021 | PRC | 100% | Research and development of new pharmaceutical products |
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.
NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements include the Company and its subsidiaries, which include Universe HK, Universe Technology, Jiangxi Universe, Universe Trade and Universe Hanhe. All inter-company balances and transactions are eliminated upon consolidation.
A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power; or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
Reclassifications
Certain amounts on the prior-years’ consolidated balance sheets and cash flows were reclassified to conform to current-year presentation, with no effect on ending shareholders’ equity.
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Uses of estimates
In preparing the 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 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 consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance for estimated uncollectible receivables, the realizability of advance to suppliers, inventory valuations, useful lives of property, plant and equipment, intangible assets, the recoverability of long-lived assets, provision necessary for contingent liabilities, revenue recognition and realization of deferred tax assets. Actual results could differ from those estimates.
Risks and Uncertainties
The business operations of the Company are 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 People’s Republic of China of less than RMB0.5 million (equivalent to $71,249) per bank are covered by “deposit insurance regulation” promulgated by the State Council of the People’s Republic of China.
Accounts receivable, net
Accounts receivables are presented net of allowance for doubtful accounts. The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections. Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that collection is not probable. Allowance for uncollectable balances amounted to $135,082 and $Nil as of September 30, 2024 and 2023, respectively.
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Inventories, net
Inventories are stated at net realizable value using weighted average method. Costs include the cost of raw materials, freight, direct labor and related production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. The Company evaluates inventories on a quarterly basis for its net realizable value adjustments, and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable value based on various factors including aging, expiration dates, as applicable, taking into consideration historical and expected future product sales. We recorded inventory reserve of $124,512 and $69,746 as of September 30, 2024 and 2023, respectively.
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 September 30, 2024 and 2023, the Company recorded no allowance for doubtful accounts, 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. |
| ● | 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. |
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Unless otherwise disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, inventories, advances to suppliers, prepaid expenses and other current assets, accounts payable, short-term bank loans, accrued expenses and other current liabilities, taxes payable and due to related parties, approximate the fair value of the respective assets and liabilities as of September 30, 2024 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.
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:
| Useful life | ||
| Buildings | 20 years | |
| Machinery and equipment | 5–10 years | |
| Automobiles | 3–5 years | |
| Office and electric equipment | 3–5 years |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of 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 years ended September 30, 2024, 2023 and 2022.
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Intangible Assets
Intangible assets consist primarily of land use rights, trademark and software. Under the PRC law, all land in the PRC is owned by the government and cannot be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods of time. Land use rights are stated at cost less accumulated amortization. Intangible assets are amortized using the straight-line method with the following estimated useful lives:
| Useful life | ||
| Land use rights | 50 years | |
| Trademark | 5 years | |
| Software | 3 years |
The Company reviews the carrying value of land use rights for impairment whenever events and circumstances indicate that the carrying value of an asset may not be recoverable from the estimated future cash flows expected to result from its use and eventual disposition. In cases where undiscounted expected future cash flows are less than the carrying value, an impairment loss is recognized equal to an amount by which the carrying value exceeds the fair value of assets. The factors considered by management in performing this assessment include current operating results, trends and prospects, the manner in which the property is used, and the effects of obsolescence, demand, competition and other economic factors. Based on this assessment, no impairment of land use rights was deemed necessary for the years ended September 30, 2024, 2023 and 2022.
Construction-in-Progress (“CIP”)
CIP represents property and buildings under construction and consists of construction expenditures, equipment procurement, and other direct costs attributable to the construction. CIP is not depreciated. Upon completion and ready for intended use, CIP is reclassified to the appropriate category within property, plant and equipment.
Impairment of long-lived Assets
Long-lived assets with finite lives, primarily property, plant and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated undiscounted cash flows from the use of the asset and its eventual disposition below are the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. The Company recorded no impairments of these assets for the years ended September 30, 2024, 2023 and 2022.
Investments in Equity Securities
The Company accounts for its equity investments in accordance with ASC 321. In accordance with ASC 321, equity investment which the Company has no significant influence (generally less than a 20% ownership interest) with readily determinable fair values are accounted for at fair value based on quoted market prices with the changes in fair value recognized as unrealized gains or losses in earnings. Equity investments without readily determinable fair values are accounted for either at fair value or using the measurement alternative. Under the measurement alternative, the equity investments are measured at cost, less any impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment.
From March 2009 to September 2017, the Company invested approximately $0.7 million (RMB5 million) in Jiangxi Jian Rural Commercial Bank (“JX RCB Bank”) in exchange for 5% ownership interest in the bank. The purpose of entering into these equity investment agreements with JX RCB Bank was to earn investment income as the bank continues to grow. The Company determined that this investment in equity securities does not have a readily determinable fair value and, accordingly, elected the measurement alternative noted above.
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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 September 30, 2024 and 2023, the Company’s investment in JX RBC Bank amounted to $712,494 (RMB5 million) and $685,307 (RMB5 million), respectively, and was reported as long-term investment in equity investee on the consolidated balance sheets. Investment income amounted to $31,942, $31,072 and $38,588 for the years ended September 30, 2024, 2023 and 2022, respectively.
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, the: (i) nature of the investment; (ii) cause and duration of the impairment; (iii) extent to which fair value is less than cost; (iv) financial condition and near-term prospects of the investments; and (v) ability to hold the investment for a period of time sufficient to allow for any anticipated recovery in fair value. There was no impairment for the Company’s investments in equity securities as of September 30, 2024 and 2023.
Revenue recognition
To determine revenue recognition for contracts with customers, the Company performs the following five steps : (i) identify the contract(s) with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation.
The Company recognizes revenue when it transfers its goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. The Company accounts for the revenue generated from sales of its TCMD and third-party products on a gross basis, as the Company is acting as a principal in these transactions, is subject to inventory risk, has latitude in establishing prices, and is responsible for fulfilling the promise to provide customers the specified goods, which the Company has control of the goods and has the ability to direct the use of goods to obtain substantially all the benefits. All of the Company’s contracts have one single performance obligation, namely, the promise is to transfer the individual goods to customers, and there is no separately identifiable other promise in the contracts. The Company’s revenue streams are recognized at a point in time when title and risk of loss passes and the customer accepts the goods, which generally occurs at delivery. The Company’s products are sold with no right of return and the Company does not provide other credits or sales incentive to customers. Revenue is reported net of all value added taxes (“VAT”).
Disaggregation of Revenues
The Company disaggregates its revenue from contracts by product types, as the Company believes it best depicts how the nature, amount, timing and uncertainty of the revenue and cash flows are affected by economic factors.
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.
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Research and Development Expenses
The Company expenses all internal research and development costs as incurred, which primarily comprise of employee costs, internal and external costs related to execution of studies, manufacturing costs, facility costs of the research center, and amortization and depreciation to intangible assets and property, plant and equipment used in the research and development activities. For the years ended September 30, 2024, 2023 and 2022, total research and development expenses were approximately $3,031,115, $4,858,548 and $7,644,375, respectively.
Shipping and handling costs
Shipping and handling costs are expensed as incurred. Inbound shipping and handling cost associated with bringing the purchased raw materials and third-party products from suppliers to the Company’s warehouse are included in cost of revenue. Outbound shipping and handling costs associated with shipping and delivery the products to customers are included in selling expenses.
Advertising expense
Advertising expenses primarily relate to promotion of the Company’s brand name and products through outdoor billboards, social media such as Weibo and WeChat, and TV advertisement. Advertising costs are expensed as incurred or deferred and then expensed the first time the advertising takes place. Advertising expenses are included in selling expenses in the consolidated statements of operations and comprehensive loss. Advertising expenses amounted to $5,144,579, $4,653,633 and $17,527,318 for the years ended September 30, 2024, 2023 and 2022, respectively.
Segment Reporting
The Company uses the management approach in determining reportable operating segments. The management approach considers the internal reporting used by the Company’s chief operating decision maker for making operating decisions about the allocation of resources of the segment and the assessment of its performance in determining the Company’s reportable operating segments. Management has determined that the Company has one operating segment.
Income taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
An uncertain tax position is recognized only if it is “more likely than not” that the tax position would be sustained in a tax examination. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. Penalties and interest incurred related to underpayment of income tax are classified as income tax expense in the period incurred. No significant penalties or interest relating to income taxes have been incurred during the years ended September 30, 2024, 2023 and 2022. The Company does not believe there was any uncertain tax provision as of September 30, 2024 and 2023.
The Company’s operating subsidiaries in China are subject to the income tax laws of the PRC. No significant income was generated outside the PRC for the years ended September 30, 2024, 2023 and 2022. As of September 30, 2024 and 2023, all of the tax returns of the Company’s PRC subsidiaries remained open for statutory examination by PRC tax authorities.
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Value added tax (“VAT”)
Sales revenue represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 13%, depending on the type of products sold. The VAT may be offset by VAT paid by the Company on raw materials and other materials included in the cost of producing or acquiring its finished products. The Company recorded a VAT payable or receivable net of payments in the accompanying consolidated financial statements.
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 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 years ended September 30, 2024, 2023 and 2022, there were no dilutive shares.
Foreign currency translation
The functional currency for Universe INC is the U.S. Dollar (“US$”). Universe HK uses Hong Kong dollar as its functional currency. However, Universe INC and Universe HK currently only serve as holding companies and did not have active operations as of the date of this report. The Company operates only in the PRC and the Company’s functional currency is the Chinese Yuan (“RMB”). The Company’s consolidated financial statements have been translated into the reporting currency US$.
Assets and liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances are reflected in the results of operations.
The RMB is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions. No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation.
The following table outlines the currency exchange rates that were used in creating the consolidated financial statements in this report:
| September 30, 2024 |
September 30, 2023 |
September 30, 2022 |
||||||||||
| Period-end US$: RMB exchange rate | 7.0176 | 7.2960 | 7.1135 | |||||||||
| Period-end US$: HK exchange rate | 7.7693 | 7.8308 | 7.8498 | |||||||||
| Period average US$: RMB exchange rate | 7.2043 | 7.0533 | 6.5532 | |||||||||
| Period average US$: HK exchange rate | 7.8127 | 7.8310 | 7.8228 | |||||||||
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 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 formulated based upon the local currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree with changes in the corresponding balances on the balance sheets.
Employee Defined Contribution Plan
The Company’s subsidiaries in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which pension, work-related injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund are provided to eligible full-time employees. The relevant labor regulations require the Company’s subsidiaries in the PRC to pay the local labor and social welfare authorities monthly contributions based on the applicable benchmarks and rates stipulated by the local government. The contributions to the plan are expensed as incurred. Employee social security and welfare benefits included as expenses in the accompanying consolidated statements of operations and comprehensive loss amounted to $247,249, $440,962 and $465,689 for the years ended September 30, 2024, 2023 and 2022, respectively.
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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 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amended guidance requires incremental reportable segment disclosures, primarily about significant segment expenses. The amendments also require entities with a single reportable segment to provide all disclosures required by these amendments, and all existing segment disclosures. The amendments will be applied retrospectively to all prior periods presented in the financial statements and is effective for fiscal years beginning after December 15, 2023, and interim periods in fiscal years beginning after December 15, 2024. The guidance should be adopted retrospectively. 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 December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amended guidance enhances income tax disclosures primarily related to the effective tax rate reconciliation and income taxes paid information. This guidance requires disclosure of specific categories in the effective tax rate reconciliation and further information on reconciling items meeting a quantitative threshold. In addition, the amended guidance requires disaggregating income taxes paid (net of refunds received) by federal, state, and foreign taxes. It also requires disaggregating individual jurisdictions in which income taxes paid (net of refunds received) is equal to or greater than 5 percent of total income taxes paid (net of refunds received). The amended guidance is effective for fiscal years beginning after December 15, 2024. The guidance can be applied either prospectively or retrospectively. 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 March 2024, the FASB issued ASU 2024-01, Compensation—Stock Compensation (Topic 718): Scope Application of Profits Interest and Similar Awards. The amended guidance added an illustrative example that includes four fact patterns to demonstrate how an entity should apply the scope guidance in paragraph 718-10-15-3 to determine whether a profits interest award should be accounted for in accordance with Topic 718. The amendments guidance is effective for annual periods beginning after December 15, 2024, and interim periods within those annual periods. The guidance can be applied either prospectively or retrospectively. The Company is currently in the process of evaluating the impact this amended guidance may have on its consolidated financial statements.
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.
In November 2024, the FASB issued ASU 2024-04, Debt—Debt with Conversion and Other Options (Subtopic 470-20): Induced Conversions of Convertible Debt Instruments. This guidance clarifies the assessment of whether a transaction should be accounted for as an induced conversion or extinguishment of convertible debt when changes are made to conversion features as part of an offer to settle the instrument. The amended guidance is effective for all entities for annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods. The guidance can be applied either prospectively or retrospectively. The Company is currently in the process of evaluating the impact this amended guidance may have on its consolidated financial statements.
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.
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.
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NOTE 3 — ACCOUNTS RECEIVABLE, NET
Accounts receivable consists of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Accounts receivable | $ | 13,040,903 | $ | 11,014,908 | ||||
| Less: allowance for doubtful accounts | (135,082 | ) | ||||||
| Accounts receivable, net | $ | 12,905,821 | $ | 11,014,908 | ||||
The Company’s accounts receivable primarily includes the balance due from customers when the Company’s pharmaceutical products are sold and delivered to customers. As of date of this report, approximately 98.4%, or $12.8 million, of the Company’s net account receivable balance as of September 30, 2024 has been subsequently collected, and the remaining balance is expected to be substantially collected before June 30, 2025.
Allowance for doubtful accounts movement is as follows:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Beginning balance | $ | $ | ||||||
| Reversal of allowance for doubtful accounts | 131,581 | |||||||
| Foreign currency translation adjustments | 3,501 | |||||||
| Ending balance | $ | 135,082 | $ | |||||
NOTE 4 — INVENTORIES, NET
Inventories consist of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Raw materials | $ | 720,041 | $ | 635,395 | ||||
| Finished goods | 1,141,526 | 2,777,617 | ||||||
| Inventories valuation allowance | (124,512 | ) | (69,746 | ) | ||||
| Total inventories, net | $ | 1,737,054 |
$ | 3,343,266 | ||||
Inventories valuation allowance movement is as follows:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Beginning balance | $ | 69,746 | $ | 120,286 | ||||
| Reversal of inventories valuation allowance | 50,651 | (49,166 | ) | |||||
| Foreign currency translation adjustments | 4,115 | (1,374 | ) | |||||
| Ending balance | $ | 124,512 | $ | 69,746 | ||||
NOTE 5 — ADVANCE TO SUPPLIERS
Advances to suppliers consist of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Advances to suppliers for inventories raw material purchase | $ | 978,203 | $ | 180,643 | ||||
| Advances to suppliers | $ | 978,203 | $ | 180,643 | ||||
Advances to suppliers represent prepayments made to suppliers to ensure continuous high-quality supplies and favorable purchase prices of raw materials.
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NOTE 6 — PREPAYMENT FOR ACQUISITION
On September 26, 2022, the Company entered into a letter of intent for an equity transfer with an individual, Mr. Xibo Liu, pursuant to which, Mr. Xibo Liu transfers his 51% ownership in Yunnan Faxi Pharmaceuticals Co., Ltd. (“Yunnan Faxi”) to the Company at the price of RMB72 million (approximately $10.0 million). Based on contract terms, the Company prepaid RMB25 million (approximately $3.4 million) within three (3) business days upon signing the letter of intent. As of September 30, 2023, the prepayment was recorded as prepayment for acquisition on the balance sheets. However, due to unsatisfactory performance of Yunnan Faxi, the equity transfer contract was terminated on December 20, 2024. The amount of $3,562,472 (RMB25 million) was reclassified to other receivable as of September 30, 2024, and collected back subsequently.
NOTE 7 — OTHER RECEIVABLE
Other receivable consists of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Receivable from Yunan Faxi (1) | $ | 3,562,472 | $ | |||||
| Redemption of short-term investment (2) | 1,377,873 | 1,367,052 | ||||||
| Prepaid value added tax | 475,331 | 478,899 | ||||||
| Prepayment for advertising | 219,830 | |||||||
| Others | 31,090 | 74,300 | ||||||
| Other receivable | $ | 5,666,596 | $ | 1,920,251 | ||||
| (1) | On September 26, 2022, the Company entered into a letter of intent for an equity transfer with an individual, Mr. Xibo Liu, pursuant to which, Mr. Xibo Liu transfers his 51% ownership in Yunnan Faxi to the Company at the price of RMB72 million (approximately $10.0 million). Based on contract terms, the Company prepaid RMB25 million (approximately $3.4 million) within three (3) business days upon signing the letter of intent. However, due to 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. |
| (2) | On September 24, 2024, the Company entered into an agreement with a third party to transfer its short-term investment at the price of $1,377,873. The amount was recorded as other receivable as of September 30, 2024 and 2023. |
As of date of this report, approximately 99.4%, or $5.6 million, of the Company’s other receivable balance as of September 30, 2024 has been subsequently collected.
NOTE 8 — PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net, consists of the following:
| As of September 30, | ||||||||||
| Useful life | 2024 | 2023 | ||||||||
| Buildings | 20 years | $ | 7,594,735 | $ | 7,304,936 | |||||
| Machinery and equipment | 5-10 years | 2,007,399 | 1,896,976 | |||||||
| Automobiles | 3-5 years | 67,374 | 73,703 | |||||||
| Office and electric equipment | 3-5 years | 527,336 | 474,830 | |||||||
| Construction-in-progress | 35,971 | |||||||||
| Subtotal | 10,232,815 | 9,750,445 | ||||||||
| Less: accumulated depreciation | (6,664,765 | ) | (6,050,480 | ) | ||||||
| Property, plant and equipment, net | $ | 3,568,050 | $ | 3,699,965 | ||||||
Depreciation expense was $474,034, $503,687 and $528,919 for the years ended September 30, 2024, 2023 and 2022, respectively. Loss from disposal of property, plant and equipment amounted to $3,958, $114 and $983 for the years ended September 30, 2024, 2023 and 2022, respectively.
F-
NOTE 9 — INTANGIBLE ASSETS, NET
Intangible assets, net consist of the following:
| As of September 30, | ||||||||||
| Useful life | 2024 | 2023 | ||||||||
| Land use rights | 50 years | $ | 256,211 | $ | 246,434 | |||||
| Trademark | 5 years | 120,412 | ||||||||
| Software | 3 years | 21,506 | 20,687 | |||||||
| Total | 398,129 | 267,121 | ||||||||
| Less: accumulated amortization | (135,251 | ) | (118,537 | ) | ||||||
| Intangible assets, net | $ | 262,878 | $ | 148,584 | ||||||
Amortization expense was $11,700, $5,098 and $5,030 for the years ended September 30, 2024, 2023 and 2022, respectively.
Estimated future amortization expense for intangible assets is as follows:
| Years Ending September 30, | Amortization expense |
|||
| 2025 | $ | 17,165 | ||
| 2026 | 17,165 | |||
| 2027 | 17,165 | |||
| 2028 | 17,165 | |||
| 2029 | 17,165 | |||
| Thereafter | 177,053 | |||
| $ | 262,878 | |||
NOTE 10 — PREPAYMENT FOR CIP PROJECT
CIP represents direct costs of construction incurred for the Company’s manufacturing facilities. On June 25, 2021, the Company signed a construction sub-contract with sub-contractor Jiangxi Chenyuan Construction Project Co., Ltd. (“Chenyuan”), pursuant to which, Chenyuan agreed to help the Company construct four manufacturing factory buildings and an office building with a total estimated budget of RMB165 million (approximately $23.5 million). The construction work started on August 8, 2021, with an originally estimated completion date on August 7, 2023. However, due to resurgence of the COVID-19 pandemic, which resulted in lingering logistic disruption, material and labor shortage, and domestic travel restriction, at the beginning of 2024, the Company estimated the construction work to be completed in December 2024. During 2024, new information was discovered about the topographical and surface structures of the land, which required Chenyuan to redo the geological survey. As a result, the construction work is further delayed, and the construction of the four manufacturing factory buildings and the office building is expected to be fully completed and put into use by December 2025 and December 2026, respectively. As of September 30, 2024, the Company had made a prepayment of approximately RMB69.2 million (approximately $9.9 million) to Chenyuan for land improvement, building foundation and the construction of the manufacturing factories.
During the year ended September 30, 2022, $407,190 (approximately RMB2.9 million) of the prepayment for the CIP project was used for construction work, and the amount was recorded as property, plant and equipment in the consolidated balance sheets. As of September 30, 2024, the remaining $9.5 million prepayment to Chenyuan was recorded as a prepayment for CIP project on the balance sheets.
F-
As of September 30, 2024, future additional capital expenditure on this CIP project is estimated to be approximately RMB95.8 million (equivalent to $13.7 million), among which approximately $7.1 million is required for the next 12 months. The Company currently plans to support its ongoing CIP project construction through cash collected from accounts receivable, and if necessary, borrowings from PRC banks in the future.
As of September 30, 2024, future minimum capital expenditures on the Company’s CIP project are estimated as follows:
| Twelve months ending September 30, | Capital Expenditure on CIP |
|||
| 2025 | $ | 7,124,943 | ||
| 2026 | 5,350,832 | |||
| 2027 | 1,175,616 | |||
| Total | $ | 13,651,391 | ||
NOTE 11 — PREPAYMENT FOR PURCHASE OF A PROPERTY
On May 6, 2021, the Company entered into a real estate property purchase agreement with related party Jiangxi Yueshang Investment Co., Ltd. (“Jiangxi Yueshang”), an entity in which the Company’s chief executive officer, Mr. Gang Lai, owned 5% equity interest as of the date of that agreement. Pursuant to the property purchase agreement, Jiangxi Yueshang will sell and the Company will purchase a certain residential apartment and commercial office space totaling 2,749.30 square meters, with a total purchase price of RMB32 million (approximately $4.6 million). Pursuant to this agreement, the Company was required to make a prepayment in the amount of 50% of the total purchase price, with 20% of the total purchase price payable upon the availability of a certificate of occupancy, and 30% of the total purchase price payable upon delivery of the property.
As of September 30, 2024, the Company had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025. Since the property is located in the urban downtown area of Ji’an City, the Company plans to use the property for offices in June 2025.
NOTE 12 — SHORT-TERM BANK LOANS
Short-term bank loans consist of the following:
| As of September 30, | ||||||||||
| Note | 2024 | 2023 | ||||||||
| Short-term bank loans: | ||||||||||
| Jiangxi Luling Rural Commercial Bank (“LRC Bank”) | (1) | $ | 2,849,976 | $ | 2,467,105 | |||||
| Bank of Communications Co., Ltd | (2) | 1,154,241 | 1,233,553 | |||||||
| Zhujiang Rural Bank | (3) | 427,497 | 411,184 | |||||||
| Beijing Bank | (4) | 1,424,989 | 1,370,614 | |||||||
| Total short-term loans | $ | 5,856,703 | $ | 5,482,456 | ||||||
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| (1) |
On March 13, 2023, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB8 million (equivalent to $1,096,491) as working capital for one year, with the maturity date on March 12, 2024. The fixed interest rate of the loan was 4.56% per annum. Mr. Gang Lai signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. The loan was fully repaid upon maturity.
On June 15, 2023, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB10 million (equivalent to $1,370,614) as working capital for eleven months, with the maturity date on May 14, 2024. The fixed interest rate of the loan was 4.56% per annum. Mr. Gang Lai signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. The loan was fully repaid upon maturity.
On March 4, 2024, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB5 million (equivalent to $712,494) as working capital for one year, with the maturity date on March 3, 2025. The fixed interest rate of the loan was 4.75% per annum. Mr. Gang Lai and Jiangxi Universe jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. The loan was fully repaid upon maturity.
On April 26, 2024, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB10 million (equivalent to $1,424,989) as working capital for one year, with the maturity date on April 25, 2025. The fixed interest rate of the loan was 4.31% per annum. Mr. Gang Lai and Universe Technology jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. The loan was fully repaid upon maturity.
On May 17, 2024, a subsidiary of the Company, Universe trade, signed a loan agreement with LRC Bank to borrow RMB5 million (equivalent to $712,494) as working capital for one year, with the maturity date on May 16, 2025. The fixed interest rate of the loan was 3.65% per annum. Mr. Gang Lai and Jiangxi Universe jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan.
On March 3, 2025, a subsidiary of the Company, Universe Trade, signed a loan agreement with LRC Bank to borrow RMB5 million (equivalent to $712,494) as working capital for one year, with the maturity date on March 2, 2026. The fixed interest rate of the loan was 3.65% per annum. Mr. Gang Lai and Jiangxi Universe jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan.
On April 22, 2024, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB10 million (equivalent to $1,424,989) as working capital for one year, with the maturity date on April 21, 2026. The fixed interest rate of the loan was 3.60% per annum. Mr. Gang Lai and Universe Technology jointly signed guarantee agreements with LRC Bank to provide credit guarantee for this loan. |
| (2) |
On June 15, 2023, the Company’s subsidiary, Jiangxi Universe, signed a loan agreement with Bank of Communications to borrow RMB9 million (equivalent to $1,246,486) as working capital for eleven months, with the maturity date on May 18, 2024. The fixed interest rate of the loan was 4.0% per annum. Mr. Gang Lai, Universe Trade, and an unrelated third party, Jiangxi Province Financing Guarantee Group Co., Ltd., jointly signed guarantee agreements with Bank of Communications to provide credit guarantee for this loan. The loan was fully repaid upon maturity.
On June 16, 2024, the Company’s subsidiary, Jiangxi Universe, signed a loan agreement with Bank of Communications to borrow RMB8.1 million (equivalent to $1,154,241) as working capital for eleven months, with the maturity date on May 13, 2025. The fixed interest rate of the loan was 3.9% per annum. Mr. Gang Lai, Universe Trade, and an unrelated third party, Jiangxi Province Financing Guarantee Group Co., Ltd., jointly signed guarantee agreements with Bank of Communications to provide credit guarantee for this loan. |
| (3) |
On May 5, 2023, a subsidiary of the Company, Jiangxi Universe, entered into a loan agreement with Zhujiang Rural Bank to borrow RMB 3 million (equivalent to $415,495) as working capital for one year, with the maturity date on May 4, 2024. The fixed interest rate of the loan was 3.65% per annum. The Company pledged certain patents owned by the Company as collateral to guarantee this loan. The loan was fully repaid upon maturity.
On April 24, 2024, a subsidiary of the Company, Jiangxi Universe, entered into a loan agreement with Zhujiang Rural Bank to borrow RMB3 million (equivalent to $427,497) as working capital for one year, with the maturity date on April 24, 2025. The fixed interest rate of the loan was 3.65% per annum. The Company pledged certain trademarks owned by the Company as collateral to guarantee this loan. The loan was fully repaid upon maturity
On April 18, 2025, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with Zhujiang Rural Bank to borrow RMB2.9 million (equivalent to $413,247 ) as working capital for one year, with the maturity date on April 18, 2026. The fixed interest rate of the loan was 5.00% per annum. The Company pledged certain trademarks owned by the Company as collateral to guarantee this loan. |
| (4) |
On July 24, 2023, a subsidiary of the Company, Jiangxi Universe, entered into a loan agreement with Beijing Bank to borrow RMB 10 million (equivalent to $1,384,984) as working capital for one year, with the maturity date on July 18, 2024. The fixed interest rate of the loan was 4.25% per annum. There was no guarantee requirement for this loan. The loan was fully repaid upon maturity.
On July 3, 2024, a subsidiary of the Company, Jiangxi Universe, entered into a loan agreement with Beijing Bank to borrow RMB 10 million (equivalent to $1,424,989) as working capital for one year, with the maturity date on July 3, 2025. The fixed interest rate of the loan was 4.15% per annum. Mr. Gang Lai provided credit guarantee for this loan. |
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NOTE 13 — LONG-TERM BANK LOANS
Long-term bank loans consist of the following:
| As of September 30, | ||||||||||
| Note | 2024 | 2023 | ||||||||
| Long-term bank loans: | ||||||||||
| LRC Bank | (1) | $ | 2,137,483 | $ | ||||||
| (1) | On November 23, 2023, a subsidiary of the Company, Jiangxi Universe, signed a loan agreement with LRC Bank to borrow RMB15 million (equivalent to $2,137,483) as working capital for two years, with the maturity date on November 14, 2025. The fixed interest rate of the loan was 3.95% per annum. The Company pledged buildings of Jiangxi Universe as collateral to guarantee this loan. |
For the above-mentioned loans, the Company recorded a total interest expense of $304,516, $190,184 and $199,852 for the years ended September 30, 2024, 2023 and 2022, respectively.
NOTE 14 — RELATED PARTY TRANSACTIONS
(a) Nature of relationships with related parties
| Name | Relationship with the Company | |
| Mr. Gang Lai | Chief Executive Officer and chairman of the Company’s Board of Directors | |
| Mr. Yajun Hu | General Manager of Jiangxi Universe | |
| Ms. Lin Yang | Chief Financial Officer of the Company | |
| Guangzhou Ningjing Investment Co., Ltd (Guangzhou Ningjing) | Under common control of Mr. Gang Lai |
(b) Due from related parties
| As of September 30, | ||||||||
| Name | 2024 | 2023 | ||||||
| Mr. Yajun Hu | $ | - | $ | 61,678 | ||||
| Total due from related parties | $ | - | $ | 61,678 | ||||
As of September 30, 2023, the balance due from related parties consisted of advanced funds to the Company’s director and general manager, Mr. Yajun Hu. These advances were non-interest bearing and fully repaid on October 12, 2023.
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(c) Due to related parties
| As of September 30, | ||||||||
| Name | 2024 | 2023 | ||||||
| Mr. Gang Lai | $ | 6,900,499 | $ | 540,096 | ||||
| Ms. Lin Yang | 85 | - | ||||||
| Total due to related parties | $ | 6,900,584 | $ | 540,096 | ||||
As of September 30, 2024, 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.
(d) Loan guarantee provided by related parties
In connection with the Company’s bank borrowings from commercial banks in China, Mr. Gang Lai, the Company’s chairman of the board of directors and chief executive officer, signed guarantee agreements with these banks to provide credit guarantee for the Company’s certain loans (see Note 13 and 14).
(e) Prepayment to related party for property purchase
As disclosed in Note 12, on May 6, 2021, the Company entered into a real estate property purchase agreement with a related party, Jiangxi Yueshang, to purchase certain residential apartment and commercial office space totaling 2,749.30 square meters with total purchase price of RMB32 million (approximately $4.6 million). As of September 30, 2024, the Company had made a prepayment of RMB16 million ($2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025.
On January 13, 2022, Mr. Gang Lai transferred the 5% equity interest he owned in Jiangxi Yueshang to a third party. As such, after this date, Jiangxi Yueshang is no longer the Company’s related party.
(f) Prepaid expenses-related party, non-current
As of September 30, 2024 and 2023, the Company prepaid Guangzhou Ningjing nil and $35,864 for right to use trademarks, respectively.
NOTE 15 — TAXES
(a) Corporate Income Taxes (“CIT”)
Cayman Islands
Under the current tax laws of the Cayman Islands, Universe INC is not subject to tax on its income or capital gains. In addition, no Cayman Islands withholding tax will be imposed upon the payment of dividends by the Company to its shareholders.
Hong Kong
Universe HK is incorporated in Hong Kong and is subject to profit taxes in Hong Kong at a rate of 16.5%. However, Universe HK did not generate any assessable profits derived from Hong Kong sources for the years ended September 30, 2024, 2023 and 2022, and accordingly no provision for Hong Kong profits tax has been made in these periods.
F-
PRC
Under the Enterprise Income Tax (“EIT”) Law of PRC, domestic enterprises and Foreign Investment Enterprises (“FIEs”) are usually subject to a unified 25% enterprise income tax rate while preferential tax rates, tax holidays and even tax exemption may be granted on a case-by-case basis. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”). Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for their HNTE status every three years. Jiangxi Universe, one of the Company’s main operating subsidiaries in the PRC, was approved as a HNTE and is entitled to a reduced income tax rate of 15% beginning November 2016 with a term of three years. In December 2019 and November 2022, Jiangxi Universe successfully renewed its HNTE certification with local government and will continue to enjoy the reduced income tax rate of 15% for three years, respectively, through November 2025. Universe Trade, another operating subsidiary of the Company in the PRC, was approved as a HNTE and was entitled to a reduced income tax rate of 15% beginning December 2020 with a term of three years through December 2023. Universe Trade did not successfully renew its HNTE status at the end of December 2023 and, therefore, has been subject to the standard PRC enterprise income tax rate of 25% starting from January 2024. EIT is typically governed by the local tax authority in the PRC. Each local tax authority at times may grant tax holidays to local enterprises as a way to encourage entrepreneurship and stimulate local economy. The corporate income taxes for the years ended September 30, 2024, 2023 and 2022 were reported at a blended reduced rate as a result of certain of the PRC subsidiaries of the Company’s being approved as a HNTE and enjoying a 15% reduced income tax rate. Although Jiangxi Universe was approved as a HNTE and enjoying a 15% reduced income tax rate, it incurred operating loss for the year ended September 30, 2024, with no impact of the tax holidays on PRC corporate income taxes for the year ended September 30, 2024. The impact of the tax holidays noted above decreased PRC corporate income taxes by $309,840 and $694,955 for the years ended September 30, 2023 and 2022, respectively. The benefit of the tax holidays on net income per share (basic and diluted) was $0.09 and $0.19 for the years ended September 30, 2023 and 2022, respectively.
The components of the income tax expense (benefit) are as follows:
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Current tax expense: | ||||||||||||
| Cayman | $ | $ | $ | |||||||||
| Hong Kong | ||||||||||||
| PRC | 685,937 | 1,357,697 | ||||||||||
| Sub-total | 685,937 | 1,357,697 | ||||||||||
| Deferred tax expense (benefit): | ||||||||||||
| Cayman | ||||||||||||
| Hong Kong | ||||||||||||
| PRC | 606,704 | 1,567,656 | (542,375 | ) | ||||||||
| Sub-total | 606,704 | 1,567,656 | (542,375 | ) | ||||||||
| Total income tax expense | $ | 606,704 | $ | 2,253,593 | $ | 815,322 | ||||||
The following table reconciles the China statutory rates to the Company’s effective tax rate for the years ended September 30, 2024, 2023 and 2022:
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Statutory PRC income tax rate | 25.0 | % | 25.0 | % | 25.0 | % | ||||||
| Effect of income tax holiday | (5.9 | )% | (8.2 | )% | (9.2 | )% | ||||||
| Permanent difference | % | (0.1 | )% | (25.1 | )% | |||||||
| Non-PRC entities not subject to PRC income tax | (2.7 | )% | (4.4 | )% | (2.2 | )% | ||||||
| Change in valuation allowance | (23.9 | )% | (64.4 | )% | % | |||||||
| Effective tax rate | (7.5 | )% | (52.1 | )% | (11.5 | )% | ||||||
F-
The Company continually evaluates expiring statutes of limitations, audits, proposed settlements, changes in tax law and new authoritative rulings. As of September 30, 2024, all of the Company’s tax returns of its PRC subsidiaries remain open for statutory examination by PRC tax authorities.
Deferred tax assets are composed of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Deferred tax assets: | ||||||||
| Net operating loss carry-forwards | $ | $ | 599,078 | |||||
| Allowance for doubtful accounts | - | |||||||
| Total | 599,078 | |||||||
| Valuation allowance | ||||||||
| Total deferred tax assets | $ | $ | 599,078 | |||||
The Company periodically evaluates the likelihood of the realization of deferred tax assets, and reduces the carrying amount of the deferred tax assets by a valuation allowance to the extent it believes a portion will not be realized. Management considers new evidence, both positive and negative, that could affect the Company’s future realization of deferred tax assets including its recent cumulative earnings experience, expectation of future income, the carry forward periods available for tax reporting purposes and other relevant factors. Jiangxi Universe and Universe Trade incurred net loss during the years ended September 30, 2024 and 2023, the Company determined that its deferred tax assets might not be realized, and recognized valuation allowance for all deferred tax assets as of September 30, 2024.
(b) Taxes payable
Taxes payable consist of the following:
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| Value added tax payable | $ | 873,750 | $ | 303,713 | ||||
| Other taxes payable | 147,431 | 131,045 | ||||||
| Total taxes payable | $ | 1,021,181 | $ | 434,758 | ||||
NOTE 16 — CONCENTRATIONS
A majority of the Company’s revenue and expense transactions are denominated in RMB and a significant portion of the Company’s and its subsidiaries’ assets and liabilities are denominated in RMB. RMB is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China (“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other China foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance.
As of September 30, 2024 and 2023, $4,430,607 and $5,223,573 of the Company’s cash, respectively, was on deposit at financial institutions in the PRC. For the years ended September 30, 2024, 2023 and 2022, the Company’s substantial assets were located in the PRC and the Company’s substantial revenues were derived from its subsidiaries located in the PRC.
F-
For the years ended September 30, 2024, 2023 and 2022, no single customer accounted for more than 10% of the Company’s total revenue. The Company’s top 10 customers aggregately accounted for 22.5%, 27.2% and 32.2% of the Company’s total revenue for the years ended September 30, 2024, 2023 and 2022, respectively.
Sales of one of the Company’s major products, Guben Yanling Pill, accounted for 37.2%, 36.4% and 42.5% of the Company’s total revenue for the years ended September 30, 2024, 2023 and 2022, respectively.
As of September 30, 2024 and 2023, no customer accounted for more than 10% of the total accounts receivable balance.
For the year ended September 30, 2024, two suppliers accounted for 28.0% and 13.4% of the total purchases, respectively. For the years ended September 30, 2023 and 2022, one supplier accounted for 29.6% and 10.3% of the total purchases, respectively.
NOTE 17 — 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 50,000 shares with par value of US$1.00 per share and 50,000 shares were issued. On August 7, 2020, the Company amended its Memorandum of Association to increase the authorized number of shares to 100,000,000 shares with par value of $0.003125 per share, and subdivide the original issued shares from 50,000 shares at par value of $1.00 per share to 16,000,000 ordinary shares with par value of $0.003125 per share. As a result of this forward split of the outstanding ordinary shares at a ratio of 320-for-1 share, a total of 16,000,000 shares were issued and outstanding after the split. The issuance of these 16,000,000 shares is considered as a part of the Reorganization of the Company, which was retroactively applied as if the transaction occurred at the beginning of the period presented.
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$312,500 divided into 90,000,000 ordinary shares of par value US$0.003125 each and 10,000,000 preferred shares of par value US$0.003125 each, to US$3,125,000 divided into 900,000,000 ordinary shares of par value US$0.003125 each and 100,000,000 preferred shares of par value US$0.003125 each; |
| (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$0.003125 each in the capital of the Company; and |
| (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. |
F-
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 900,000,000 ordinary shares with a par value of US$0.003125 per share to 150,000,000 ordinary shares with a par value of US$0.01875 per share; (b) issued and outstanding ordinary shares from 21,750,000 ordinary shares with a par value of US$0.003125 per share to 3,625,000 ordinary shares with a par value of US$0.01875 per share; and (c) authorized preferred shares from 100,000,000 preferred shares with a par value of US$0.003125 per share to 16,666,666.6666 preferred shares with a par value of US$0.01875 per share.
On July 15, 2024, the Company closed its self-underwritten public offering of 20,000,000 ordinary shares, par value $0.01875 per share. The ordinary shares were priced at $1.25 per share. The Company raised a total of $25 million through that offering, before deducting offering-related expenses, and net proceeds of $24.625 million.
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$3,125,000 divided into 150,000,000 ordinary shares of par value US$0.01875 each and 16,666,666.6666 preferred shares of par value US$0.01875 each, to US$140,625,000 divided into 6,750,000,000 ordinary shares of par value US$0.01875 each and 750,000,000 preferred shares of par value US$0.01875 each; |
| (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 15 Shares of the Company, or such lesser whole share amount as the board of directors of the Company 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. |
On November 12, 2024, the Company effected a share consolidation of 15 ordinary shares with par value of US$0.01875 per share each in the Company’s issued and unissued share capital into one (1) ordinary share with par value of US$0.28125. All fractional shares were rounded up to the whole number of shares. Immediately following the Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 450,000,000 ordinary shares, par value US$0.28125 per share and 50,000,000 preferred shares, par value US$0.28125 per share.
On March 24, 2025, the Company effected a share consolidation of 40 ordinary shares with par value of US$0.28125 per share each in the Company’s issued and unissued share capital into one ordinary share with par value of US$11.25. All fractional shares were rounded up to the whole number of shares. Immediately following the Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 11,250,000 ordinary shares, par value US$11.25 per share and 1,250,000 preferred shares, par value US$11.25 per share.
The Company’s consolidated financial statements were retrospectively restated for effect of the 15-for-1 and 40-for-1 Shares Consolidations (see Note 1). Giving effect to the Share Consolidation, there were 42,880 ordinary shares issued and outstanding as of September 30, 2024.
As of September 30, 2024 and 2023, the Company had a total of 42,880 and 6,062 ordinary shares issued and outstanding, respectively.
Underwriter warrants
In connection with the Company’s IPO, the Company also agreed to issue warrants to the underwriter, for a nominal consideration of $0.001 per warrant, to purchase 300,000 ordinary shares of the Company (equal to 6% of the total number of ordinary shares sold in the IPO, not including any ordinary shares sold in the over-allotment option) (the “Underwriter Warrants”). The Underwriter Warrants have a term of five years, each warrant is exercisable for 1/90 share, with an exercise price of $495 after adjustments due to share consolidations. The Underwriter Warrants may be purchased in cash or via cashless exercise, are exercisable for five (5) years, and will terminate on the fifth anniversary of the closing of the IPO. Management determined that the Underwriter Warrants meet the requirements for equity classification under ASC 815-40 because they are indexed to its own stock. As of September 30, 2024, the Underwriter Warrants were issued and outstanding, but none of them had been exercised. For the years ended September 30, 2024, 2023 and 2022, the Underwriter Warrants were antidilutive and accordingly were not included in the diluted EPS calculation based on treasury stock method.
F-
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 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion of the board of directors. The statutory reserve may be applied against prior year losses, if any, and may be used for general business expansion and production or increase in registered capital, but are not distributable as cash dividends.
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 September 30, 2024 and 2023, the restricted amounts as determined pursuant to PRC statutory laws totaled $2,439,535, and total restricted net assets amounted to $56,786,656 and $31,786,663, respectively.
NOTE 18 — 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 years ended September 30, 2024, 2023 and 2022, the Company did not have any material legal claims or litigation that, individually or in aggregate, could have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
The Company has an ongoing CIP project associated with the construction of a new manufacturing facility. As of September 30, 2024, future minimum capital expenditures on the Company’s CIP project amounted to approximately $13.7 million, among which, approximately $7.1 million is required for the next 12 months from the date of this report (see Note 11).
On May 6, 2021, the Company entered into a real estate property purchase agreement with Jiangxi Yueshang, an entity in which the Company’s chief executive officer, Mr. Gang Lai, owned 5% of its equity interests as of the date of that agreement. Pursuant to this purchase agreement, Jiangxi Yueshang will sell and the Company will 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 September 30, 2024, the Company had made a prepayment of RMB16 million (approximately $2.3 million) to Jiangxi Yueshang. The remaining balance is expected to be paid by April 2025 (see Note 12).
F-
NOTE 19 — SUBSEQUENT EVENTS
On November 12, 2024, the Company effected a share consolidation of 15 ordinary shares with par value of US$0.01875 per share each in the Company’s issued and unissued share capital into one (1) ordinary share with par value of US$0.28125. All fractional shares were rounded up to the whole number of shares. Immediately following the Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 450,000,000 ordinary shares, par value US$0.28125 per share and 50,000,000 preferred shares, par value US$0.28125 per share. The Company’s consolidated financial statements were retrospectively restated for effect of the 15-for-1 share consolidation.
On December 6, 2024, the Company entered into a securities purchase agreement (the “Securities Purchase Agreement”) with certain purchasers named thereto, pursuant to which the Company agreed to issue and sell (i) 388,000 ordinary shares (the “Offered Shares”), par value $0.28125 per share (the “ordinary shares”), (ii) 18,362,000 pre-funded warrants to purchase 18,362,000 ordinary shares (the “Pre-funded Warrants”), and (iii) 18,750,000 common warrants to purchase 18,750,000 ordinary shares (the “Common Warrants”), at a combined purchase price of US0.80 per Offered Share and one accompanying Common Warrant, or at a combined purchase price of US$0.79 per Pre-funded Warrant (in lieu of one Offered Share) and one accompanying Common Warrant, in a registered direct offering (the “Offering”). The Company received approximately $15.0 million in gross proceeds from the Offering, before deducting placement agent fees and estimated offering expenses.
On December 20, 2024, the equity transfer contract to transfer 51% ownership in Yunnan Faxi was terminated due to unsatisfactory performance of Yunnan Faxi. The prepayment for acquisition of $3,562,472 (RMB25 million) was reclassified to other receivable as of September 30, 2024, and collected back subsequently.
On March 24, 2025, the Company effected a share consolidation of 40 ordinary shares with par value of US$0.28125 per share each in the Company’s issued and unissued share capital into one ordinary share with par value of US$11.25. All fractional shares were rounded up to the whole number of shares. Immediately following the Share Consolidation, the authorized share capital of the Company was US$140,625,000 divided into 11,250,000 ordinary shares, par value US$11.25 per share and 1,250,000 preferred shares, par value US$11.25 per share.
The Company has assessed all subsequent events through the date that these consolidated financial statements are issued and there are no further material subsequent events that require disclosure in these consolidated financial statements.
NOTE 20 —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 25 percent of consolidated net assets as of the end of the most recently completed fiscal year. The Company performed a test on the restricted net assets of consolidated subsidiaries in accordance with such requirement and concluded that it was applicable to the Company as the restricted net assets of the Company’s subsidiaries exceeded 25% of the consolidated net assets of the Company. Therefore, the financial statements for the parent company are included herein.
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 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 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 consolidated financial statements of the Company. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S GAAP have been or omitted.
As of September 30, 2024 and 2023, 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 consolidated financial statements, if any.
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY BALANCE SHEETS
| As of September 30, | ||||||||
| 2024 | 2023 | |||||||
| ASSETS | ||||||||
| Cash | $ | 25,058,414 | $ | 9,248 | ||||
| Other receivable | 1,377,873 | 1,367,052 | ||||||
| Due from subsidiaries | 10,863,833 | 10,878,344 | ||||||
| Total current assets | 37,300,120 | 12,254,644 | ||||||
| Non-current assets | ||||||||
| Investment in subsidiaries | $ | 8,749,310 | $ | 15,715,509 | ||||
| Total assets | $ | 46,049,430 | $ | 27,970,153 | ||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Due to related parties | 497,014 | |||||||
| Accrued expense | 49,475 | |||||||
| TOTAL CURRENT LIABILITIES | $ | 546,489 | $ | |||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Ordinary shares, $11.25 par value, 11,250,000 shares authorized, 42,880 and 6,062 shares issued and outstanding as of September 30, 2024 and 2023, respectively * | 482,400 | 67,973 | ||||||
| Additional paid-in capital | 53,864,720 | 29,279,155 | ||||||
| (Accumulated deficit) Retained earnings | (7,732,033 | ) | 995,265 | |||||
| Accumulated other comprehensive loss | (1,112,146 | ) | (2,372,240 | ) | ||||
| Total shareholders’ equity | 45,502,941 | 27,970,153 | ||||||
| Total liabilities and shareholders’ equity | $ | 46,049,430 | $ | 27,970,153 | ||||
| * | Retrospectively restated for effect of 15-for-1 and 40-for-1 shares consolidations. |
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| Operating costs and expenses: | ||||||||||||
| General and administrative expenses | $ | (592,021 | ) | $ | (134,141 | ) | $ | (384,214 | ) | |||
| Other income (expenses): | ||||||||||||
| Other expenses | (87,292 | ) | (730 | ) | (420 | ) | ||||||
| Equity in earnings of subsidiaries | (8,047,985 | ) | (6,446,153 | ) | (7,525,004 | ) | ||||||
| Net loss | (8,727,298 | ) | (6,581,024 | ) | (7,909,638 | ) | ||||||
| Foreign currency translation adjustments | 1,260,094 | (779,351 | ) | (3,752,143 | ) | |||||||
| Comprehensive loss attributable to the Company | $ | (7,467,204 | ) | $ | (7,360,375 | ) | $ | (11,661,781 | ) | |||
F-
UNIVERSE PHARMACEUTICALS INC AND SUBSIDIARIES
PARENT COMPANY STATEMENTS OF CASH FLOWS
| For the Years Ended September 30, | ||||||||||||
| 2024 | 2023 | 2022 | ||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||
| Net loss | $ | (8,727,298 | ) | $ | (6,581,024 | ) | $ | (7,909,638 | ) | |||
| Adjustments to reconcile net cash flows from operating activities: | ||||||||||||
| Equity in earnings of subsidiary | 8,047,985 | 6,446,153 | 7,525,004 | |||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Due to related parties | 497,014 | |||||||||||
| Accrued expense | 49,475 | |||||||||||
| Net cash used in operating activities | (132,824 | ) | (134,871 | ) | (384,634 | ) | ||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||
| Net proceeds from issuance of ordinary shares | 24,999,992 | |||||||||||
| Cash repayment from subsidiaries | 14,511 | 115,133 | 303,746 | |||||||||
| Net cash provided by financing activities | 25,014,503 | 115,133 | 303,746 | |||||||||
| EFFECT OF CHANGES OF FOREIGN EXCHANGE RATES ON CASH | 167,487 | 69 | (588 | ) | ||||||||
| CHANGES IN CASH | 25,049,166 | (19,669 | ) | (81,476 | ) | |||||||
| CASH, beginning of year | 9,248 | 28,917 | 110,393 | |||||||||
| CASH, end of year | $ | 25,058,414 | $ | 9,248 | $ | 28,917 | ||||||
F-33
Exhibit 1.1
|
Companies Act (Revised)
Company Limited by Shares |
||
|
AMENDED AND RESTATED MEMORANDUM OF ASSOCIATION OF UNIVERSE PHARMACEUTICALS INC
大自然藥業股份有限公司
|
||
(Adopted by special resolution passed on 1 March
2025 and unanimous written director resolutions
passed on 20 February 2025, and made effective on 24 March 2025)
Companies Act (Revised)
Company Limited by Shares
Amended and Restated
Memorandum of Association
of
Universe Pharmaceuticals INC
大自然藥業股份有限公司
(Adopted by special
resolution passed on 1 March 2025 and unanimous written director resolutions
passed on 20 February 2025, and made effective on 24 March
2025)
| 1 | The name of the Company is Universe Pharmaceuticals INC. |
| 2 | The Company's registered office will be situated at the offices of Vistra (Cayman) Limited P.O. Box 31119, Grand Pavillion, Hibiscus Way, 802 West Bay Road, Grand Cayman, KY1 – 1205, Cayman Islands or at such other place in the Cayman Islands as the directors may at any time decide. |
| 3 | The Company's objects are unrestricted. As provided by section 7(4) of the Companies Act (Revised), the Company has full power and authority to carry out any object not prohibited by any law of the Cayman Islands. |
| 4 | The Company has unrestricted corporate capacity. Without limitation to the foregoing, as provided by section 27 (2) of the Companies Act (Revised), the Company has and is capable of exercising all the functions of a natural person of full capacity irrespective of any question of corporate benefit. |
| 5 | Nothing in any of the preceding paragraphs permits the Company to carry on any of the following businesses without being duly licensed, namely: |
| (a) | the business of a bank or trust company without being licensed in that behalf under the Banks and Trust Companies Act (Revised); or |
| (b) | insurance business from within the Cayman Islands or the business of an insurance manager, agent, sub-agent or broker without being licensed in that behalf under the Insurance Act (Revised);or |
| (c) | the business of company management without being licensed in that behalf under the Companies Management Act (Revised). |
| 6 | Unless licensed to do so, the Company will not trade in the Cayman Islands with any person, firm or corporation except in furtherance of its business carried on outside the Cayman Islands. Despite this, the Company may effect and conclude contracts in the Cayman Islands and exercise in the Cayman Islands any of its powers necessary for the carrying on of its business outside the Cayman Islands. |
| 7 | The Company is a company limited by shares and accordingly the liability of each member is limited to the amount (if any) unpaid on that member's shares. |
| 8 | The share capital of the Company is US$140,625,000 divided into 11,250,000 Ordinary Shares of par value US$11.25 each and 1,250,000 Preferred Shares of par value US$11.25 each. However, subject to the Companies Act (Revised) and the Company's articles of association, the Company has power to do any one or more of the following: |
| (a) | to redeem or repurchase any of its shares; and |
| (b) | to increase or reduce its capital; and |
| (c) | to issue any part of its capital (whether original, redeemed, increased or reduced): |
| (i) | with or without any preferential, deferred, qualified or special rights, privileges or conditions; or |
| (ii) | subject to any limitations or restrictions |
and unless the condition of issue expressly declares otherwise, every issue of shares (whether declared to be ordinary, preference or otherwise) is subject to this power; or
| (d) | to alter any of those rights, privileges, conditions, limitations or restrictions. |
| 9 | The Company has power to register by way of continuation as a body corporate limited by shares under the laws of any jurisdiction outside the Cayman Islands and to be deregistered in the Cayman Islands. |
|
Companies Act (Revised)
Company Limited By Shares |
|
SECOND AMENDED AND RESTATED OF UNIVERSE PHARMACEUTICALS INC
大自然藥業股份有限公司
|
|
(Adopted by special resolution passed on 23 September 2022) |
CONTENTS
| 1 | Definitions, interpretation and exclusion of Table A | 1 |
| Definitions | 1 | |
| Interpretation | 4 | |
| Exclusion of Table A Articles | 5 | |
| 2 | Shares | 5 |
| Power to issue Shares and options, with or without special rights | 5 | |
| Power to pay commissions and brokerage fees | 6 | |
| Trusts not recognised | 7 | |
| Security interests | 7 | |
| Power to vary class rights | 7 | |
| Effect of new Share issue on existing class rights | 7 | |
| No bearer Shares or warrants | 8 | |
| Treasury Shares | 8 | |
| Rights attaching to Treasury Shares and related matters | 8 | |
| Register of Members | 8 | |
| Annual Return | 9 | |
| 3 | Share certificates | 9 |
| Issue of share certificates | 9 | |
| Renewal of lost or damaged share certificates | 9 | |
| 4 | Lien on Shares | 10 |
| Nature and scope of lien | 10 | |
| Company may sell Shares to satisfy lien | 10 | |
| Authority to execute instrument of transfer | 10 | |
| Consequences of sale of Shares to satisfy lien | 11 | |
| Application of proceeds of sale | 11 | |
| 5 | Calls on Shares and forfeiture | 11 |
| Power to make calls and effect of calls | 11 | |
| Time when call made | 12 | |
| Liability of joint holders | 12 | |
| Interest on unpaid calls | 12 | |
| Deemed calls | 12 | |
| Power to accept early payment | 12 | |
| Power to make different arrangements at time of issue of Shares | 12 | |
| Notice of default | 13 | |
| Forfeiture or surrender of Shares | 13 | |
| Disposal of forfeited or surrendered Share and power to cancel forfeiture or surrender | 13 | |
| Effect of forfeiture or surrender on former Member | 13 | |
| Evidence of forfeiture or surrender | 14 | |
| Sale of forfeited or surrendered Shares | 14 | |
| 6 | Transfer of Shares | 14 |
| Right to transfer | 14 | |
| Suspension of transfers | 15 | |
| Company may retain instrument of transfer | 15 | |
| Notice of refusal to register | 15 | |
| 7 | Transmission of Shares | 16 |
| Persons entitled on death of a Member | 16 | |
| Registration of transfer of a Share following death or bankruptcy | 16 | |
| Indemnity | 16 | |
| Rights of person entitled to a Share following death or bankruptcy | 17 | |
| 8 | Alteration of capital | 17 |
| Increasing, consolidating, converting, dividing and cancelling share capital | 17 | |
| Dealing with fractions resulting from consolidation of Shares | 17 | |
| Reducing share capital | 18 | |
| 9 | Redemption and purchase of own Shares | 18 |
| Power to issue redeemable Shares and to purchase own Shares | 18 | |
| Power to pay for redemption or purchase in cash or in specie | 18 | |
| Effect of redemption or purchase of a Share | 19 | |
| 10 | Meetings of Members | 19 |
| Annual and extraordinary general meetings | 19 | |
| Power to call meetings | 19 | |
| Content of notice | 20 | |
| Period of notice | 21 | |
| Persons entitled to receive notice | 21 | |
| Accidental omission to give notice or non-receipt of notice | 21 | |
| 11 | Proceedings at meetings of Members | 22 |
| Quorum | 22 | |
| Lack of quorum | 22 | |
| Chairman | 22 | |
| Right of a Director to attend and speak | 22 | |
| Accommodation of Members at meeting | 23 | |
| Security | 23 | |
| Adjournment | 23 | |
| Method of voting | 23 | |
| Outcome of vote by show of hands | 24 | |
| Withdrawal of demand for a poll | 24 | |
| Taking of a poll | 24 | |
| Chairman’s casting vote | 24 | |
| Written resolutions | 24 | |
| Sole-Member Company | 25 | |
| 12 | Voting rights of Members | 25 |
| Right to vote | 25 | |
| Rights of joint holders | 26 | |
| Representation of corporate Members | 26 | |
| Member with mental disorder | 26 | |
| Objections to admissibility of votes | 27 | |
| Form of proxy | 27 | |
| How and when proxy is to be delivered | 27 | |
| Voting by proxy | 29 | |
| 13 | Number of Directors | 29 |
| 14 | Appointment, disqualification and removal of Directors | 29 |
| First Directors | 29 | |
| No age limit | 29 | |
| Corporate Directors | 30 | |
| No shareholding qualification | 30 | |
| Appointment of Directors | 30 | |
| Board’s power to appoint Directors | 30 | |
| Eligibility | 30 | |
| Appointment at annual general meeting | 31 | |
| Removal of Directors | 31 | |
| Resignation of Directors | 31 | |
| Termination of the office of Director | 31 | |
| 15 | Alternate Directors | 32 |
| Appointment and removal | 32 | |
| Notices | 33 | |
| Rights of alternate Director | 33 | |
| Appointment ceases when the appointor ceases to be a Director | 33 | |
| Status of alternate Director | 33 | |
| Status of the Director making the appointment | 33 | |
| 16 | Powers of Directors | 34 |
| Powers of Directors | 34 | |
| Directors below the minimum number | 34 | |
| Appointments to office | 34 | |
| Provisions for employees | 35 | |
| Exercise of voting rights | 35 | |
| Remuneration | 35 | |
| Disclosure of information | 36 | |
| 17 | Delegation of powers | 36 |
| Power to delegate any of the Directors’ powers to a committee | 36 | |
| Local boards | 37 | |
| Power to appoint an agent of the Company | 37 | |
| Power to appoint an attorney or authorised signatory of the Company | 37 | |
| Borrowing Powers | 38 | |
| Corporate Governance | 38 | |
| 18 | Meetings of Directors | 38 |
| Regulation of Directors’ meetings | 38 | |
| Calling meetings | 38 | |
| Notice of meetings | 38 | |
| Use of technology | 38 | |
| Quorum | 39 | |
| Chairman or deputy to preside | 39 | |
| Voting | 39 | |
| Recording of dissent | 39 | |
| Written resolutions | 39 | |
| Validity of acts of Directors in spite of formal defect | 40 | |
| 19 | Permissible Directors’ interests and disclosure | 40 |
| 20 | Minutes | 41 |
| 21 | Accounts and audit | 41 |
| Auditors | 42 | |
| 22 | Record dates | 42 |
| 23 | Dividends | 42 |
| Source of dividends | 42 | |
| Declaration of dividends by Members | 43 | |
| Payment of interim dividends and declaration of final dividends by Directors | 43 | |
| Apportionment of dividends | 44 | |
| Right of set off | 44 | |
| Power to pay other than in cash | 44 | |
| How payments may be made | 44 | |
| Dividends or other monies not to bear interest in absence of special rights | 45 | |
| Dividends unable to be paid or unclaimed | 45 | |
| 24 | Capitalisation of profits | 45 |
| Capitalisation of profits or of any share premium account or capital redemption reserve; | 45 | |
| Applying an amount for the benefit of Members | 46 | |
| 25 | Share Premium Account | 46 |
| Directors to maintain share premium account | 46 | |
| Debits to share premium account | 46 | |
| 26 | Seal | 46 |
| Company seal | 46 | |
| Duplicate seal | 47 | |
| When and how seal is to be used | 47 | |
| If no seal is adopted or used | 47 | |
| Power to allow non-manual signatures and facsimile printing of seal | 47 | |
| Validity of execution | 47 | |
| 27 | Indemnity | 48 |
| Release | 48 | |
| Insurance | 48 | |
| 28 | Notices | 49 |
| Form of notices | 49 | |
| Electronic communications | 49 | |
| Persons entitled to notices | 50 | |
| Persons authorised to give notices | 50 | |
| Delivery of written notices | 51 | |
| Joint holders | 51 | |
| Signatures | 51 | |
| Giving notice to a deceased or bankrupt Member | 51 | |
| Date of giving notices | 52 | |
| Saving provision | 52 | |
| 29 | Authentication of Electronic Records | 52 |
| Application of Articles | 52 | |
| Authentication of documents sent by Members by Electronic means | 52 | |
| Authentication of document sent by the Secretary or Officers of the Company by Electronic means | 53 | |
| Manner of signing | 53 | |
| Saving provision | 53 | |
| 30 | Transfer by way of continuation | 54 |
| 31 | Winding up | 54 |
| Distribution of assets in specie | 54 | |
| No obligation to accept liability | 55 | |
| 32 | Amendment of Memorandum and Articles | 55 |
| Power to change name or amend Memorandum | 55 | |
| Power to amend these Articles | 55 | |
Companies Act
(Revised)
Company Limited by Shares
Second Amended and Restated
Articles
of Association
of
Universe Pharmaceuticals INC
大自然藥業股份有限公司
(Adopted by special resolution passed on 23 September 2022)
| 1 | Definitions, interpretation and exclusion of Table A |
Definitions
| 1.1 | In these Articles, the following definitions apply: |
Act means the Companies Act (Revised) of the Cayman Islands, including any statutory modification or re-enactment thereof for the time being in force;
ADS means an American depository share representing an Ordinary Share;
Articles means, as appropriate:
| (a) | these articles of association as amended from time to time: or |
| (b) | two or more particular articles of these Articles; |
and Article refers to a particular article of these Articles;
Auditors means the auditor or auditors for the time being of the Company;
Board means the board of Directors from time to time;
Business Day means a day when banks in Grand Cayman, the Cayman Islands are open for the transaction of normal banking business and for the avoidance of doubt, shall not include a Saturday, Sunday or public holiday in the Cayman Islands;
Cayman Islands means the British Overseas Territory of the Cayman Islands;
Clear Days, in relation to a period of notice, means that period excluding:
| (a) | the day when the notice is given or deemed to be given; and |
| (b) | the day for which it is given or on which it is to take effect; |
Commission means Securities and Exchange Commission of the United States of America or other federal agency for the time being administering the U.S. Securities Act;
Company means the above-named company;
Default Rate means ten per cent per annum;
Designated Stock Exchanges means the Nasdaq Global Market in the United States of America for so long as the Company’s Shares or ADSs are there listed and any other stock exchange on which the Company’s Shares or ADSs are listed for trading;
Designated Stock Exchange Rules means the relevant code, rules and regulations, as amended, from time to time, applicable as a result of the original and continued listing of any Shares or ADSs on the Designated Stock Exchanges;
Directors means the directors for the time being of the Company and the expression Director shall be construed accordingly;
Electronic has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Electronic Record has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Electronic Signature has the meaning given to that term in the Electronic Transactions Act (Revised) of the Cayman Islands;
Fully Paid Up means:
| (a) | in relation to a Share with par value, means that the par value for that Share and any premium payable in respect of the issue of that Share, has been fully paid or credited as paid in money or money’s worth; and |
| (b) | in relation to a Share without par value, means that the agreed issue price for that Share has been fully paid or credited as paid in money or money’s worth; |
General Meeting means a general meeting of the Company duly constituted in accordance with the Articles;
Independent Director means a Director who is an independent director as defined in the Designated Stock Exchange Rules as determined by the Board;
Member means any person or persons entered on the register of Members from time to time as the holder of a Share;
Memorandum means the memorandum of association of the Company as amended from time to time;
month means a calendar month;
Officer means a person appointed to hold an office in the Company including a Director, alternate Director or liquidator and excluding the Secretary;
Ordinary Resolution means a resolution of a General Meeting passed by a simple majority of Members who (being entitled to do so) vote in person or by proxy at that meeting. The expression includes a unanimous written resolution;
Ordinary Share means an ordinary share in the capital of the Company;
Partly Paid Up means:
| (a) | in relation to a Share with par value, that the par value for that Share and any premium payable in respect of the issue of that Share, has not been fully paid or credited as paid in money or money’s worth; and |
| (b) | in relation to a Share without par value, means that the agreed issue price for that Share has not been fully paid or credited as paid in money or money’s worth; |
Preferred Share means a preferred share in the capital of the Company;
Secretary means a person appointed to perform the duties of the secretary of the Company, including a joint, assistant or deputy secretary;
Share means a share in the capital of the Company and the expression:
| (a) | includes stock (except where a distinction between shares and stock is expressed or implied); and |
| (b) | where the context permits, also includes a fraction of a Share; |
Special Resolution means a resolution of a General Meeting or a resolution of a meeting of the holders of any class of Shares in a class meeting duly constituted in accordance with the Articles in each case passed by a majority of not less than two-thirds of Members who (being entitled to do so) vote in person or by proxy at that meeting. The expression includes a unanimous written resolution;
Treasury Shares means Shares held in treasury pursuant to the Act and Article 2.13; and
U.S. Securities Act means the Securities Act of 1933 of the United States of America, as amended, or any similar federal statute and the rules and regulations of the Commission thereunder, all as the same shall be in effect at the time.
Interpretation
| 1.2 | In the interpretation of these Articles, the following provisions apply unless the context otherwise requires: |
| (a) | A reference in these Articles to a statute is a reference to a statute of the Cayman Islands as known by its short title, and includes: |
| (i) | any statutory modification, amendment or re-enactment; and |
| (ii) | any subordinate legislation or regulations issued under that statute. |
Without limitation to the preceding sentence, a reference to a revised Act of the Cayman Islands is taken to be a reference to the revision of that Act in force from time to time as amended from time to time.
| (b) | Headings are inserted for convenience only and do not affect the interpretation of these Articles, unless there is ambiguity. |
| (c) | If a day on which any act, matter or thing is to be done under these Articles is not a Business Day, the act, matter or thing must be done on the next Business Day. |
| (d) | A word which denotes the singular also denotes the plural, a word which denotes the plural also denotes the singular, and a reference to any gender also denotes the other genders. |
| (e) | A reference to a person includes, as appropriate, a company, trust, partnership, joint venture, association, body corporate or government agency. |
| (f) | Where a word or phrase is given a defined meaning another part of speech or grammatical form in respect to that word or phrase has a corresponding meaning. |
| (g) | All references to time are to be calculated by reference to time in the place where the Company’s registered office is located. |
| (h) | The words written and in writing include all modes of representing or reproducing words in a visible form, but do not include an Electronic Record where the distinction between a document in writing and an Electronic Record is expressed or implied. |
| (i) | The words including, include and in particular or any similar expression are to be construed without limitation. |
| 1.3 | The headings in these Articles are intended for convenience only and shall not affect the interpretation of these Articles. |
Exclusion of Table A Articles
| 1.4 | The regulations contained in Table A in the First Schedule of the Act and any other regulations contained in any statute or subordinate legislation are expressly excluded and do not apply to the Company. |
| 2 | Shares |
Power to issue Shares and options, with or without special rights
| 2.1 | Subject to the provisions of the Act and these Articles about the redemption and purchase of the Shares, the Directors have general and unconditional authority to allot (with or without confirming rights of renunciation), grant options over or otherwise deal with any unissued Shares to such persons, at such times and on such terms and conditions as they may decide. No Share may be issued at a discount except in accordance with the provisions of the Act. |
| 2.2 | Without limitation to the preceding Article, the Directors may so deal with the unissued Shares: |
| (a) | either at a premium or at par; or |
| (b) | with or without preferred, deferred or other special rights or restrictions, whether in regard to dividend, voting, return of capital or otherwise. |
| 2.3 | Without limitation to the two preceding Articles, the Directors may refuse to accept any application for Shares, and may accept any application in whole or in part, for any reason or for no reason. |
| 2.4 | Before any Preferred Shares of any series are issued, the Directors shall fix, by resolution or resolutions, the following provisions of such series: |
| (a) | the designation of such series and the number of Preferred Shares to constitute such series; |
| (b) | whether the shares of such series shall have voting rights, in addition to any voting rights provided by law, and, if so, the terms of such voting rights, which may be general or limited; |
| (c) | the dividends, if any, payable on such series, whether any such dividends shall be cumulative, and, if so, from what dates, the conditions and dates upon which such dividends shall be payable, the preference or relation which such dividends shall bear to the dividends payable on any Shares of any other class of Shares or any other series of Preferred Shares; |
| (d) | whether the Preferred Shares or such series shall be subject to redemption by the Company, and, if so, the times, prices and other conditions of such redemption; |
| (e) | the amount or amounts payable upon Preferred Shares of such series upon, and the rights of the holders of such series in, a voluntary or involuntary liquidation, dissolution or winding up, or upon any distribution of the assets, of the Company; |
| (f) | whether the Preferred Shares of such series shall be subject to the operation of a retirement or sinking fund and, if so, the extent to and manner in which any such retirement or sinking fund shall be applied to the purchase or redemption of the Preferred Shares of such series for retirement or other corporate purposes and the terms and provisions relative to the operation of the retirement or sinking fund; |
| (g) | whether the Preferred Shares of such series shall be convertible into, or exchangeable for, Shares of any other class of Shares or any other series of Preferred Shares or any other securities and, if so, the price or prices or the rate or rates of conversion or exchange and the method, if any, of adjusting the same, and any other terms and conditions of conversion or exchange; |
| (h) | the limitations and restrictions, if any, to be effective while any Preferred Shares of such series are outstanding upon the payment of dividends or the making of other distributions on, and upon the purchase, redemption or other acquisition by the Company of, the existing Shares or Shares of any other class of Shares or any other series of Preferred Shares; |
| (i) | the conditions or restrictions, if any, upon the creation of indebtedness of the Company or upon the issue of any additional Shares, including additional shares of such series or of any other class of Shares or any other series of Preferred Shares; and |
| (j) | any other powers, preferences and relative, participating, optional and other special rights, and any qualifications, limitations and restrictions of any other class of Shares or any other series of Preferred Shares. |
Power to pay commissions and brokerage fees
| 2.5 | The Company may pay a commission to any person in consideration of that person: |
| (a) | subscribing or agreeing to subscribe, whether absolutely or conditionally; or |
| (b) | procuring or agreeing to procure subscriptions, whether absolute or conditional, |
for any Shares. That commission may be satisfied by the payment of cash or the allotment of Fully Paid Up or Partly Paid Up Shares or partly in one way and partly in another.
| 2.6 | The Company may employ a broker in the issue of its capital and pay him any proper commission or brokerage. |
Trusts not recognised
| 2.7 | Except as required by law: |
| (a) | no person shall be recognised by the Company as holding any Share on any trust; and |
| (b) | no person other than the Member shall be recognised by the Company as having any right in a Share. |
Security interests
| 2.8 | Notwithstanding the preceding Article, the Company may (but shall not be obliged to) recognise a security interest of which it has actual notice over shares. The Company shall not be treated as having recognised any such security interest unless it has so agreed in writing with the secured party. |
Power to vary class rights
| 2.9 | If the share capital is divided into different classes of Shares then, unless the terms on which a class of Shares was issued state otherwise, the rights attaching to a class of Shares may only be varied if one of the following applies: |
| (a) | the Members holding not less than two-thirds of the issued Shares of that class consent in writing to the variation; or |
| (b) | the variation is made with the sanction of a Special Resolution passed at a separate general meeting of the Members holding the issued Shares of that class. |
| 2.10 | For the purpose of Article 2.9(b), all the provisions of these Articles relating to general meetings apply, mutatis mutandis, to every such separate meeting except that: |
| (a) | the necessary quorum shall be one or more persons holding, or representing by proxy, not less than one third of the issued Shares of the class; and |
| (b) | any Member holding issued Shares of the class, present in person or by proxy or, in the case of a corporate Member, by its duly authorised representative, may demand a poll. |
Effect of new Share issue on existing class rights
| 2.11 | Unless the terms on which a class of Shares was issued state otherwise, the rights conferred on the Member holding Shares of any class shall not be deemed to be varied by the creation or issue of further Shares ranking pari passu with the existing Shares of that class. |
No bearer Shares or warrants
| 2.12 | The Company shall not issue Shares or warrants to bearers. |
Treasury Shares
| 2.13 | Shares that the Company purchases, redeems or acquires by way of surrender in accordance with the Act shall be held as Treasury Shares and not treated as cancelled if: |
| (a) | the Directors so determine prior to the purchase, redemption or surrender of those shares; and |
| (b) | the relevant provisions of the Memorandum and Articles and the Act are otherwise complied with. |
Rights attaching to Treasury Shares and related matters
| 2.14 | No dividend may be declared or paid, and no other distribution (whether in cash or otherwise) of the Company’s assets (including any distribution of assets to Members on a winding up) may be made to the Company in respect of a Treasury Share. |
| 2.15 | The Company shall be entered in the register of Members as the holder of the Treasury Shares. However: |
| (a) | the Company shall not be treated as a Member for any purpose and shall not exercise any right in respect of the Treasury Shares, and any purported exercise of such a right shall be void; and |
| (b) | a Treasury Share shall not be voted, directly or indirectly, at any meeting of the Company and shall not be counted in determining the total number of issued shares at any given time, whether for the purposes of these Articles or the Act. |
| 2.16 | Nothing in Article 2.15 prevents an allotment of Shares as Fully Paid Up bonus shares in respect of a Treasury Share and Shares allotted as Fully Paid Up bonus shares in respect of a Treasury Share shall be treated as Treasury Shares. |
| 2.17 | Treasury Shares may be disposed of by the Company in accordance with the Act and otherwise on such terms and conditions as the Directors determine. |
Register of Members
| 2.18 | The Directors shall keep or cause to be kept a register of Members as required by the Act and may cause the Company to maintain one or more branch registers as contemplated by the Act, provided that where the Company is maintaining one or more branch registers, the Directors shall ensure that a duplicate of each branch register is kept with the Company’s principal register of Members and updated within such number of days of any amendment having been made to such branch register as may be required by the Act. |
Annual Return
| 2.19 | The Directors in each calendar year shall prepare or cause to be prepared an annual return and declaration setting forth the particulars required by the Act and shall deliver a copy thereof to the registrar of companies for the Cayman Islands. |
| 3 | Share certificates |
Issue of share certificates
| 3.1 | A Member shall only be entitled to a share certificate if the Directors resolve that share certificates shall be issued. Share certificates representing Shares, if any, shall be in such form as the Directors may determine. If the Directors resolve that share certificates shall be issued, upon being entered in the register of Members as the holder of a Share, the Directors may issue to any Member: |
| (a) | without payment, one certificate for all the Shares of each class held by that Member (and, upon transferring a part of the Member’s holding of Shares of any class, to a certificate for the balance of that holding); and |
| (b) | upon payment of such reasonable sum as the Directors may determine for every certificate after the first, several certificates each for one or more of that Member’s Shares. |
| 3.2 | Every certificate shall specify the number, class and distinguishing numbers (if any) of the Shares to which it relates and whether they are Fully Paid Up or Partly Paid Up. A certificate may be executed under seal or executed in such other manner as the Directors determine. |
| 3.3 | Every certificate shall bear legends required under the applicable laws, including the U.S. Securities Act. |
| 3.4 | The Company shall not be bound to issue more than one certificate for Shares held jointly by several persons and delivery of a certificate for a Share to one joint holder shall be a sufficient delivery to all of them. |
Renewal of lost or damaged share certificates
| 3.5 | If a share certificate is defaced, worn-out, lost or destroyed, it may be renewed on such terms (if any) as to: |
| (a) | evidence; |
| (b) | indemnity; |
| (c) | payment of the expenses reasonably incurred by the Company in investigating the evidence; and |
| (d) | payment of a reasonable fee, if any for issuing a replacement share certificate, |
as the Directors may determine, and (in the case of defacement or wearing-out) on delivery to the Company of the old certificate.
| 4 | Lien on Shares |
Nature and scope of lien
| 4.1 | The Company has a first and paramount lien on all Shares (whether Fully Paid Up or not) registered in the name of a Member (whether solely or jointly with others). The lien is for all monies payable to the Company by the Member or the Member’s estate: |
| (a) | either alone or jointly with any other person, whether or not that other person is a Member; and |
| (b) | whether or not those monies are presently payable. |
| 4.2 | At any time the Board may declare any Share to be wholly or partly exempt from the provisions of this Article. |
Company may sell Shares to satisfy lien
| 4.3 | The Company may sell any Shares over which it has a lien if all of the following conditions are met: |
| (a) | the sum in respect of which the lien exists is presently payable; |
| (b) | the Company gives notice to the Member holding the Share (or to the person entitled to it in consequence of the death or bankruptcy of that Member) demanding payment and stating that if the notice is not complied with the Shares may be sold; and |
| (c) | that sum is not paid within fourteen Clear Days after that notice is deemed to be given under these Articles, |
and Shares to which this Article 4.3 applies shall be referred to as Lien Default Shares.
| 4.4 | The Lien Default Shares may be sold in such manner as the Board determines. |
| 4.5 | To the maximum extent permitted by law, the Directors shall incur no personal liability to the Member concerned in respect of the sale. |
Authority to execute instrument of transfer
| 4.6 | To give effect to a sale, the Directors may authorise any person to execute an instrument of transfer of the Lien Default Shares sold to, or in accordance with the directions of, the purchaser. |
| 4.7 | The title of the transferee of the Lien Default Shares shall not be affected by any irregularity or invalidity in the proceedings in respect of the sale. |
Consequences of sale of Shares to satisfy lien
| 4.8 | On a sale pursuant to the preceding Articles: |
| (a) | the name of the Member concerned shall be removed from the register of Members as the holder of those Lien Default Shares; and |
| (b) | that person shall deliver to the Company for cancellation the certificate (if any) for those Lien Default Shares. |
| 4.9 | Notwithstanding the provisions of Article 4.8, such person shall remain liable to the Company for all monies which, at the date of sale, were presently payable by him to the Company in respect of those Lien Default Shares. That person shall also be liable to pay interest on those monies from the date of sale until payment at the rate at which interest was payable before that sale or, failing that, at the Default Rate. The Board may waive payment wholly or in part or enforce payment without any allowance for the value of the Lien Default Shares at the time of sale or for any consideration received on their disposal. |
Application of proceeds of sale
| 4.10 | The net proceeds of the sale, after payment of the costs, shall be applied in payment of so much of the sum for which the lien exists as is presently payable. Any residue shall be paid to the person whose Lien Default Shares have been sold: |
| (a) | if no certificate for the Lien Default Shares was issued, at the date of the sale; or |
| (b) | if a certificate for the Lien Default Shares was issued, upon surrender to the Company of that certificate for cancellation |
but, in either case, subject to the Company retaining a like lien for all sums not presently payable as existed on the Lien Default Shares before the sale.
| 5 | Calls on Shares and forfeiture |
Power to make calls and effect of calls
| 5.1 | Subject to the terms of allotment, the Board may make calls on the Members in respect of any monies unpaid on their Shares including any premium. The call may provide for payment to be by instalments. Subject to receiving at least 14 Clear Days’ notice specifying when and where payment is to be made, each Member shall pay to the Company the amount called on his Shares as required by the notice. |
| 5.2 | Before receipt by the Company of any sum due under a call, that call may be revoked in whole or in part and payment of a call may be postponed in whole or in part. Where a call is to be paid in instalments, the Company may revoke the call in respect of all or any remaining instalments in whole or in part and may postpone payment of all or any of the remaining instalments in whole or in part. |
| 5.3 | A Member on whom a call is made shall remain liable for that call notwithstanding the subsequent transfer of the Shares in respect of which the call was made. He shall not be liable for calls made after he is no longer registered as Member in respect of those Shares. |
Time when call made
| 5.4 | A call shall be deemed to have been made at the time when the resolution of the Directors authorising the call was passed. |
Liability of joint holders
| 5.5 | Members registered as the joint holders of a Share shall be jointly and severally liable to pay all calls in respect of the Share. |
Interest on unpaid calls
| 5.6 | If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid: |
| (a) | at the rate fixed by the terms of allotment of the Share or in the notice of the call; or |
| (b) | if no rate is fixed, at the Default Rate. |
The Directors may waive payment of the interest wholly or in part.
Deemed calls
| 5.7 | Any amount payable in respect of a Share, whether on allotment or on a fixed date or otherwise, shall be deemed to be payable as a call. If the amount is not paid when due the provisions of these Articles shall apply as if the amount had become due and payable by virtue of a call. |
Power to accept early payment
| 5.8 | The Company may accept from a Member the whole or a part of the amount remaining unpaid on Shares held by him although no part of that amount has been called up. |
Power to make different arrangements at time of issue of Shares
| 5.9 | Subject to the terms of allotment, the Directors may make arrangements on the issue of Shares to distinguish between Members in the amounts and times of payment of calls on their Shares. |
Notice of default
| 5.10 | If a call remains unpaid after it has become due and payable the Directors may give to the person from whom it is due not less than 14 Clear Days’ notice requiring payment of: |
| (a) | the amount unpaid; |
| (b) | any interest which may have accrued; |
| (c) | any expenses which have been incurred by the Company due to that person’s default. |
| 5.11 | The notice shall state the following: |
| (a) | the place where payment is to be made; and |
| (b) | a warning that if the notice is not complied with the Shares in respect of which the call is made will be liable to be forfeited. |
Forfeiture or surrender of Shares
| 5.12 | If the notice given pursuant to Article 5.10 is not complied with, the Directors may, before the payment required by the notice has been received, resolve that any Share the subject of that notice be forfeited. The forfeiture shall include all dividends or other monies payable in respect of the forfeited Share and not paid before the forfeiture. Despite the foregoing, the Board may determine that any Share the subject of that notice be accepted by the Company as surrendered by the Member holding that Share in lieu of forfeiture. |
Disposal of forfeited or surrendered Share and power to cancel forfeiture or surrender
| 5.13 | A forfeited or surrendered Share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the Board determine either to the former Member who held that Share or to any other person. The forfeiture or surrender may be cancelled on such terms as the Directors think fit at any time before a sale, re-allotment or other disposition. Where, for the purposes of its disposal, a forfeited or surrendered Share is to be transferred to any person, the Directors may authorise some person to execute an instrument of transfer of the Share to the transferee. |
Effect of forfeiture or surrender on former Member
| 5.14 | On forfeiture or surrender: |
| (a) | the name of the Member concerned shall be removed from the register of Members as the holder of those Shares and that person shall cease to be a Member in respect of those Shares; and |
| (b) | that person shall surrender to the Company for cancellation the certificate (if any) for the forfeited or surrendered Shares. |
| 5.15 | Despite the forfeiture or surrender of his Shares, that person shall remain liable to the Company for all monies which at the date of forfeiture or surrender were presently payable by him to the Company in respect of those Shares together with: |
| (a) | all expenses; and |
| (b) | interest from the date of forfeiture or surrender until payment: |
| (i) | at the rate of which interest was payable on those monies before forfeiture; or |
| (ii) | if no interest was so payable, at the Default Rate. |
The Directors, however, may waive payment wholly or in part.
Evidence of forfeiture or surrender
| 5.16 | A declaration, whether statutory or under oath, made by a Director or the Secretary shall be conclusive evidence of the following matters stated in it as against all persons claiming to be entitled to forfeited Shares: |
| (a) | that the person making the declaration is a Director or Secretary of the Company, and |
| (b) | that the particular Shares have been forfeited or surrendered on a particular date. |
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the Shares.
Sale of forfeited or surrendered Shares
| 5.17 | Any person to whom the forfeited or surrendered Shares are disposed of shall not be bound to see to the application of the consideration, if any, of those Shares nor shall his title to the Shares be affected by any irregularity in, or invalidity of the proceedings in respect of, the forfeiture, surrender or disposal of those Shares. |
| 6 | Transfer of Shares |
Right to transfer
| 6.1 | The instrument of transfer of any Share shall be in writing and in any usual or common form or such other form as the Directors may, in their absolute discretion, approve and be executed by or on behalf of the transferor and if in respect of a nil or Partly Paid Up Share, or if so required by the Directors, shall also be executed on behalf of the transferee and shall be accompanied by the certificate (if any) of the Shares to which it relates and such other evidence as the Directors may reasonably require to show the right of the transferor to make the transfer. The transferor shall be deemed to remain a Member until the name of the transferee is entered in the register of Members in respect of the relevant Shares. |
| 6.2 | The Directors may in their absolute discretion decline to register any transfer of Shares which is not Fully Paid Up or on which the Company has a lien. |
| 6.3 | The Directors may also, but are not required to, decline to register any transfer of any Share unless: |
| (a) | the instrument of transfer is lodged with the Company, accompanied by the certificate (if any) for the Shares to which it relates and such other evidence as the Board may reasonably require to show the right of the transferor to make the transfer; |
| (b) | the instrument of transfer is in respect of only one class of Shares; |
| (c) | the instrument of transfer is properly stamped, if required; |
| (d) | in the case of a transfer to joint holders, the number of joint holders to whom the Share is to be transferred does not exceed four; |
| (e) | the Shares transferred are Fully Paid Up and free of any lien in favour of the Company; and |
| (f) | any applicable fee of such maximum sum as the Designated Stock Exchanges may determine to be payable, or such lesser sum as the Board may from time to time require, related to the transfer is paid to the Company. |
Suspension of transfers
| 6.4 | The registration of transfers may, on 14 days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and the register of Members closed at such times and for such periods as the Directors may, in their absolute discretion, from time to time determine, provided always that such registration of transfer shall not be suspended nor the register of Members closed for more than 30 days in any year. |
Company may retain instrument of transfer
| 6.5 | All instruments of transfer that are registered shall be retained by the Company. |
Notice of refusal to register
| 6.6 | If the Directors refuse to register a transfer of any Shares, they shall within three months after the date on which the instrument of transfer was lodged with the Company send to each of the transferor and the transferee notice of the refusal. |
| 7 | Transmission of Shares |
Persons entitled on death of a Member
| 7.1 | If a Member dies, the only persons recognised by the Company as having any title to the deceased Members’ interest are the following: |
| (a) | where the deceased Member was a joint holder, the survivor or survivors; and |
| (b) | where the deceased Member was a sole holder, that Member’s personal representative or representatives. |
| 7.2 | Nothing in these Articles shall release the deceased Member’s estate from any liability in respect of any Share, whether the deceased was a sole holder or a joint holder. |
Registration of transfer of a Share following death or bankruptcy
| 7.3 | A person becoming entitled to a Share in consequence of the death or bankruptcy of a Member may elect to do either of the following: |
| (a) | to become the holder of the Share; or |
| (b) | to transfer the Share to another person. |
| 7.4 | That person must produce such evidence of his entitlement as the Directors may properly require. |
| 7.5 | If the person elects to become the holder of the Share, he must give notice to the Company to that effect. For the purposes of these Articles, that notice shall be treated as though it were an executed instrument of transfer. |
| 7.6 | If the person elects to transfer the Share to another person then: |
| (a) | if the Share is Fully Paid Up, the transferor must execute an instrument of transfer; and |
| (b) | if the Share is nil or Partly Paid Up, the transferor and the transferee must execute an instrument of transfer. |
| 7.7 | All the Articles relating to the transfer of Shares shall apply to the notice or, as appropriate, the instrument of transfer. |
Indemnity
| 7.8 | A person registered as a Member by reason of the death or bankruptcy of another Member shall indemnify the Company and the Directors against any loss or damage suffered by the Company or the Directors as a result of that registration. |
Rights of person entitled to a Share following death or bankruptcy
| 7.9 | A person becoming entitled to a Share by reason of the death or bankruptcy of a Member shall have the rights to which he would be entitled if he were registered as the holder of the Share. But, until he is registered as Member in respect of the Share, he shall not be entitled to attend or vote at any meeting of the Company or at any separate meeting of the holders of that class of Shares. |
| 8 | Alteration of capital |
Increasing, consolidating, converting, dividing and cancelling share capital
| 8.1 | To the fullest extent permitted by the Act, the Company may by Ordinary Resolution do any of the following and amend its Memorandum for that purpose: |
| (a) | increase its share capital by new Shares of the amount fixed by that Ordinary Resolution and with the attached rights, priorities and privileges set out in that Ordinary Resolution; |
| (b) | consolidate and divide all or any of its share capital into Shares of larger amount than its existing Shares; |
| (c) | convert all or any of its Paid Up Shares into stock, and reconvert that stock into Paid Up Shares of any denomination; |
| (d) | sub-divide its Shares or any of them into Shares of an amount smaller than that fixed by the Memorandum, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced Share shall be the same as it was in case of the Share from which the reduced Share is derived; and |
| (e) | cancel Shares which, at the date of the passing of that Ordinary Resolution, have not been taken or agreed to be taken by any person, and diminish the amount of its share capital by the amount of the Shares so cancelled or, in the case of Shares without nominal par value, diminish the number of Shares into which its capital is divided. |
Dealing with fractions resulting from consolidation of Shares
| 8.2 | Whenever, as a result of a consolidation of Shares, any Members would become entitled to fractions of a Share the Directors may on behalf of those Members deal with the fractions as it thinks fit, including (without limitation): |
| (a) | either round up or down the fraction to the nearest whole number, such rounding to be determined by the Directors acting in their sole discretion; or |
| (b) | sell the Shares representing the fractions for the best price reasonably obtainable to any person (including, subject to the provisions of the Act, the Company); and |
| (c) | distribute the net proceeds in due proportion among those Members. |
| 8.3 | For the purposes of Article 8.2, the Directors may authorise some person to execute an instrument of transfer of the Shares to, in accordance with the directions of, the purchaser. The transferee shall not be bound to see to the application of the purchase money nor shall the transferee’s title to the Shares be affected by any irregularity in, or invalidity of, the proceedings in respect of the sale. |
Reducing share capital
| 8.4 | Subject to the Act and to any rights for the time being conferred on the Members holding a particular class of Shares, the Company may, by Special Resolution, reduce its share capital in any way. |
| 9 | Redemption and purchase of own Shares |
Power to issue redeemable Shares and to purchase own Shares
| 9.1 | Subject to the Act and to any rights for the time being conferred on the Members holding a particular class of Shares, the Company may by its Directors: |
| (a) | issue Shares that are to be redeemed or liable to be redeemed, at the option of the Company or the Member holding those redeemable Shares, on the terms and in the manner its Directors determine before the issue of those Shares; |
| (b) | with the consent by Special Resolution of the Members holding Shares of a particular class, vary the rights attaching to that class of Shares so as to provide that those Shares are to be redeemed or are liable to be redeemed at the option of the Company on the terms and in the manner which the Directors determine at the time of such variation; and |
| (c) | purchase all or any of its own Shares of any class including any redeemable Shares on the terms and in the manner which the Directors determine at the time of such purchase. |
The Company may make a payment in respect of the redemption or purchase of its own Shares in any manner authorised by the Act, including out of any combination of the following: capital, its profits and the proceeds of a fresh issue of Shares.
Power to pay for redemption or purchase in cash or in specie
| 9.2 | When making a payment in respect of the redemption or purchase of Shares, the Directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorised by the terms of the allotment of those Shares or by the terms applying to those Shares in accordance with Article 9.1, or otherwise by agreement with the Member holding those Shares. |
Effect of redemption or purchase of a Share
| 9.3 | Upon the date of redemption or purchase of a Share: |
| (a) | the Member holding that Share shall cease to be entitled to any rights in respect of the Share other than the right to receive: |
| (i) | the price for the Share; and |
| (ii) | any dividend declared in respect of the Share prior to the date of redemption or purchase; |
| (b) | the Member’s name shall be removed from the register of Members with respect to the Share; and |
| (c) | the Share shall be cancelled or held as a Treasury Share, as the Directors may determine. |
| 9.4 | For the purpose of Article 9.3, the date of redemption or purchase is the date when the Member’s name is removed from the register of Members with respect to the Shares the subject of the redemption or purchase. |
| 10 | Meetings of Members |
Annual and extraordinary general meetings
| 10.1 | The Company may, but shall not (unless required by the Designated Stock Exchange Rules) be obligated to, in each year hold a general meeting as an annual general meeting, which, if held, shall be convened by the Board, in accordance with these Articles. |
| 10.2 | All general meetings other than annual general meetings shall be called extraordinary general meetings. |
Power to call meetings
| 10.3 | The Directors may call a general meeting at any time. |
| 10.4 | If there are insufficient Directors to constitute a quorum and the remaining Directors are unable to agree on the appointment of additional Directors, the Directors must call a general meeting for the purpose of appointing additional Directors. |
| 10.5 | The Directors must also call a general meeting if requisitioned in the manner set out in the next two Articles. |
| 10.6 | The requisition must be in writing and given by one or more Members who together hold at least ten per cent of the rights to vote at such general meeting. |
| 10.7 | The requisition must also: |
| (a) | specify the purpose of the meeting. |
| (b) | be signed by or on behalf of each requisitioner (and for this purpose each joint holder shall be obliged to sign). The requisition may consist of several documents in like form signed by one or more of the requisitioners; and |
| (c) | be delivered in accordance with the notice provisions. |
| 10.8 | Should the Directors fail to call a general meeting within 21 Clear Days’ from the date of receipt of a requisition, the requisitioners or any of them may call a general meeting within three months after the end of that period. |
| 10.9 | Without limitation to the foregoing, if there are insufficient Directors to constitute a quorum and the remaining Directors are unable to agree on the appointment of additional Directors, any one or more Members who together hold at least five per cent of the rights to vote at a general meeting may call a general meeting for the purpose of considering the business specified in the notice of meeting which shall include as an item of business the appointment of additional Directors. |
| 10.10 | If the Members call a meeting under the above provisions, the Company shall reimburse their reasonable expenses. |
Content of notice
| 10.11 | Notice of a general meeting shall specify each of the following: |
| (a) | the place, the date and the hour of the meeting; |
| (b) | if the meeting is to be held in two or more places, the technology that will be used to facilitate the meeting; |
| (c) | subject to paragraph (d) and the requirements of (to the extent applicable) the Designated Stock Exchange Rules, the general nature of the business to be transacted; and |
| (d) | if a resolution is proposed as a Special Resolution, the text of that resolution. |
| 10.12 | In each notice there shall appear with reasonable prominence the following statements: |
| (a) | that a Member who is entitled to attend and vote is entitled to appoint one or more proxies to attend and vote instead of that Member; and |
| (b) | that a proxyholder need not be a Member. |
Period of notice
| 10.13 | At least twenty-one Clear Days’ notice of an annual general meeting must be given to Members. For any other general meeting, at least fourteen Clear Days’ notice must be given to Members. |
| 10.14 | Subject to the Act, a meeting may be convened on shorter notice, subject to the Act with the consent of the Member or Members who, individually or collectively, hold at least ninety per cent of the voting rights of all those who have a right to vote at that meeting. |
Persons entitled to receive notice
| 10.15 | Subject to the provisions of these Articles and to any restrictions imposed on any Shares, the notice shall be given to the following people: |
| (a) | the Members |
| (b) | persons entitled to a Share in consequence of the death or bankruptcy of a Member; |
| (c) | the Directors; and |
| (d) | the Auditors. |
| 10.16 | The Board may determine that the Members entitled to receive notice of a meeting are those persons entered on the register of Members at the close of business on a day determined by the Board. |
Accidental omission to give notice or non-receipt of notice
| 10.17 | Proceedings at a meeting shall not be invalidated by the following: |
| (a) | an accidental failure to give notice of the meeting to any person entitled to notice; or |
| (b) | non-receipt of notice of the meeting by any person entitled to notice. |
| 10.18 | In addition, where a notice of meeting is published on a website proceedings at the meeting shall not be invalidated merely because it is accidentally published: |
| (a) | in a different place on the website; or |
| (b) | for part only of the period from the date of the notification until the conclusion of the meeting to which the notice relates. |
| 11 | Proceedings at meetings of Members Quorum |
| 11.1 | Save as provided in the following Article, no business shall be transacted at any meeting unless a quorum is present in person or by proxy. A quorum is as follows: |
| (a) | if the Company has only one Member: that Member; |
| (b) | if the Company has more than one Member: one or more Members holding Shares that represent not less than one-third of the outstanding Shares carrying the right to vote at such general meeting. |
Lack of quorum
| 11.2 | If a quorum is not present within fifteen minutes of the time appointed for the meeting, or if at any time during the meeting it becomes inquorate, then the following provisions apply: |
| (a) | If the meeting was requisitioned by Members, it shall be cancelled. |
| (b) | In any other case, the meeting shall stand adjourned to the same time and place seven days hence, or to such other time or place as is determined by the Directors. If a quorum is not present within fifteen minutes of the time appointed for the adjourned meeting, then the Members present in person or by proxy shall constitute a quorum. |
Chairman
| 11.3 | The chairman of a general meeting shall be the chairman of the Board or such other Director as the Directors have nominated to chair Board meetings in the absence of the chairman of the Board. Absent any such person being present within fifteen minutes of the time appointed for the meeting, the Directors present shall elect one of their number to chair the meeting. |
| 11.4 | If no Director is present within fifteen minutes of the time appointed for the meeting, or if no Director is willing to act as chairman, the Members present in person or by proxy and entitled to vote shall choose one of their number to chair the meeting. |
Right of a Director to attend and speak
| 11.5 | Even if a Director is not a Member, he shall be entitled to attend and speak at any general meeting and at any separate meeting of Members holding a particular class of Shares. |
Accommodation of Members at meeting
| 11.6 | lf it appears to the chairman of the meeting that the meeting place specified in the notice convening the meeting is inadequate to accommodate all Members entitled and wishing to attend, the meeting will be duly constituted and its proceedings valid if the chairman is satisfied that adequate facilities are available to ensure that a Member who is unable to be accommodated is able (whether at the meeting place or elsewhere): |
| (a) | to participate in the business for which the meeting has been convened; |
| (b) | to hear and see all persons present who speak (whether by the use of microphones, loud-speakers, audio-visual communications equipment or otherwise); and |
| (c) | to be heard and seen by all other persons present in the same way. |
Security
| 11.7 | In addition to any measures which the Board may be required to take due to the location or venue of the meeting, the Board may make any arrangement and impose any restriction it considers appropriate and reasonable in the circumstances to ensure the security of a meeting including, without limitation, the searching of any person attending the meeting and the imposing of restrictions on the items of personal property that may be taken into the meeting place. The Board may refuse entry to, or eject from, a meeting a person who refuses to comply with any such arrangements or restrictions. |
Adjournment
| 11.8 | The chairman may at any time adjourn a meeting with the consent of the Members constituting a quorum. The chairman must adjourn the meeting if so directed by the meeting. No business, however, can be transacted at an adjourned meeting other than business which might properly have been transacted at the original meeting. |
| 11.9 | Should a meeting be adjourned for more than 7 Clear Days, whether because of a lack of quorum or otherwise, Members shall be given at least seven Clear Days’ notice of the date, time and place of the adjourned meeting and the general nature of the business to be transacted. Otherwise it shall not be necessary to give any notice of the adjournment. |
Method of voting
| 11.10 | A resolution put to the vote of the meeting shall be decided on a show of hands unless before, or on, the declaration of the result of the show of hands, a poll is duly demanded. Subject to the Act, a poll may be demanded: |
| (a) | by the chairman of the meeting; |
| (b) | by at least two Members having the right to vote on the resolutions; |
| (c) | by any Member or Members present who, individually or collectively, hold at least ten per cent of the voting rights of all those who have a right to vote on the resolution. |
Outcome of vote by show of hands
| 11.11 | Unless a poll is duly demanded, a declaration by the chairman as to the result of a resolution and an entry to that effect in the minutes of the meeting shall be conclusive evidence of the outcome of a show of hands without proof of the number or proportion of the votes recorded in favour of or against the resolution. |
Withdrawal of demand for a poll
| 11.12 | The demand for a poll may be withdrawn before the poll is taken, but only with the consent of the chairman. The chairman shall announce any such withdrawal to the meeting and, unless another person forthwith demands a poll, any earlier show of hands on that resolution shall be treated as the vote on that resolution; if there has been no earlier show of hands, then the resolution shall be put to the vote of the meeting. |
Taking of a poll
| 11.13 | A poll demanded on the question of adjournment shall be taken immediately. |
| 11.14 | A poll demanded on any other question shall be taken either immediately or at an adjourned meeting at such time and place as the chairman directs, not being more than thirty Clear Days after the poll was demanded. |
| 11.15 | The demand for a poll shall not prevent the meeting continuing to transact any business other than the question on which the poll was demanded. |
| 11.16 | A poll shall be taken in such manner as the chairman directs. He may appoint scrutineers (who need not be Members) and fix a place and time for declaring the result of the poll. If, through the aid of technology, the meeting is held in more than place, the chairman may appoint scrutineers in more than place; but if he considers that the poll cannot be effectively monitored at that meeting, the chairman shall adjourn the holding of the poll to a date, place and time when that can occur. |
Chairman’s casting vote
| 11.17 | In the case of an equality of votes, whether on a show of hands or on a poll, the Chairman of the meeting at which the show of hands takes place or at which the poll is demanded shall not be entitled to a second or casting vote. |
Written resolutions
| 11.18 | Members may pass a resolution in writing without holding a meeting if the following conditions are met: |
| (a) | all Members entitled to vote are given notice of the resolution as if the same were being proposed at a meeting of Members; |
| (b) | all Members entitled so to vote; |
| (i) | sign a document; or |
| (ii) | sign several documents in the like form each signed by one or more of those Members; and |
| (c) | the signed document or documents is or are delivered to the Company, including, if the Company so nominates, by delivery of an Electronic Record by Electronic means to the address specified for that purpose. |
| (d) | Such written resolution shall be as effective as if it had been passed at a meeting of the Members entitled to vote duly convened and held. |
| 11.19 | If a written resolution is described as a Special Resolution or as an Ordinary Resolution, it has effect accordingly. |
| 11.20 | The Directors may determine the manner in which written resolutions shall be put to Members. In particular, they may provide, in the form of any written resolution, for each Member to indicate, out of the number of votes the Member would have been entitled to cast at a meeting to consider the resolution, how many votes he wishes to cast in favour of the resolution and how many against the resolution or to be treated as abstentions. The result of any such written resolution shall be determined on the same basis as on a poll. |
Sole-Member Company
| 11.21 | If the Company has only one Member, and the Member records in writing his decision on a question, that record shall constitute both the passing of a resolution and the minute of it. |
| 12 | Voting rights of Members |
Right to vote
| 12.1 | Unless their Shares carry no right to vote, or unless a call or other amount presently payable has not been paid, all Members are entitled to vote at a general meeting, whether on a show of hands or on a poll, and all Members holding Shares of a particular class of Shares are entitled to vote at a meeting of the holders of that class of Shares. |
| 12.2 | Members may vote in person or by proxy. |
| 12.3 | On a show of hands, every Member shall have one vote. For the avoidance of doubt, an individual who represents two or more Members, including a Member in that individual’s own right, that individual shall be entitled to a separate vote for each Member. |
| 12.4 | On a poll a Member shall have one vote for each Share he holds, unless any Share carries special voting rights. |
| 12.5 | No Member is bound to vote on his Shares or any of them; nor is he bound to vote each of his Shares in the same way. |
Rights of joint holders
| 12.6 | If Shares are held jointly, only one of the joint holders may vote. If more than one of the joint holders tenders a vote, the vote of the holder whose name in respect of those Shares appears first in the register of Members shall be accepted to the exclusion of the votes of the other joint holder. |
Representation of corporate Members
| 12.7 | Save where otherwise provided, a corporate Member must act by a duly authorised representative. |
| 12.8 | A corporate Member wishing to act by a duly authorised representative must identify that person to the Company by notice in writing. |
| 12.9 | The authorisation may be for any period of time, and must be delivered to the Company before the commencement of the meeting at which it is first used. |
| 12.10 | The Directors of the Company may require the production of any evidence which they consider necessary to determine the validity of the notice. |
| 12.11 | Where a duly authorised representative is present at a meeting that Member is deemed to be present in person; and the acts of the duly authorised representative are personal acts of that Member. |
| 12.12 | A corporate Member may revoke the appointment of a duly authorised representative at any time by notice to the Company; but such revocation will not affect the validity of any acts carried out by the duly authorised representative before the Directors of the Company had actual notice of the revocation. |
Member with mental disorder
| 12.13 | A Member in respect of whom an order has been made by any court having jurisdiction (whether in the Cayman Islands or elsewhere) in matters concerning mental disorder may vote, whether on a show of hands or on a poll, by that Member’s receiver, curator bonis or other person authorised in that behalf appointed by that court. |
| 12.14 | For the purpose of the preceding Article, evidence to the satisfaction of the Directors of the authority of the person claiming to exercise the right to vote must be received not less than 24 hours before holding the relevant meeting or the adjourned meeting in any manner specified for the delivery of forms of appointment of a proxy, whether in writing or by Electronic means. In default, the right to vote shall not be exercisable. |
Objections to admissibility of votes
| 12.15 | An objection to the validity of a person’s vote may only be raised at the meeting or at the adjourned meeting at which the vote is sought to be tendered. Any objection duly made shall be referred to the chairman whose decision shall be final and conclusive. |
Form of proxy
| 12.16 | An instrument appointing a proxy shall be in any common form or in any other form approved by the Directors. |
| 12.17 | The instrument must be in writing and signed in one of the following ways: |
| (a) | by the Member; or |
| (b) | by the Member’s authorised attorney; or |
| (c) | if the Member is a corporation or other body corporate, under seal or signed by an authorised officer, secretary or attorney. |
If the Directors so resolve, the Company may accept an Electronic Record of that instrument delivered in the manner specified below and otherwise satisfying the Articles about authentication of Electronic Records.
| 12.18 | The Directors may require the production of any evidence which they consider necessary to determine the validity of any appointment of a proxy. |
| 12.19 | A Member may revoke the appointment of a proxy at any time by notice to the Company duly signed in accordance with Article 12.17. |
| 12.20 | No revocation by a Member of the appointment of a proxy made in accordance with Article 12.19 will affect the validity of any acts carried out by the relevant proxy before the Directors of the Company had actual notice of the revocation. |
How and when proxy is to be delivered
| 12.21 | Subject to the following Articles, the Directors may, in the notice convening any meeting or adjourned meeting, or in an instrument of proxy sent out by the Company, specify the manner by which the instrument appointing a proxy shall be deposited and the place and the time (being not later than the time appointed for the commencement of the meeting or adjourned meeting to which the proxy relates) at which the instrument appointing a proxy shall be deposited. In the absence of any such direction from the Directors in the notice convening any meeting or adjourned meeting or in an instrument of proxy sent out by the Company, the form of appointment of a proxy and any authority under which it is signed (or a copy of the authority certified notarially or in any other way approved by the Directors) must be delivered so that it is received by the Company before the time for holding the meeting or adjourned meeting at which the person named in the form of appointment of proxy proposes to vote. They must be delivered in either of the following ways: |
| (a) | In the case of an instrument in writing, it must be left at or sent by post: |
| (i) | to the registered office of the Company; or |
| (ii) | to such other place within the Cayman Islands specified in the notice convening the meeting or in any form of appointment of proxy sent out by the Company in relation to the meeting. |
| (b) | If, pursuant to the notice provisions, a notice may be given to the Company in an Electronic Record, an Electronic Record of an appointment of a proxy must be sent to the address specified pursuant to those provisions unless another address for that purpose is specified: |
| (i) | in the notice convening the meeting; or |
| (ii) | in any form of appointment of a proxy sent out by the Company in relation to the meeting; or |
| (iii) | in any invitation to appoint a proxy issued by the Company in relation to the meeting. |
| (c) | Notwithstanding Article 12.21(a) and Article 12.21(b), the chairman of the Company may, in any event at his discretion, direct that an instrument of proxy shall be deemed to have been duly deposited. |
| 12.22 | Where a poll is taken: |
| (a) | if it is taken more than seven Clear Days after it is demanded, the form of appointment of a proxy and any accompanying authority (or an Electronic Record of the same) must be delivered in accordance with Article 12.21 before the time appointed for the taking of the poll; |
| (b) | if it to be taken within seven Clear Days after it was demanded, the form of appointment of a proxy and any accompanying authority (or an Electronic Record of the same) must be delivered in accordance with Article 12.21 before the time appointed for the taking of the poll. |
| 12.23 | If the form of appointment of proxy is not delivered on time, it is invalid. |
| 12.24 | When two or more valid but differing appointments of proxy are delivered or received in respect of the same Share for use at the same meeting and in respect of the same matter, the one which is last validly delivered or received (regardless of its date or of the date of its execution) shall be treated as replacing and revoking the other or others as regards that Share. lf the Company is unable to determine which appointment was last validly delivered or received, none of them shall be treated as valid in respect of that Share. |
| 12.25 | The Board may at the expense of the Company send forms of appointment of proxy to the Members by post (that is to say, pre-paying and posting a letter), or by Electronic communication or otherwise (with or without provision for their return by pre-paid post) for use at any general meeting or at any separate meeting of the holders of any class of Shares, either blank or nominating as proxy in the alternative any one or more of the Directors or any other person. lf for the purpose of any meeting invitations to appoint as proxy a person or one of a number of persons specified in the invitations are issued at the Company’s expense, they shall be issued to all (and not to some only) of the Members entitled to be sent notice of the meeting and to vote at it. The accidental omission to send such a form of appointment or to give such an invitation to, or the non-receipt of such form of appointment by, any Member entitled to attend and vote at a meeting shall not invalidate the proceedings at that meeting |
Voting by proxy
| 12.26 | A proxy shall have the same voting rights at a meeting or adjourned meeting as the Member would have had except to the extent that the instrument appointing him limits those rights. Notwithstanding the appointment of a proxy, a Member may attend and vote at a meeting or adjourned meeting. If a Member votes on any resolution a vote by his proxy on the same resolution, unless in respect of different Shares, shall be invalid. |
| 12.27 | The instrument appointing a proxy to vote at a meeting shall be deemed also to confer authority to demand or join in demanding a poll and, for the purposes of Article 11.11, a demand by a person as proxy for a Member shall be the same as a demand by a Member. Such appointment shall not confer any further right to speak at the meeting, except with the permission of the chairman of the meeting. |
| 13 | Number of Directors |
| 13.1 | There shall be a Board consisting of not less than one person provided however that the Company may by Ordinary Resolution increase or reduce the limits in the number of Directors. Unless fixed by Ordinary Resolution, the maximum number of Directors shall be unlimited. |
| 14 | Appointment, disqualification and removal of Directors |
First Directors
| 14.1 | The first Directors shall be appointed in writing by the subscriber or subscribers to the Memorandum, or a majority of them. |
No age limit
| 14.2 | There is no age limit for Directors save that they must be at least eighteen years of age. |
Corporate Directors
| 14.3 | Unless prohibited by law, a body corporate may be a Director. If a body corporate is a Director, the Articles about representation of corporate Members at general meetings apply, mutatis mutandis, to the Articles about Directors’ meetings. |
No shareholding qualification
| 14.4 | Unless a shareholding qualification for Directors is fixed by Ordinary Resolution, no Director shall be required to own Shares as a condition of his appointment. |
Appointment of Directors
| 14.5 | A Director may be appointed by Ordinary Resolution or by the Directors. Any appointment may be to fill a vacancy or as an additional Director. |
| 14.6 | A remaining Director may appoint a Director even though there is not a quorum of Directors. |
| 14.7 | No appointment can cause the number of Directors to exceed the maximum (if one is set); and any such appointment shall be invalid. |
| 14.8 | For so long as Shares or ADSs are listed on a Designated Stock Exchange, the Directors shall include at least such number of Independent Directors as applicable law, rules or regulations or the Designated Stock Exchange Rules require as determined by the Board. |
Board’s power to appoint Directors
| 14.9 | Without prejudice to the Company’s power to appoint a person to be a Director pursuant to these Articles, the Board shall have power at any time to appoint any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board, subject to the total number of Directors not exceeding any maximum number fixed by or in accordance with these Articles. |
| 14.10 | Any Director so appointed shall, if still a Director, retire at the next annual general meeting after his appointment and be eligible to stand for election as a Director at such meeting. |
Eligibility
| 14.11 | No person (other than a Director retiring in accordance with these Articles) shall be appointed or re-appointed a Director at any general meeting unless: |
| (a) | he is recommended by the Board; or |
| (b) | not less than seven nor more than forty-two Clear Days before the date appointed for the meeting, a Member (other than the person to be proposed) entitled to vote at the meeting has given to the Company notice of his intention to propose a resolution for the appointment of that person, stating the particulars which would, if he were so appointed, be required to be included in the Company’s register of Directors and a notice executed by that person of his willingness to be appointed. |
Appointment at annual general meeting
| 14.12 | Unless re-appointed pursuant to the provisions of Article 14.5 or removed from office pursuant to the provisions of Article 14.13, each Director shall be appointed for a term expiring at the next-following annual general meeting of the Company. At any such annual general meeting, Directors will be elected by Ordinary Resolution. At each annual general meeting of the Company, each Director elected at such meeting shall be elected to hold office for a one-year term and until the election of their respective successors in office or removal pursuant to Articles 14.5 and 14.13. |
Removal of Directors
| 14.13 | A Director may be removed by Ordinary Resolution. |
Resignation of Directors
| 14.14 | A Director may at any time resign office by giving to the Company notice in writing or, if permitted pursuant to the notice provisions, in an Electronic Record delivered in either case in accordance with those provisions. |
| 14.15 | Unless the notice specifies a different date, the Director shall be deemed to have resigned on the date that the notice is delivered to the Company. |
Termination of the office of Director
| 14.16 | A Director may retire from office as a Director by giving notice in writing to that effect to the Company at the registered office, which notice shall be effective upon such date as may be specified in the notice, failing which upon delivery to the registered office. |
| 14.17 | Without prejudice to the provisions in these Articles for retirement (by rotation or otherwise), a Director’s office shall be terminated forthwith if: |
| (a) | he is prohibited by the law of the Cayman Islands from acting as a Director; or |
| (b) | he is made bankrupt or makes an arrangement or composition with his creditors generally; or |
| (c) | he resigns his office by notice to the Company; or |
| (d) | he only held office as a Director for a fixed term and such term expires; or |
| (e) | in the opinion of a registered medical practitioner by whom he is being treated he becomes physically or mentally incapable of acting as a Director; or |
| (f) | he is given notice by the majority of the other Directors (not being less than two in number) to vacate office (without prejudice to any claim for damages for breach of any agreement relating to the provision of the services of such Director); or |
| (g) | he is made subject to any law relating to mental health or incompetence, whether by court order or otherwise; or |
| (h) | without the consent of the other Directors, he is absent from meetings of Directors for a continuous period of six months. |
| 15 | Alternate Directors |
Appointment and removal
| 15.1 | Any Director may appoint any other person, including another Director, to act in his place as an alternate Director. No appointment shall take effect until the Director has given notice of the appointment to the Board. |
| 15.2 | A Director may revoke his appointment of an alternate at any time. No revocation shall take effect until the Director has given notice of the revocation to the Board. |
| 15.3 | A notice of appointment or removal of an alternate Director shall be effective only if given to the Company by one or more of the following methods: |
| (a) | by notice in writing in accordance with the notice provisions contained in these Articles; |
| (b) | if the Company has a facsimile address for the time being, by sending by facsimile transmission to that facsimile address a facsimile copy or, otherwise, by sending by facsimile transmission to the facsimile address of the Company’s registered office a facsimile copy (in either case, the facsimile copy being deemed to be the notice unless Article 29.7 applies), in which event notice shall be taken to be given on the date of an error-free transmission report from the sender’s fax machine; |
| (c) | if the Company has an email address for the time being, by emailing to that email address a scanned copy of the notice as a PDF attachment or, otherwise, by emailing to the email address provided by the Company’s registered office a scanned copy of the notice as a PDF attachment (in either case, the PDF version being deemed to be the notice unless Article 29.7 applies), in which event notice shall be taken to be given on the date of receipt by the Company or the Company’s registered office (as appropriate) in readable form; or |
| (d) | if permitted pursuant to the notice provisions, in some other form of approved Electronic Record delivered in accordance with those provisions in writing. |
Notices
| 15.4 | All notices of meetings of Directors shall continue to be given to the appointing Director and not to the alternate. |
Rights of alternate Director
| 15.5 | An alternate Director shall be entitled to attend and vote at any Board meeting or meeting of a committee of the Directors at which the appointing Director is not personally present, and generally to perform all the functions of the appointing Director in his absence. An alternate Director, however, is not entitled to receive any remuneration from the Company for services rendered as an alternate Director. |
Appointment ceases when the appointor ceases to be a Director
| 15.6 | An alternate Director shall cease to be an alternate Director if: |
| (a) | the Director who appointed him ceases to be a Director; or |
| (b) | the Director who appointed him revokes his appointment by notice delivered to the Board or to the registered office of the Company or in any other manner approved by the Board; or |
| (c) | in any event happens in relation to him which, if he were a Director of the Company, would cause his office as Director to be vacated. |
Status of alternate Director
| 15.7 | An alternate Director shall carry out all functions of the Director who made the appointment. |
| 15.8 | Save where otherwise expressed, an alternate Director shall be treated as a Director under these Articles. |
| 15.9 | An alternate Director is not the agent of the Director appointing him. |
| 15.10 | An alternate Director is not entitled to any remuneration for acting as alternate Director. |
Status of the Director making the appointment
| 15.11 | A Director who has appointed an alternate is not thereby relieved from the duties which he owes the Company. |
| 16 | Powers of Directors |
Powers of Directors
| 16.1 | Subject to the provisions of the Act, the Memorandum and these Articles the business of the Company shall be managed by the Directors who may for that purpose exercise all the powers of the Company. |
| 16.2 | No prior act of the Directors shall be invalidated by any subsequent alteration of the Memorandum or these Articles. However, to the extent allowed by the Act, Members may, by Special Resolution, validate any prior or future act of the Directors which would otherwise be in breach of their duties. |
Directors below the minimum number
| 16.3 | lf the number of Directors is less than the minimum prescribed in accordance with these Articles, the remaining Director or Directors shall act only for the purposes of appointing an additional Director or Directors to make up such minimum or of convening a general meeting of the Company for the purpose of making such appointment. lf there are no Director or Directors able or willing to act, any two Members may summon a general meeting for the purpose of appointing Directors. Any additional Director so appointed shall hold office (subject to these Articles) only until the dissolution of the annual general meeting next following such appointment unless he is re-elected during such meeting. |
Appointments to office
| 16.4 | The Directors may appoint a Director: |
| (a) | as chairman of the Board; |
| (b) | as managing Director; |
| (c) | to any other executive office, |
for such period, and on such terms, including as to remuneration as they think fit.
| 16.5 | The appointee must consent in writing to holding that office. |
| 16.6 | Where a chairman is appointed he shall, unless unable to do so, preside at every meeting of Directors. |
| 16.7 | If there is no chairman, or if the chairman is unable to preside at a meeting, that meeting may select its own chairman; or the Directors may nominate one of their number to act in place of the chairman should he ever not be available. |
| 16.8 | Subject to the provisions of the Act, the Directors may also appoint and remove any person, who need not be a Director: |
| (a) | as Secretary; and |
| (b) | to any office that may be required |
for such period and on such terms, including as to remuneration, as they think fit. In the case of an Officer, that Officer may be given any title the Directors decide.
| 16.9 | The Secretary or Officer must consent in writing to holding that office. |
| 16.10 | A Director, Secretary or other Officer of the Company may not the hold the office, or perform the services, of auditor. |
Provisions for employees
| 16.11 | The Board may make provision for the benefit of any persons employed or formerly employed by the Company or any of its subsidiary undertakings (or any member of his family or any person who is dependent on him) in connection with the cessation or the transfer to any person of the whole or part of the undertaking of the Company or any of its subsidiary undertakings. |
Exercise of voting rights
| 16.12 | The Board may exercise the voting power conferred by the Shares in any body corporate held or owned by the Company in such manner in all respects as it thinks fit (including, without limitation, the exercise of that power in favour of any resolution appointing any Director as a Director of such body corporate, or voting or providing for the payment of remuneration to the Directors of such body corporate). |
Remuneration
| 16.13 | Every Director may be remunerated by the Company for the services he provides for the benefit of the Company, whether as Director, employee or otherwise, and shall be entitled to be paid for the expenses incurred in the Company’s business including attendance at Directors’ meetings. |
| 16.14 | Until otherwise determined by the Company by Ordinary Resolution, the Directors (other than alternate Directors) shall be entitled to such remuneration by way of fees for their services in the office of Director as the Directors may determine. |
| 16.15 | Remuneration may take any form and may include arrangements to pay pensions, health insurance, death or sickness benefits, whether to the Director or to any other person connected to or related to him. |
| 16.16 | Unless his fellow Directors determine otherwise, a Director is not accountable to the Company for remuneration or other benefits received from any other company which is in the same group as the Company or which has common shareholdings. |
Disclosure of information
| 16.17 | The Directors may release or disclose to a third party any information regarding the affairs of the Company, including any information contained in the register of Members relating to a Member, (and they may authorise any Director, Officer or other authorised agent of the Company to release or disclose to a third party any such information in his possession) if: |
| (a) | the Company or that person, as the case may be, is lawfully required to do so under the laws of any jurisdiction to which the Company is subject; or |
| (b) | such disclosure is in compliance with the Designated Stock Exchange Rules; or |
| (c) | such disclosure is in accordance with any contract entered into by the Company; or |
| (d) | the Directors are of the opinion such disclosure would assist or facilitate the Company’s operations. |
| 17 | Delegation of powers |
Power to delegate any of the Directors’ powers to a committee
| 17.1 | The Directors may delegate any of their powers to any committee consisting of one or more persons who need not be Members. Persons on the committee may include non-Directors so long as the majority of those persons are Directors. Any such committee shall be made up of such number of Independent Directors as required from time to time by the Designated Stock Exchange Rules or otherwise required by applicable law. |
| 17.2 | The delegation may be collateral with, or to the exclusion of, the Directors’ own powers. |
| 17.3 | The delegation may be on such terms as the Directors think fit, including provision for the committee itself to delegate to a sub-committee; save that any delegation must be capable of being revoked or altered by the Directors at will. |
| 17.4 | Unless otherwise permitted by the Directors, a committee must follow the procedures prescribed for the taking of decisions by Directors. |
| 17.5 | The Board shall establish an audit committee, a compensation committee and a nominating and corporate governance committee. Each of these committees shall be empowered to do all things necessary to exercise the rights of such committee set forth in these Articles. Each of the audit committee, compensation committee and nominating and corporate governance committee shall consist of at least three Directors (or such larger minimum number as may be required from time to time by the Designated Stock Exchange Rules). The majority of the committee members on each of the compensation committee and nominating and corporate governance committee shall be Independent Directors. The audit committee shall be made up of such number of Independent Directors as required from time to time by the Designated Stock Exchange Rules or otherwise required by applicable law. |
Local boards
| 17.6 | The Board may establish any local or divisional board or agency for managing any of the affairs of the Company whether in the Cayman Islands or elsewhere and may appoint any persons to be members of a local or divisional Board, or to be managers or agents, and may fix their remuneration. |
| 17.7 | The Board may delegate to any local or divisional board, manager or agent any of its powers and authorities (with power to sub-delegate) and may authorise the members of any local or divisional board or any of them to fill any vacancies and to act notwithstanding vacancies. |
| 17.8 | Any appointment or delegation under this Article 17.8 may be made on such terms and subject to such conditions as the Board thinks fit and the Board may remove any person so appointed, and may revoke or vary any delegation. |
Power to appoint an agent of the Company
| 17.9 | The Directors may appoint any person, either generally or in respect of any specific matter, to be the agent of the Company with or without authority for that person to delegate all or any of that person’s powers. The Directors may make that appointment: |
| (a) | by causing the Company to enter into a power of attorney or agreement; or |
| (b) | in any other manner they determine. |
Power to appoint an attorney or authorised signatory of the Company
| 17.10 | The Directors may appoint any person, whether nominated directly or indirectly by the Directors, to be the attorney or the authorised signatory of the Company. The appointment may be: |
| (a) | for any purpose; |
| (b) | with the powers, authorities and discretions; |
| (c) | for the period; and |
| (d) | subject to such conditions |
as they think fit. The powers, authorities and discretions, however, must not exceed those vested in, or exercisable, by the Directors under these Articles. The Directors may do so by power of attorney or any other manner they think fit.
| 17.11 | Any power of attorney or other appointment may contain such provision for the protection and convenience for persons dealing with the attorney or authorised signatory as the Directors think fit. Any power of attorney or other appointment may also authorise the attorney or authorised signatory to delegate all or any of the powers, authorities and discretions vested in that person. |
| 17.12 | The Board may remove any person appointed under Article 17.10 and may revoke or vary the delegation. |
Borrowing Powers
| 17.13 | The Directors may exercise all the powers of the Company to borrow money and to mortgage or charge its undertaking, property and assets both present and future and uncalled capital, or any part thereof, and to issue debentures and other securities, whether outright or as collateral security for any debt, liability or obligation of the Company or its parent undertaking (if any) or any subsidiary undertaking of the Company or of any third party. |
Corporate Governance
| 17.14 | The Board may, from time to time, and except as required by applicable law or the Designated Stock Exchange Rules, adopt, institute, amend, modify or revoke the corporate governance policies or initiatives of the Company, which shall be intended to set forth the guiding principles and policies of the Company and the Board on various corporate governance related matters as the Board shall determine by resolution from time to time. |
| 18 | Meetings of Directors |
Regulation of Directors’ meetings
| 18.1 | Subject to the provisions of these Articles, the Directors may regulate their proceedings as they think fit. |
Calling meetings
| 18.2 | Any Director may call a meeting of Directors at any time. The Secretary must call a meeting of the Directors if requested to do so by a Director. |
Notice of meetings
| 18.3 | Notice of a Board meeting may be given to a Director personally or by word of mouth or given in writing or by Electronic communications at such address as he may from time to time specify for this purpose (or, if he does not specify an address, at his last known address). A Director may waive his right to receive notice of any meeting either prospectively or retrospectively. |
Use of technology
| 18.4 | A Director may participate in a meeting of Directors through the medium of conference telephone, video or any other form of communications equipment providing all persons participating in the meeting are able to hear and speak to each other throughout the meeting. |
| 18.5 | A Director participating in this way is deemed to be present in person at the meeting. |
Quorum
| 18.6 | The quorum for the transaction of business at a meeting of Directors shall be two unless the Directors fix some other number. |
Chairman or deputy to preside
| 18.7 | The Board may appoint a chairman and one or more deputy chairman or chairmen and may at any time revoke any such appointment. |
| 18.8 | The chairman, or failing him any deputy chairman (the longest in office taking precedence if more than one is present), shall preside at all Board meetings. If no chairman or deputy chairman has been appointed, or if he is not present within five minutes after the time fixed for holding the meeting, or is unwilling to act as chairman of the meeting, the Directors present shall choose one of their number to act as chairman of the meeting. |
Voting
| 18.9 | A question which arises at a Board meeting shall be decided by a majority of votes. If votes are equal the chairman may, if he wishes, exercise a casting vote. |
Recording of dissent
| 18.10 | A Director present at a meeting of Directors shall be presumed to have assented to any action taken at that meeting unless: |
| (a) | his dissent is entered in the minutes of the meeting; or |
| (b) | he has filed with the meeting before it is concluded signed dissent from that action; or |
| (c) | he has forwarded to the Company as soon as practical following the conclusion of that meeting signed dissent. |
A Director who votes in favour of an action is not entitled to record his dissent to it.
Written resolutions
| 18.11 | The Directors may pass a resolution in writing without holding a meeting if all Directors sign a document or sign several documents in the like form each signed by one or more of those Directors. |
| 18.12 | A written resolution signed by a validly appointed alternate Director need not also be signed by the appointing Director. |
| 18.13 | A written resolution signed personally by the appointing Director need not also be signed by his alternate. |
| 18.14 | A resolution in writing passed pursuant to Article 18.11, Article 18.12 and/or Article 18.13 shall be as effective as if it had been passed at a meeting of the Directors duly convened and held; and it shall be treated as having been passed on the day and at the time that the last Director signs (and for the avoidance of doubt, such day may or may not be a Business Day). |
Validity of acts of Directors in spite of formal defect
| 18.15 | All acts done by a meeting of the Board, or of a committee of the Board, or by any person acting as a Director or an alternate Director, shall, notwithstanding that it is afterwards discovered that there was some defect in the appointment of any Director or alternate Director or member of the committee, or that any of them were disqualified or had vacated office or were not entitled to vote, be as valid as if every such person had been duly appointed and qualified and had continued to be a Director or alternate Director and had been entitled to vote. |
| 19 | Permissible Directors’ interests and disclosure |
| 19.1 | A Director shall not, as a Director, vote in respect of any contract, transaction, arrangement or proposal in which he has an interest which (together with any interest of any person connected with him) is a material interest (otherwise then by virtue of his interests, direct or indirect, in Shares or debentures or other securities of, or otherwise in or through, the Company) and if he shall do so his vote shall not be counted, nor in relation thereto shall he be counted in the quorum present at the meeting, but (in the absence of some other material interest than is mentioned below) none of these prohibitions shall apply to: |
| (a) | the giving of any security, guarantee or indemnity in respect of: |
| (i) | money lent or obligations incurred by him or by any other person for the benefit of the Company or any of its subsidiaries; or |
| (ii) | a debt or obligation of the Company or any of its subsidiaries for which the Director himself has assumed responsibility in whole or in part and whether alone or jointly with others under a guarantee or indemnity or by the giving of security; |
| (b) | where the Company or any of its subsidiaries is offering securities in which offer the Director is or may be entitled to participate as a holder of securities or in the underwriting or sub-underwriting of which the Director is to or may participate; |
| (c) | any contract, transaction, arrangement or proposal affecting any other body corporate in which he is interested, directly or indirectly and whether as an officer, shareholder, creditor or otherwise howsoever, provided that he (together with persons connected with him) does not to his knowledge hold an interest representing one per cent or more of any class of the equity share capital of such body corporate (or of any third body corporate through which his interest is derived) or of the voting rights available to members of the relevant body corporate (any such interest being deemed for the purposes of this Article 19.1 to be a material interest in all circumstances); |
| (d) | any act or thing done or to be done in respect of any arrangement for the benefit of the employees of the Company or any of its subsidiaries under which he is not accorded as a Director any privilege or advantage not generally accorded to the employees to whom such arrangement relates; or |
| (e) | any matter connected with the purchase or maintenance for any Director of insurance against any liability or (to the extent permitted by the Act) indemnities in favour of Directors, the funding of expenditure by one or more Directors in defending proceedings against him or them or the doing of any thing to enable such Director or Directors to avoid incurring such expenditure. |
| 19.2 | A Director may, as a Director, vote (and be counted in the quorum) in respect of any contract, transaction, arrangement or proposal in which he has an interest which is not a material interest or which falls within Article 19.1. |
| 20 | Minutes |
| 20.1 | The Company shall cause minutes to be made in books of: |
| (a) | all appointments of Officers and committees made by the Board and of any such Officer’s remuneration; and |
| (b) | the names of Directors present at every meeting of the Directors, a committee of the Board, the Company or the holders of any class of shares or debentures, and all orders, resolutions and proceedings of such meetings. |
| 20.2 | Any such minutes, if purporting to be signed by the chairman of the meeting at which the proceedings were held or by the chairman of the next succeeding meeting or the Secretary, shall be prima facie evidence of the matters stated in them. |
| 21 | Accounts and audit |
| 21.1 | The Directors must ensure that proper accounting and other records are kept, and that accounts and associated reports are distributed in accordance with the requirements of the Act. |
| 21.2 | The books of account shall be kept at the registered office of the Company and shall always be open to inspection by the Directors. No Member (other than a Director) shall have any right of inspecting any account or book or document of the Company except as conferred by the Act or as authorised by the Directors or by Ordinary Resolution. |
| 21.3 | Unless the Directors otherwise prescribe, the financial year of the Company shall end on 30 September in each year and begin on 1 October in each year. |
Auditors
| 21.4 | The Directors may appoint an Auditor of the Company who shall hold office on such terms as the Directors determine. |
| 21.5 | At any general meeting convened and held at any time in accordance with these Articles, the Members may, by Ordinary Resolution, remove the Auditor before the expiration of his term of office. If they do so, the Members shall, by Ordinary Resolution, at that meeting appoint another Auditor in his stead for the remainder of his term. |
| 21.6 | The Auditors shall examine such books, accounts and vouchers; as may be necessary for the performance of their duties. |
| 21.7 | The Auditors shall, if so requested by the Directors, make a report on the accounts of the Company during their tenure of office at the next annual general meeting following their appointment, and at any time during their term of office, upon request of the Directors or any general meeting of the Company. |
| 22 | Record dates |
| 22.1 | Except to the extent of any conflicting rights attached to Shares, the resolution declaring a dividend on Shares of any class, whether it be an Ordinary Resolution of the Members or a Director’s resolution, may specify that the dividend is payable or distributable to the persons registered as the holders of those Shares at the close of business on a particular date, notwithstanding that the date may be a date prior to that on which the resolution is passed. |
| 22.2 | If the resolution does so specify, the dividend shall be payable or distributable to the persons registered as the holders of those Shares at the close of business on the specified date in accordance with their respective holdings so registered, but without prejudice to the rights inter se in respect of the dividend of transferors and transferees of any of those Shares. |
| 22.3 | The provisions of this Article apply, mutatis mutandis, to bonuses, capitalisation issues, distributions of realised capital profits or offers or grants made by the Company to the Members. |
| 23 | Dividends |
Source of dividends
| 23.1 | Dividends may be declared and paid out of any funds of the Company lawfully available for distribution. |
| 23.2 | Subject to the requirements of the Act regarding the application of a company’s Share premium account and with the sanction of an Ordinary Resolution, dividends may also be declared and paid out of any share premium account. |
Declaration of dividends by Members
| 23.3 | Subject to the provisions of the Act, the Company may by Ordinary Resolution declare dividends in accordance with the respective rights of the Members but no dividend shall exceed the amount recommended by the Directors. |
Payment of interim dividends and declaration of final dividends by Directors
| 23.4 | The Directors may declare and pay interim dividends or recommend final dividends in accordance with the respective rights of the Members if it appears to them that they are justified by the financial position of the Company and that such dividends may lawfully be paid. |
| 23.5 | Subject to the provisions of the Act, in relation to the distinction between interim dividends and final dividends, the following applies: |
| (a) | Upon determination to pay a dividend or dividends described as interim by the Directors in the dividend resolution, no debt shall be created by the declaration until such time as payment is made. |
| (b) | Upon declaration of a dividend or dividends described as final by the Directors in the dividend resolution, a debt shall be created immediately following the declaration, the due date to be the date the dividend is stated to be payable in the resolution. |
If the resolution fails to specify whether a dividend is final or interim, it shall be assumed to be interim.
| 23.6 | In relation to Shares carrying differing rights to dividends or rights to dividends at a fixed rate, the following applies: |
| (a) | If the share capital is divided into different classes, the Directors may pay dividends on Shares which confer deferred or non-preferred rights with regard to dividends as well as on Shares which confer preferential rights with regard to dividends but no dividend shall be paid on Shares carrying deferred or non-preferred rights if, at the time of payment, any preferential dividend is in arrears. |
| (b) | The Directors may also pay, at intervals settled by them, any dividend payable at a fixed rate if it appears to them that there are sufficient funds of the Company lawfully available for distribution to justify the payment. |
| (c) | If the Directors act in good faith, they shall not incur any liability to the Members holding Shares conferring preferred rights for any loss those Members may suffer by the lawful payment of the dividend on any Shares having deferred or non-preferred rights. |
Apportionment of dividends
| 23.7 | Except as otherwise provided by the rights attached to Shares all dividends shall be declared and paid according to the amounts Paid Up on the Shares on which the dividend is paid. All dividends shall be apportioned and paid proportionately to the amount Paid Up on the Shares during the time or part of the time in respect of which the dividend is paid. But if a Share is issued on terms providing that it shall rank for dividend as from a particular date, that Share shall rank for dividend accordingly. |
Right of set off
| 23.8 | The Directors may deduct from a dividend or any other amount payable to a person in respect of a Share any amount due by that person to the Company on a call or otherwise in relation to a Share. |
Power to pay other than in cash
| 23.9 | If the Directors so determine, any resolution declaring a dividend may direct that it shall be satisfied wholly or partly by the distribution of assets. If a difficulty arises in relation to the distribution, the Directors may settle that difficulty in any way they consider appropriate. For example, they may do any one or more of the following: |
| (a) | issue fractional Shares; |
| (b) | fix the value of assets for distribution and make cash payments to some Members on the footing of the value so fixed in order to adjust the rights of Members; and |
| (c) | vest some assets in trustees. |
How payments may be made
| 23.10 | A dividend or other monies payable on or in respect of a Share may be paid in any of the following ways: |
| (a) | if the Member holding that Share or other person entitled to that Share nominates a bank account for that purpose - by wire transfer to that bank account; or |
| (b) | by cheque or warrant sent by post to the registered address of the Member holding that Share or other person entitled to that Share. |
| 23.11 | For the purposes of Article 23.10(a), the nomination may be in writing or in an Electronic Record and the bank account nominated may be the bank account of another person. For the purposes of Article 23.10(b), subject to any applicable law or regulation, the cheque or warrant shall be made to the order of the Member holding that Share or other person entitled to the Share or to his nominee, whether nominated in writing or in an Electronic Record, and payment of the cheque or warrant shall be a good discharge to the Company. |
| 23.12 | If two or more persons are registered as the holders of the Share or are jointly entitled to it by reason of the death or bankruptcy of the registered holder (Joint Holders), a dividend (or other amount) payable on or in respect of that Share may be paid as follows: |
| (a) | to the registered address of the Joint Holder of the Share who is named first on the register of Members or to the registered address of the deceased or bankrupt holder, as the case may be; or |
| (b) | to the address or bank account of another person nominated by the Joint Holders, whether that nomination is in writing or in an Electronic Record. |
| 23.13 | Any Joint Holder of a Share may give a valid receipt for a dividend (or other amount) payable in respect of that Share. |
Dividends or other monies not to bear interest in absence of special rights
| 23.14 | Unless provided for by the rights attached to a Share, no dividend or other monies payable by the Company in respect of a Share shall bear interest. |
Dividends unable to be paid or unclaimed
| 23.15 | If a dividend cannot be paid to a Member or remains unclaimed within six weeks after it was declared or both, the Directors may pay it into a separate account in the Company’s name. If a dividend is paid into a separate account, the Company shall not be constituted trustee in respect of that account and the dividend shall remain a debt due to the Member. |
| 23.16 | A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the Company. |
| 24 | Capitalisation of profits |
Capitalisation of profits or of any share premium account or capital redemption reserve;
| 24.1 | The Directors may resolve to capitalise: |
| (a) | any part of the Company’s profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
| (b) | any sum standing to the credit of the Company’s share premium account or capital redemption reserve, if any. |
| 24.2 | The amount resolved to be capitalised must be appropriated to the Members who would have been entitled to it had it been distributed by way of dividend and in the same proportions. The benefit to each Member so entitled must be given in either or both of the following ways: |
| (a) | by paying up the amounts unpaid on that Member’s Shares; |
| (b) | by issuing Fully Paid Up Shares, debentures or other securities of the Company to that Member or as that Member directs. The Directors may resolve that any Shares issued to the Member in respect of Partly Paid Up Shares (Original Shares) rank for dividend only to the extent that the Original Shares rank for dividend while those Original Shares remain Partly Paid Up. |
Applying an amount for the benefit of Members
| 24.3 | The amount capitalised must be applied to the benefit of Members in the proportions to which the Members would have been entitled to dividends if the amount capitalised had been distributed as a dividend. |
| 24.4 | Subject to the Act, if a fraction of a Share, a debenture or other security is allocated to a Member, the Directors may issue a fractional certificate to that Member or pay him the cash equivalent of the fraction. |
| 25 | Share Premium Account |
Directors to maintain share premium account
| 25.1 | The Directors shall establish a share premium account in accordance with the Act. They shall carry to the credit of that account from time to time an amount equal to the amount or value of the premium paid on the issue of any Share or capital contributed or such other amounts required by the Act. |
Debits to share premium account
| 25.2 | The following amounts shall be debited to any share premium account: |
| (a) | on the redemption or purchase of a Share, the difference between the nominal value of that Share and the redemption or purchase price; and |
| (b) | any other amount paid out of a share premium account as permitted by the Act. |
| 25.3 | Notwithstanding the preceding Article, on the redemption or purchase of a Share, the Directors may pay the difference between the nominal value of that Share and the redemption purchase price out of the profits of the Company or, as permitted by the Act, out of capital. |
| 26 | Seal |
Company seal
| 26.1 | The Company may have a seal if the Directors so determine. |
Duplicate seal
| 26.2 | Subject to the provisions of the Act, the Company may also have a duplicate seal or seals for use in any place or places outside the Cayman Islands. Each duplicate seal shall be a facsimile of the original seal of the Company. However, if the Directors so determine, a duplicate seal shall have added on its face the name of the place where it is to be used. |
When and how seal is to be used
| 26.3 | A seal may only be used by the authority of the Directors. Unless the Directors otherwise determine, a document to which a seal is affixed must be signed in one of the following ways: |
| (a) | by a Director (or his alternate) and the Secretary; or |
| (b) | by a single Director (or his alternate). |
If no seal is adopted or used
| 26.4 | If the Directors do not adopt a seal, or a seal is not used, a document may be executed in the following manner: |
| (a) | by a Director (or his alternate) and the Secretary; or |
| (b) | by a single Director (or his alternate); or |
| (c) | in any other manner permitted by the Act. |
Power to allow non-manual signatures and facsimile printing of seal
| 26.5 | The Directors may determine that either or both of the following applies: |
| (a) | that the seal or a duplicate seal need not be affixed manually but may be affixed by some other method or system of reproduction; |
| (b) | that a signature required by these Articles need not be manual but may be a mechanical or Electronic Signature. |
Validity of execution
| 26.6 | If a document is duly executed and delivered by or on behalf of the Company, it shall not be regarded as invalid merely because, at the date of the delivery, the Secretary, or the Director, or other Officer or person who signed the document or affixed the seal for and on behalf of the Company ceased to be the Secretary or hold that office and authority on behalf of the Company. |
| 27 | Indemnity |
| 27.1 | To the extent permitted by law, the Company shall indemnify each existing or former Director (including alternate Director), Secretary and other Officer of the Company (including an investment adviser or an administrator or liquidator) and their personal representatives against: |
| (a) | all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former Director (including alternate Director), Secretary or Officer in or about the conduct of the Company’s business or affairs or in the execution or discharge of the existing or former Director’s (including alternate Director’s), Secretary’s or Officer’s duties, powers, authorities or discretions; and |
| (b) | without limitation to paragraph (a), all costs, expenses, losses or liabilities incurred by the existing or former Director (including alternate Director), Secretary or Officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning the Company or its affairs in any court or tribunal, whether in the Cayman Islands or elsewhere. |
No such existing or former Director (including alternate Director), Secretary or Officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
| 27.2 | To the extent permitted by Act, the Company may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former Director (including alternate Director), Secretary or Officer of the Company in respect of any matter identified in Article 27.1 on condition that the Director (including alternate Director), Secretary or Officer must repay the amount paid by the Company to the extent that it is ultimately found not liable to indemnify the Director (including alternate Director), Secretary or that Officer for those legal costs. |
Release
| 27.3 | To the extent permitted by Act, the Company may by Special Resolution release any existing or former Director (including alternate Director), Secretary or other Officer of the Company from liability for any loss or damage or right to compensation which may arise out of or in connection with the execution or discharge of the duties, powers, authorities or discretions of his office; but there may be no release from liability arising out of or in connection with that person’s own dishonesty. |
Insurance
| 27.4 | To the extent permitted by Act, the Company may pay, or agree to pay, a premium in respect of a contract insuring each of the following persons against risks determined by the Directors, other than liability arising out of that person’s own dishonesty: |
| (a) | an existing or former Director (including alternate Director), Secretary or Officer or auditor of: |
| (i) | the Company; |
| (ii) | a company which is or was a subsidiary of the Company; |
| (iii) | a company in which the Company has or had an interest (whether direct or indirect); and |
| (b) | a trustee of an employee or retirement benefits scheme or other trust in which any of the persons referred to in paragraph (a) is or was interested. |
| 28 | Notices |
Form of notices
| 28.1 | Save where these Articles provide otherwise, and subject to the Designated Stock Exchange Rules, any notice to be given to or by any person pursuant to these Articles shall be: |
| (a) | in writing signed by or on behalf of the giver in the manner set out below for written notices; or |
| (b) | subject to the next Article, in an Electronic Record signed by or on behalf of the giver by Electronic Signature and authenticated in accordance with Articles about authentication of Electronic Records; or |
| (c) | where these Articles expressly permit, by the Company by means of a website. |
Electronic communications
| 28.2 | A notice may only be given to the Company in an Electronic Record if: |
| (a) | the Directors so resolve; |
| (b) | the resolution states how an Electronic Record may be given and, if applicable, specifies an email address for the Company; and |
| (c) | the terms of that resolution are notified to the Members for the time being and, if applicable, to those Directors who were absent from the meeting at which the resolution was passed. |
If the resolution is revoked or varied, the revocation or variation shall only become effective when its terms have been similarly notified.
| 28.3 | A notice may not be given by Electronic Record to a person other than the Company unless the recipient has notified the giver of an Electronic address to which notice may be sent. |
| 28.4 | Subject to the Act, the Designated Stock Exchange Rules and to any other rules which the Company is bound to follow, the Company may also send any notice or other document pursuant to these Articles to a Member by publishing that notice or other document on a website where: |
| (a) | the Company and the Member have agreed to his having access to the notice or document on a website (instead of it being sent to him); |
| (b) | the notice or document is one to which that agreement applies; |
| (c) | the Member is notified (in accordance with any requirements laid down by the Act and, in a manner for the time being agreed between him and the Company for the purpose) of: |
| (i) | the publication of the notice or document on a website; |
| (ii) | the address of that website; and |
| (iii) | the place on that website where the notice or document may be accessed, and how it may be accessed; and |
| (d) | the notice or document is published on that website throughout the publication period, provided that, if the notice or document is published on that website for a part, but not all of, the publication period, the notice or document shall be treated as being published throughout that period if the failure to publish that notice of document throughout that period is wholly attributable to circumstances which it would not be reasonable to have expected the Company to prevent or avoid. For the purposes of this Article 28.4 “publication period” means a period of not less than twenty-one days, beginning on the day on which the notification referred to in Article 28.4(c) is deemed sent. |
Persons entitled to notices
| 28.5 | Any notice or other document to be given to a Member may be given by reference to the register of Members as it stands at any time within the period of twenty-one days before the day that the notice is given or (where and as applicable) within any other period permitted by, or in accordance with the requirements of, (to the extent applicable) the Designated Stock Exchange Rules and/or the Designated Stock Exchanges. No change in the register of Members after that time shall invalidate the giving of such notice or document or require the Company to give such item to any other person. |
Persons authorised to give notices
| 28.6 | A notice by either the Company or a Member pursuant to these Articles may be given on behalf of the Company or a Member by a Director or company secretary of the Company or a Member. |
Delivery of written notices
| 28.7 | Save where these Articles provide otherwise, a notice in writing may be given personally to the recipient, or left at (as appropriate) the Member’s or Director’s registered address or the Company’s registered office, or posted to that registered address or registered office. |
Joint holders
| 28.8 | Where Members are joint holders of a Share, all notices shall be given to the Member whose name first appears in the register of Members. |
Signatures
| 28.9 | A written notice shall be signed when it is autographed by or on behalf of the giver, or is marked in such a way as to indicate its execution or adoption by the giver. |
| 28.10 | An Electronic Record may be signed by an Electronic Signature. |
Evidence of transmission
| 28.11 | A notice given by Electronic Record shall be deemed sent if an Electronic Record is kept demonstrating the time, date and content of the transmission, and if no notification of failure to transmit is received by the giver. |
| 28.12 | A notice given in writing shall be deemed sent if the giver can provide proof that the envelope containing the notice was properly addressed, pre-paid and posted, or that the written notice was otherwise properly transmitted to the recipient. |
| 28.13 | A Member present, either in person or by proxy, at any meeting of the Company or of the holders of any class of Shares shall be deemed to have received due notice of the meeting and, where requisite, of the purposes for which it was called. |
Giving notice to a deceased or bankrupt Member
| 28.14 | A notice may be given by the Company to the persons entitled to a Share in consequence of the death or bankruptcy of a Member by sending or delivering it, in any manner authorised by these Articles for the giving of notice to a Member, addressed to them by name, or by the title of representatives of the deceased, or trustee of the bankrupt or by any like description, at the address, if any, supplied for that purpose by the persons claiming to be so entitled. |
| 28.15 | Until such an address has been supplied, a notice may be given in any manner in which it might have been given if the death or bankruptcy had not occurred. |
Date of giving notices
| 28.16 | A notice is given on the date identified in the following table |
| Method for giving notices | When taken to be given |
| (A) Personally | At the time and date of delivery |
|
(B) By leaving it at the Member’s registered address |
At the time and date it was left |
|
(C) By posting it by prepaid post to the street or postal address of that recipient |
48 hours after the date it was posted |
|
(D) By Electronic Record (other than publication on a website), to recipient’s Electronic address |
48 hours after the date it was sent |
| (E) By publication on a website |
24 hours after the date on which the Member is deemed to have been notified of the publication of the notice or document on the website |
Saving provision
| 28.17 | None of the preceding notice provisions shall derogate from the Articles about the delivery of written resolutions of Directors and written resolutions of Members. |
| 29 | Authentication of Electronic Records |
Application of Articles
| 29.1 | Without limitation to any other provision of these Articles, any notice, written resolution or other document under these Articles that is sent by Electronic means by a Member, or by the Secretary, or by a Director or other Officer of the Company, shall be deemed to be authentic if either Article 29.2 or Article 29.4 applies. |
Authentication of documents sent by Members by Electronic means
| 29.2 | An Electronic Record of a notice, written resolution or other document sent by Electronic means by or on behalf of one or more Members shall be deemed to be authentic if the following conditions are satisfied: |
| (a) | the Member or each Member, as the case may be, signed the original document, and for this purpose Original Document includes several documents in like form signed by one or more of those Members; and |
| (b) | the Electronic Record of the Original Document was sent by Electronic means by, or at the direction of, that Member to an address specified in accordance with these Articles for the purpose for which it was sent; and |
| (c) | Article 29.7 does not apply. |
| 29.3 | For example, where a sole Member signs a resolution and sends the Electronic Record of the original resolution, or causes it to be sent, by facsimile transmission to the address in these Articles specified for that purpose, the facsimile copy shall be deemed to be the written resolution of that Member unless Article 28.7 applies. |
Authentication of document sent by the Secretary or Officers of the Company by Electronic means
| 29.4 | An Electronic Record of a notice, written resolution or other document sent by or on behalf of the Secretary or an Officer or Officers of the Company shall be deemed to be authentic if the following conditions are satisfied: |
| (a) | the Secretary or the Officer or each Officer, as the case may be, signed the original document, and for this purpose Original Document includes several documents in like form signed by the Secretary or one or more of those Officers; and |
| (b) | the Electronic Record of the Original Document was sent by Electronic means by, or at the direction of, the Secretary or that Officer to an address specified in accordance with these Articles for the purpose for which it was sent; and |
| (c) | Article 29.7 does not apply. |
This Article 29.4 applies whether the document is sent by or on behalf of the Secretary or Officer in his own right or as a representative of the Company.
| 29.5 | For example, where a sole Director signs a resolution and scans the resolution, or causes it to be scanned, as a PDF version which is attached to an email sent to the address in these Articles specified for that purpose, the PDF version shall be deemed to be the written resolution of that Director unless Article 29.7 applies. |
Manner of signing
| 29.6 | For the purposes of these Articles about the authentication of Electronic Records, a document will be taken to be signed if it is signed manually or in any other manner permitted by these Articles. |
Saving provision
| 29.7 | A notice, written resolution or other document under these Articles will not be deemed to be authentic if the recipient, acting reasonably: |
| (a) | believes that the signature of the signatory has been altered after the signatory had signed the original document; or |
| (b) | believes that the original document, or the Electronic Record of it, was altered, without the approval of the signatory, after the signatory signed the original document; or |
| (c) | otherwise doubts the authenticity of the Electronic Record of the document |
and the recipient promptly gives notice to the sender setting the grounds of its objection. If the recipient invokes this Article, the sender may seek to establish the authenticity of the Electronic Record in any way the sender thinks fit.
| 30 | Transfer by way of continuation |
| 30.1 | The Company may, by Special Resolution, resolve to be registered by way of continuation in a jurisdiction outside: |
| (a) | the Cayman Islands; or |
| (b) | such other jurisdiction in which it is, for the time being, incorporated, registered or existing. |
| 30.2 | To give effect to any resolution made pursuant to the preceding Article, the Directors may cause the following: |
| (a) | an application be made to the Registrar of Companies of the Cayman Islands to deregister the Company in the Cayman Islands or in the other jurisdiction in which it is for the time being incorporated, registered or existing; and |
| (b) | all such further steps as they consider appropriate to be taken to effect the transfer by way of continuation of the Company. |
| 31 | Winding up |
Distribution of assets in specie
| 31.1 | If the Company is wound up the Members may, subject to these Articles and any other sanction required by the Act, pass a Special Resolution allowing the liquidator to do either or both of the following: |
| (a) | to divide in specie among the Members the whole or any part of the assets of the Company and, for that purpose, to value any assets and to determine how the division shall be carried out as between the Members or different classes of Members; and/or |
| (b) | to vest the whole or any part of the assets in trustees for the benefit of Members and those liable to contribute to the winding up. |
No obligation to accept liability
| 31.2 | No Member shall be compelled to accept any assets if an obligation attaches to them. |
| 31.3 | The Directors are authorised to present a winding up petition |
| 31.4 | The Directors have the authority to present a petition for the winding up of the Company to the Grand Court of the Cayman Islands on behalf of the Company without the sanction of a resolution passed at a general meeting. |
| 32 | Amendment of Memorandum and Articles |
Power to change name or amend Memorandum
| 32.1 | Subject to the Act, the Company may, by Special Resolution: |
| (a) | change its name; or |
| (b) | change the provisions of its Memorandum with respect to its objects, powers or any other matter specified in the Memorandum. |
Power to amend these Articles
| 32.2 | Subject to the Act and as provided in these Articles, the Company may, by Special Resolution, further amend these Articles in whole or in part. |
Exhibit 2.1
SHARE CERTIFICATE
| Number | Shares |
Universe Pharmaceuticals INC
大自然藥業股份有限公司
THIS SHARE CERTIFICATE CERTIFIES THAT as of [Transfer date], [Name] of [Address] is the registered holder of [Number] fully paid Ordinary Share(s) of $11.25 par value per share in the above named Company which are held subject to, and transferable in accordance with, the Memorandum and Articles of Association of the Company (as Revised).
In Witness Whereof the Company has authorized this certificate to be issued on [Transfer date].
| By | ||
| Director |
Exhibit 2.3
Description of Rights of Each Class of Securities
Registered under Section 12 of the Securities Exchange Act of 1934, as Amended (the “Exchange Act”)
The share capital of Universe Pharmaceuticals INC (“we,” “our,” “our company,” or “us”) is US$140,625,000 divided into 11,250,000 Ordinary Shares of par value US$11.25 each (“Ordinary Shares”) and 1,250,000 Preferred Shares of par value US$11.25 each (“Preferred Shares”, and together with the Ordinary Shares, the “Shares”). As of September 30, 2024, we had one class of securities registered under Section 12(b) of the Exchange Act and our Ordinary Shares are listed and traded on the Nasdaq Capital Market.
Description of Shares
The following is a summary of material provisions of our currently effective amended and restated memorandum of association and articles of association (the “Memorandum and Articles of Association” and the “Articles”), as well as the Companies Act (Revised) of the Cayman Islands (the “Cayman Companies Act”) insofar as they relate to the material terms of our Shares. Notwithstanding this, because it is a summary, it may not contain all the information that you may otherwise deem important. For more complete information, you should read the entire Amended and Restated Memorandum of Association Articles of Association, which have been filed with the U.S. Securities and Exchange Commission as Exhibit 1.1 to our annual report on Form 20-F for the fiscal year ended September 30, 2024.
Type and Class of Securities (Item 9.A.5 of Form 20-F)
We had one class of securities, our Ordinary Shares, registered pursuant to Section 12 of the Exchange Act. Each Ordinary Share has a par value of US$11.25 each. The number of Ordinary Shares that have been issued as of the last day of the financial year ended September 30, 2024 is provided on the cover of the annual report on Form 20-F for the fiscal year ended September 30, 2024. Our Ordinary Shares may be held in either certificated or uncertificated form.
Each Preferred Share has a par value of US$11.25 each. No Preferred Shares were issued as of the last day of the fiscal year ended September 30, 2024.
Preemptive Rights (Item 9.A.3 of Form 20-F)
Our Ordinary Shares are not subject to any pre-emptive or similar rights under the Cayman Companies Act or pursuant to the Memorandum and Articles of Association.
Limitations or Qualifications (Item 9.A.6 of Form 20-F)
Each Ordinary Share entitles the holder thereof to one vote on all matters subject to the vote at general meetings of our company, voting together as one class.
Rights of Other Types of Securities (Item 9.A.7 of Form 20-F)
Not applicable.
Rights of Ordinary Shares (Item 10.B.3 of Form 20-F)
Ordinary Shares
Our authorized share capital is US$140,625,000 divided into 11,250,000 Ordinary Shares of par value US$11.25 each (“Ordinary Shares”) and 1,250,000 Preferred Shares of par value US$11.25 each. All of our issued and outstanding Ordinary Shares are fully paid and non-assessable. Shareholders who are non-residents of the Cayman Islands may freely hold and transfer their Ordinary Shares.
Dividends
Subject to the provisions of the Cayman Companies Act and any rights attaching to any class or classes of shares under and in accordance with the Articles:
| (a) | the directors may declare dividends or distributions out of our funds which are lawfully available for that purpose; and |
| (b) | the Company’s shareholders may, by ordinary resolution, declare dividends but no such dividend shall exceed the amount recommended by the directors. |
Subject to the requirements of the Cayman Companies Act regarding the application of a company’s share premium account and with the sanction of an ordinary resolution, dividends may also be declared and paid out of any share premium account. The directors when paying dividends to shareholders may make such payment either in cash or in specie.
Unless provided by the rights attached to a share, no dividend shall bear interest.
Voting Rights
Subject to any rights or restrictions as to voting attached to any shares, unless any share carries special voting rights, on a show of hands every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote per Ordinary Share. On a poll, every shareholder who is present in person and every person representing a shareholder by proxy shall have one vote for each share of which he or the person represented by proxy is the holder. In addition, all shareholders holding shares of a particular class are entitled to vote at a meeting of the holders of that class of shares. Votes may be given either personally or by proxy.
Calls on shares and forfeiture
Subject to the terms of allotment, the directors may make calls on the shareholders in respect of any monies unpaid on their shares including any premium and each shareholder shall (subject to receiving at least 14 clear days’ notice specifying when and where payment is to be made), pay to us the amount called on his shares. Shareholders registered as the joint holders of a share shall be jointly and severally liable to pay all calls in respect of the share. If a call remains unpaid after it has become due and payable the person from whom it is due and payable shall pay interest on the amount unpaid from the day it became due and payable until it is paid at the rate fixed by the terms of allotment of the share or in the notice of the call or if no rate is fixed, at the rate of ten percent per annum. The directors may, at their discretion, waive payment of the interest wholly or in part.
We have a first and paramount lien on all shares (whether fully paid up or not) registered in the name of a shareholder (whether solely or jointly with others). The lien is for all monies payable to us by the shareholder or the shareholder’s estate:
| (a) | either alone or jointly with any other person, whether or not that other person is a shareholder; and |
| (b) | whether or not those monies are presently payable. |
At any time the directors may declare any share to be wholly or partly exempt from the lien on shares provisions of the Articles.
We may sell, in such manner as the directors may determine, any share on which the sum in respect of which the lien exists is presently payable, if due notice that such sum is payable has been given (as prescribed by the Articles) and, within 14 days of the date on which the notice is deemed to be given under the Articles, such notice has not been complied with.
Unclaimed Dividend
A dividend that remains unclaimed for a period of six years after it became due for payment shall be forfeited to, and shall cease to remain owing by, the company.
Forfeiture or Surrender of Shares
If a shareholder fails to pay any capital call, the directors may give to such shareholder not less than 14 clear days’ notice requiring payment and specifying the amount unpaid including any interest which may have accrued, any expenses which have been incurred by us due to that person’s default and the place where payment is to be made. The notice shall state the place where payment is to be made and also contain a warning that if the notice is not complied with, the shares in respect of which the call is made will be liable to be forfeited.
If such notice is not complied with, the directors may, before the payment required by the notice has been received, resolve that any share the subject of that notice be forfeited (which forfeiture shall include all dividends or other monies payable in respect of the forfeited share and not paid before such forfeiture).
A forfeited share may be sold, re-allotted or otherwise disposed of on such terms and in such manner as the directors determine and at any time before a sale, re-allotment or disposition the forfeiture may be cancelled on such terms as the directors think fit.
A person whose shares have been forfeited shall cease to be a shareholder in respect of the forfeited shares, but shall, notwithstanding such forfeiture, remain liable to pay to us all monies which at the date of forfeiture were payable by him to us in respect of the shares, together with all expenses and interest from the date of forfeiture or surrender until payment, but his liability shall cease if and when we receive payment in full of the unpaid amount. The directors, however, may waive payment wholly or in part.
A declaration, whether statutory or under oath, made by a director or the secretary shall be conclusive evidence that the person making the declaration is our director or secretary and that the particular shares have been forfeited or surrendered on a particular date.
Subject to the execution of an instrument of transfer, if necessary, the declaration shall constitute good title to the shares.
Share Premium Account
The directors shall establish a share premium account and shall carry the credit of such account from time to time to a sum equal to the amount or value of the premium paid on the issue of any share or capital contributed or such other amounts required by the Cayman Companies Act.
Redemption and Purchase of Own Shares
Subject to the Cayman Companies Act and any rights for the time being conferred on the shareholders holding a particular class of shares, we may by action of our directors:
| (a) | issue shares that are to be redeemed or liable to be redeemed, at our option or the shareholder holding those redeemable shares, on the terms and in the manner our directors determine before the issue of those shares; | |
| (b) | with the consent by special resolution of the shareholders holding shares of a particular class, vary the rights attaching to that class of shares so as to provide that those shares are to be redeemed or are liable to be redeemed at our option on the terms and in the manner which the directors determine at the time of such variation; and | |
| (c) | purchase all or any of our own shares of any class including any redeemable shares on the terms and in the manner which the directors determine at the time of such purchase. |
We may make a payment in respect of the redemption or purchase of its own shares in any manner authorized by the Cayman Companies Act, including out of any combination of capital, our profits and the proceeds of a fresh issue of shares.
When making a payment in respect of the redemption or purchase of shares, the directors may make the payment in cash or in specie (or partly in one and partly in the other) if so authorized by the terms of the allotment of those shares or by the terms applying to those shares, or otherwise by agreement with the shareholder holding those shares.
Transfer of Shares
Provided that a transfer of Ordinary Shares complies with applicable rules of the Nasdaq Global Market, a shareholder may transfer Ordinary Shares to another person by completing an instrument of transfer in a common form or in a form prescribed by Nasdaq or in any other form approved by the directors, executed:
| (a) | where the Ordinary Shares are fully paid, by or on behalf of that shareholder; and |
| (b) | where the Ordinary Shares are partly paid, by or on behalf of that shareholder and the transferee. |
The transferor shall be deemed to remain the holder of an Ordinary Share until the name of the transferee is entered into the register of members of the Company.
Our board of directors may, in its absolute discretion, decline to register any transfer of any Ordinary Share that has not been fully paid up or is subject to a company lien. Our board of directors may also decline to register any transfer of such Ordinary Share unless:
| (a) | the instrument of transfer is lodged with the Company, accompanied by the certificate for the Ordinary Shares to which it relates and such other evidence as our board of directors may reasonably require to show the right of the transferor to make the transfer; | |
| (b) | the instrument of transfer is in respect of only one class of Shares; | |
| (c) | the instrument of transfer is properly stamped, if required; | |
| (d) | the Ordinary Share transferred is fully paid and free of any lien in favor of us; | |
| (e) | any fee related to the transfer has been paid to us; and | |
| (f) | the transfer is not to more than four joint holders. |
If our directors refuse to register a transfer, they are required, within three months after the date on which the instrument of transfer was lodged, to send to each of the transferor and the transferee notice of such refusal.
This, however, is unlikely to affect market transactions of the Ordinary Shares purchased by investors in the public offering. Once the Ordinary Shares have been listed, the legal title to such Ordinary Shares and the registration details of those Ordinary Shares in our register of members will remain with Depository Trust Company (“DTC”)/Cede & Co. All market transactions with respect to those Ordinary Shares will then be carried out without the need for any kind of registration by the directors, as the market transactions will all be conducted through the DTC systems.
The registration of transfers may, on 14 calendar days’ notice being given by advertisement in such one or more newspapers or by electronic means, be suspended and our register of members closed at such times and for such periods as our board of directors may from time to time determine. The registration of transfers, however, may not be suspended, and the register may not be closed, for more than 30 days in any year.
Capitalization of Profits
The directors may resolve to capitalize:
| (a) | any part of our profits not required for paying any preferential dividend (whether or not those profits are available for distribution); or |
| (b) | any sum standing to the credit of our share premium account or capital redemption reserve, if any. |
The amount resolved to be capitalized must be appropriated to the shareholders who would have been entitled to it had it been distributed by way of dividend and in the same proportions.
Liquidation Rights
If we are wound up, the shareholders may, subject to the Articles and any other sanction required by the Cayman Companies Act, pass a special resolution allowing the liquidator to do either or both of the following:
| (a) | to divide in specie among the shareholders the whole or any part of our assets and, for that purpose, to value any assets and to determine how the division shall be carried out as between the shareholders or different classes of shareholders; and |
| (b) | to vest the whole or any part of the assets in trustees for the benefit of shareholders and those liable to contribute to the winding up. |
The directors have the authority to present a petition for our winding up to the Grand Court of the Cayman Islands on our behalf without the sanction of a resolution passed at a general meeting.
Requirements to Change the Rights of Holders of Ordinary Shares (Item 10.B.4 of Form 20-F)
Variations of Rights of Shares
Whenever our capital is divided into different classes of shares, the rights attaching to any class of share (unless otherwise provided by the terms of issue of the shares of that class) may be varied either with the consent in writing of the holders of not less than two-thirds of the issued shares of that class, or with the sanction of a resolution passed by a majority of not less than two-thirds of the holders of shares of the class present in person or by proxy at a separate general meeting of the holders of shares of that class.
Unless the terms on which a class of shares was issued state otherwise, the rights conferred on the shareholder holding shares of any class shall not be deemed to be varied by the creation or issue of further shares ranking pari passu with the existing shares of that class.
Limitations on the Rights to Own Ordinary Shares (Item 10.B.6 of Form 20-F)
There are no limitations under the laws of the Cayman Islands or under the Memorandum and Articles of Association that limit the right of non-resident or foreign owners to hold or vote ordinary shares.
Provisions Affecting Any Change of Control (Item 10.B.7 of Form 20-F)
Anti-Takeover Provisions
Some provisions of the Memorandum and Articles of Association may discourage, delay, or prevent a change in control of our company or management that shareholders may consider favorable, including, among other things, the following:
| ● | provisions that authorize our board of directors to issue shares with preferred, deferred, or other special rights or restrictions without any further vote or action by our shareholders; and |
| ● | provisions that restrict the ability of our shareholders to call meetings and to propose special matters for consideration at shareholder meetings. |
Under the Cayman Companies Act, our directors may only exercise the rights and powers granted to them under the Articles for what they believe in good faith to be in the best interests of our company and for a proper purpose.
Ownership Threshold (Item 10.B.8 of Form 20-F)
There are no provisions under the Cayman Companies Act or under the Memorandum and Articles of Association that govern the ownership threshold above which shareholder ownership must be disclosed.
Differences Between the Law of Different Jurisdictions (Item 10.B.9 of Form 20-F)
The Cayman Companies Act is derived, to a large extent, from the older Companies Acts of England and Wales but does not follow recent United Kingdom statutory enactments, and accordingly there are significant differences between the Cayman Companies Act and the current Companies Act of the UK. In addition, the Cayman Companies Act differs from laws applicable to United States corporations and their shareholders. Set forth below is a summary of certain significant differences between the provisions of the Cayman Companies Act applicable to us and the comparable laws applicable to companies incorporated in the State of Delaware in the United States.
| Delaware | Cayman Islands | |||
| Title of Organizational Documents | Certificate of Incorporation and Bylaws | Certificate of Incorporation and Memorandum and Articles of Association | ||
| Duties of Directors | Under Delaware law, the business and affairs of a corporation are managed by or under the direction of its board of directors. In exercising their powers, directors are charged with a fiduciary duty of care to protect the interests of the corporation and a fiduciary duty of loyalty to act in the best interests of its shareholders. The duty of care requires that directors act in an informed and deliberative manner and inform themselves, prior to making a business decision, of all material information reasonably available to them. The duty of care also requires that directors exercise care in overseeing and investigating the conduct of the corporation’s employees. The duty of loyalty may be summarized as the duty to act in good faith, not out of self-interest, and in a manner which the director reasonably believes to be in the best interests of the shareholders. | As a matter of Cayman Islands law, a director owes three types of duties to the company: (i) statutory duties, (ii) fiduciary duties, and (iii) common law duties. The Cayman Companies Act imposes a number of statutory duties on a director. A Cayman Islands director’s fiduciary duties are not codified, however the courts of the Cayman Islands have held that a director owes the following fiduciary duties (a) a duty to act in what the director bona fide considers to be in the best interests of the company, (b) a duty to exercise their powers for the purposes they were conferred, (c) a duty to avoid fettering his or her discretion in the future and (d) a duty to avoid conflicts of interest and of duty. The common law duties owed by a director are those to act with skill, care and diligence that may reasonably be expected of a person carrying out the same functions as are carried out by that director in relation to the company and, also, to act with the skill, care and diligence in keeping with a standard of care commensurate with any particular skill they have which enables them to meet a higher standard than a director without those skills. In fulfilling their duty of care to us, our directors must ensure compliance with our amended articles of association, as amended and restated from time to time. We have the right to seek damages if a duty owed by any of our directors is breached. |
| Limitations on Personal Liability of Directors | Subject to the limitations described below, a certificate of incorporation may provide for the elimination or limitation of the personal liability of a director to the corporation or its shareholders for monetary damages for a breach of fiduciary duty as a director. Such provision cannot limit liability for breach of loyalty, bad faith, intentional misconduct, unlawful payment of dividends or unlawful share purchase or redemption. In addition, the certificate of incorporation cannot limit liability for any act or omission occurring prior to the date when such provision becomes effective. | Cayman Islands law does not limit the extent to which a company’s articles of association may provide for indemnification of officers and directors, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against civil fraud or the consequences of committing a crime. |
| Indemnification of Directors, Officers, Agents, and Others | A corporation has the power to indemnify any director, officer, employee, or agent of corporation who was, is, or is threatened to be made a party who acted in good faith and in a manner he believed to be in the best interests of the corporation, and if with respect to a criminal proceeding, had no reasonable cause to believe his conduct would be unlawful, against amounts actually and reasonably incurred. |
Cayman Islands law does not limit the extent to which a company’s memorandum and articles of association may provide for indemnification of directors and officers, except to the extent any such provision may be held by the Cayman Islands courts to be contrary to public policy, such as to provide indemnification against the consequences of committing a crime, or against the indemnified person’s own fraud or dishonesty.
Our articles of association provide to the extent permitted by law, we shall indemnify each existing or former secretary, director (including alternate director), and any of our other officers (including an investment adviser or an administrator or liquidator) and their personal representatives against: (a) all actions, proceedings, costs, charges, expenses, losses, damages or liabilities incurred or sustained by the existing or former director (including alternate director), secretary or officer in or about the conduct of our business or affairs or in the execution or discharge of the existing or former director (including alternate director), secretary’s or officer’s duties, powers, authorities or discretions; and (b) without limitation to paragraph (a) above, all costs, expenses, losses or liabilities incurred by the existing or former director (including alternate director), secretary or officer in defending (whether successfully or otherwise) any civil, criminal, administrative or investigative proceedings (whether threatened, pending or completed) concerning us or our affairs in any court or tribunal, whether in the Cayman Islands or elsewhere. |
|
No such existing or former director (including alternate director), secretary or officer, however, shall be indemnified in respect of any matter arising out of his own dishonesty.
To the extent permitted by law, we may make a payment, or agree to make a payment, whether by way of advance, loan or otherwise, for any legal costs incurred by an existing or former director (including alternate director), secretary or any of our officers in respect of any matter identified in above on condition that the director (including alternate director), secretary or officer must repay the amount paid by us to the extent that it is ultimately found not liable to indemnify the director (including alternate director), the secretary or that officer for those legal costs. |
| Interested Directors | Under Delaware law, a transaction in which a director who has an interest in such transaction would not be voidable if (i) the material facts as to such interested director’s relationship or interests are disclosed or are known to the board of directors and the board in good faith authorizes the transaction by the affirmative vote of a majority of the disinterested directors, even though the disinterested directors are less than a quorum, (ii) such material facts are disclosed or are known to the shareholders entitled to vote on such transaction and the transaction is specifically approved in good faith by vote of the shareholders, or (iii) the transaction is fair as to the corporation as of the time it is authorized, approved or ratified. Under Delaware law, a director could be held liable for any transaction in which such director derived an improper personal benefit. | Interested director transactions are governed by the terms of a company’s memorandum and articles of association. |
| Voting Requirements |
The certificate of incorporation may include a provision requiring supermajority approval by the directors or shareholders for any corporate action.
In addition, under Delaware law, certain business combinations involving interested shareholders require approval by a supermajority of the non-interested shareholders. |
For the protection of shareholders, certain matters must be approved by special resolution of the shareholders as a matter of Cayman Islands law, including alteration of the memorandum or articles of association, appointment of inspectors to examine company affairs, reduction of share capital (subject, in relevant circumstances, to court approval), change of name, authorization of a plan of merger or transfer by way of continuation to another jurisdiction or consolidation or voluntary winding up of the company.
The Cayman Companies Act requires that a special resolution be passed by a majority of at least two-thirds or such higher percentage as set forth in the memorandum and articles of association, of shareholders being entitled to vote and do vote in person or by proxy at a general meeting, or by unanimous written consent of shareholders entitled to vote at a general meeting. |
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| Voting for Directors | Under Delaware law, unless otherwise specified in the certificate of incorporation or bylaws of the corporation, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. | The Cayman Companies Act defines “special resolutions” only. A company’s memorandum and articles of association can therefore tailor the definition of “ordinary resolutions” as a whole, or with respect to specific provisions. | ||
| Cumulative Voting | No cumulative voting for the election of directors unless so provided in the certificate of incorporation. | No cumulative voting for the election of directors unless so provided in the memorandum and articles of association. |
| Directors’ Powers Regarding Bylaws | The certificate of incorporation may grant the directors the power to adopt, amend or repeal bylaws. | The memorandum and articles of association may only be amended by a special resolution of the shareholders. | ||
| Nomination and Removal of Directors and Filling Vacancies on Board | Shareholders may generally nominate directors if they comply with advance notice provisions and other procedural requirements in company bylaws. Holders of a majority of the shares may remove a director with or without cause, except in certain cases involving a classified board or if the company uses cumulative voting. Unless otherwise provided for in the certificate of incorporation, directorship vacancies are filled by a majority of the directors elected or then in office. | Nomination and removal of directors and filling of board vacancies are governed by the terms of the memorandum and articles of association. |
| Mergers and Similar Arrangements |
Under Delaware law, with certain exceptions, a merger, consolidation, exchange or sale of all or substantially all the assets of a corporation must be approved by the board of directors and a majority of the outstanding shares entitled to vote thereon. Under Delaware law, a shareholder of a corporation participating in certain major corporate transactions may, under certain circumstances, be entitled to appraisal rights pursuant to which such shareholder may receive cash in the amount of the fair value of the shares held by such shareholder (as determined by a court) in lieu of the consideration such shareholder would otherwise receive in the transaction.
Delaware law also provides that a parent corporation, by resolution of its board of directors, may merge with any subsidiary, of which it owns at least 90% of each class of capital stock without a vote by shareholders of such subsidiary. Upon any such merger, dissenting shareholders of the subsidiary would have appraisal rights. |
The Cayman Companies Act permits mergers and consolidations between Cayman Islands companies and between Cayman Islands companies and non-Cayman Islands companies. For these purposes, (a) “merger” means the merging of two or more constituent companies and the vesting of their undertaking, property and liabilities in one of such companies as the surviving company, and (b) a “consolidation” means the combination of two or more constituent companies into a consolidated company and the vesting of the undertaking, property and liabilities of such companies to the consolidated company. In order to effect such a merger or consolidation, the directors of each constituent company must approve a written plan of merger or consolidation, which must then be authorized by (a) a special resolution of the shareholders of each constituent company, and (b) such other authorization, if any, as may be specified in such constituent company’s articles of association. The plan must be filed with the Registrar of Companies together with a declaration as to the solvency of the consolidated or surviving company, a list of the assets and liabilities of each constituent company and an undertaking that a copy of the certificate of merger or consolidation will be given to the shareholders and creditors of each constituent company and that notification of the merger or consolidation will be published in the Cayman Islands Gazette. Court approval is not required for a merger or consolidation which is effected in compliance with these statutory procedures.
A merger between a Cayman Islands parent company and its Cayman Islands subsidiary or subsidiaries does not require authorization by a resolution of shareholders. For this purpose a subsidiary is a company of which at least 90% of the issued shares entitled to vote are owned by the parent company.
The consent of each holder of a fixed or floating security interest of a constituent company is required unless this requirement is waived by a court in the Cayman Islands.
Except in certain limited circumstances, a dissenting shareholder of a Cayman Islands constituent company is entitled to payment of the fair value of his or her shares upon dissenting from a merger or consolidation. The exercise of such dissenter rights will preclude the exercise by the dissenting shareholder of any other rights to which he or she might otherwise be entitled by virtue of holding shares, except for the right to seek relief on the grounds that the merger or consolidation is void or unlawful. |
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In addition, there are statutory provisions that facilitate the reconstruction and amalgamation of companies, provided that the arrangement is approved by a majority in number of each class of shareholders and creditors with whom the arrangement is to be made, and who must, in addition, represent three-fourths in value of each such class of shareholders or creditors, as the case may be, that are present and voting either in person or by proxy at a meeting, or meetings, convened for that purpose. The convening of the meetings and subsequently the arrangement must be sanctioned by the Grand Court of the Cayman Islands. While a dissenting shareholder has the right to express to the court the view that the transaction ought not to be approved, the court can be expected to approve the arrangement if it determines that: (a) the statutory provisions as to the required majority vote have been met; (b) the shareholders have been fairly represented at the meeting in question and the statutory majority are acting bona fide without coercion of the minority to promote interests adverse to those of the class; (c) the arrangement is such that may be reasonably approved by an intelligent and honest man of that class acting in respect of his interest; and (d) the arrangement is not one that would more properly be sanctioned under some other provision of the Cayman Companies Act.
When a takeover offer is made and accepted by holders of 90% of the shares affected within four months the offeror may, within a two-month period commencing on the expiration of such four month period, require the holders of the remaining shares to transfer such shares on the terms of the offer. An objection can be made to the Grand Court of the Cayman Islands but this is unlikely to succeed in the case of an offer which has been so approved unless there is evidence of fraud, bad faith or collusion.
If an arrangement and reconstruction is thus approved, or if a takeover offer is made and accepted, a dissenting shareholder would have no rights comparable to appraisal rights, which would otherwise ordinarily be available to dissenting shareholders of Delaware corporations, providing rights to receive payment in cash for the judicially determined value of the shares. |
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| Shareholder Suits | Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court generally has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action. | In principle, we will normally be the proper plaintiff and as a general rule a derivative action may not be brought by a minority shareholder. However, based on English authorities, which would in all likelihood be of persuasive authority in the Cayman Islands, the Cayman Islands courts can be expected to follow and apply the common law principles (namely the rule in Foss v. Harbottle and the exceptions thereto) so that a non-controlling shareholder may be permitted to commence a class action against or derivative actions in the name of the company to challenge: (a) an act which is illegal or ultra vires with respect to the company and is therefore incapable of ratification by the shareholders; (b) an act which, although not ultra vires, requires authorization by a qualified (or special) majority (that is, more than a simple majority) which has not been obtained; and (c) an act which constitutes a “fraud on the minority” where the wrongdoers are themselves in control of the company. |
| Inspection of Corporate Records | Under Delaware law, shareholders of a Delaware corporation have the right during normal business hours to inspect for any proper purpose, and to obtain copies of list(s) of shareholders and other books and records of the corporation and its subsidiaries, if any, to the extent the books and records of such subsidiaries are available to the corporation. | Shareholders of a Cayman Islands exempted company have no general right under Cayman Islands law to inspect or obtain copies of a list of shareholders or other corporate records (other than the register of mortgages or charges) of the company. However, these rights may be provided in the company’s memorandum and articles of association. | ||
| Shareholder Proposals | Unless provided in the corporation’s certificate of incorporation or bylaws, Delaware law does not include a provision restricting the manner in which shareholders may bring business before a meeting. | The Cayman Companies Act provides shareholders with only limited rights to requisition a general meeting, and does not provide shareholders with any right to put any proposal before a general meeting. However, these rights may be provided in a company’s articles of association. Our articles of association provide that general meetings shall be convened on the written requisition of one or more of the shareholders entitled to attend and vote at our general meetings who (together) hold not less than 10 percent of the rights to vote at such general meeting in accordance with the notice provisions in the articles of association, specifying the purpose of the meeting and signed by each of the shareholders making the requisition. If the directors do not convene such meeting for a date not later than twenty-one clear days’ after the date of receipt of the written requisition, those shareholders who requested the meeting may convene the general meeting themselves within three months after the end of such period of twenty-one clear days in which case reasonable expenses incurred by them as a result of the directors failing to convene a meeting shall be reimbursed by us. Our articles of association provide no other right to put any proposals before annual general meetings or extraordinary general meetings. As a Cayman Islands exempted company, we are not obligated by law to call shareholders’ annual general meetings. However, our corporate governance guidelines require us to call such meetings every year. |
| Approval of Corporate Matters by Written Consent | Delaware law permits shareholders to take action by written consent signed by the holders of outstanding shares having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting of shareholders. | The Cayman Companies Act allows a special resolution to be passed in writing if signed by all the voting shareholders (if authorized by the memorandum and articles of association). | ||
| Calling of Special Shareholders Meetings | Delaware law permits the board of directors or any person who is authorized under a corporation’s certificate of incorporation or bylaws to call a special meeting of shareholders. | The Cayman Companies Act does not have provisions governing the proceedings of shareholders meetings which are usually provided in the memorandum and articles of association. Please see above. | ||
| Dissolution; Winding Up | Under the Delaware General Corporation Law, unless the board of directors approves the proposal to dissolve, dissolution must be approved by shareholders holding 100% of the total voting power of the corporation. Only if the dissolution is initiated by the board of directors may it be approved by a simple majority of the corporation’s outstanding shares. Delaware law allows a Delaware corporation to include in its certificate of incorporation a supermajority voting requirement in connection with dissolutions initiated by the board of directors. | Under the Cayman Companies Act and our articles of association, the Company may be wound up by a special resolution of our shareholders, or if the winding up is initiated by our board of directors, by either a special resolution of our members or, if our company is unable to pay its debts as they fall due, by an ordinary resolution of our members. In addition, a company may be wound up by an order of the courts of the Cayman Islands. The court has authority to order winding up in a number of specified circumstances including where it is, in the opinion of the court, just and equitable to do so. |
Changes in Capital (Item 10.B.10 of Form 20-F)
Subject to the Cayman Companies Act, we may, by ordinary resolution:
| (a) | increase our share capital by new shares of the amount fixed by that ordinary resolution and with the attached rights, priorities and privileges set out in that ordinary resolution; |
| (b) | consolidate and divide all or any of our share capital into shares of larger amount than our existing shares; |
| (c) | convert all or any of our paid up shares into stock, and reconvert that stock into paid up shares of any denomination; |
| (d) | sub-divide our shares or any of them into shares of an amount smaller than that fixed, so, however, that in the sub-division, the proportion between the amount paid and the amount, if any, unpaid on each reduced share shall be the same as it was in case of the share from which the reduced share is derived; and |
| (e) | cancel shares which, at the date of the passing of that ordinary resolution, have not been taken or agreed to be taken by any person and diminish the amount of our share capital by the amount of the shares so cancelled or, in the case of shares without nominal par value, diminish the number of shares into which our capital is divided. |
Subject to the Cayman Companies Act and to any rights for the time being conferred on the shareholders holding a particular class of shares, our shareholders may, by special resolution, reduce our share capital in any way.
Debt Securities (Item 12.A of Form 20-F)
Not applicable.
Warrants and Rights (Item 12.B of Form 20-F)
Not applicable.
Other Securities (Item 12.C of Form 20-F)
Not applicable.
Description of American Depositary Shares (Items 12.D.1 and 12.D.2 of Form 20-F)
Not applicable.
Exhibit 4.6
[2024] J.N.S.H.J.L.Z. No.: 17138202405171003001
Working Capital Loan Contract
Borrower Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd.
Lender Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch
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Jiangxi Rural Commercial Bank |
Special Notice: In order to protect the legitimate rights and interests of the Borrower, the Lender hereby requests the Borrower to give full attention to all provisions concerning the rights and obligations of the parties, especially those shown in bold. If the Borrower has any objection, it shall raise the objection to the Lender. Otherwise, after this Contract is entered into by and between the Borrower and the Lender, all the terms and conditions herein represent the true intention of both parties, are protected by law, and shall be legally binding on both parties herein.
Working Capital Loan Contract
[2024] ___LJZ No.: 17138202405171003001
| Borrower: | Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd. |
| Business License No.: | 913608215508749684 |
| Legal Representative / Person in Charge: | LAI Gang |
| Business Address: | No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County |
| Mailing Address: | The same as above |
| Postal Code: | 343100 | Tel.: | * |
| Electronic Contact Information (Email and WeChat Account No.): |
| Lender: | Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch. |
| Legal Representative / Person in Charge: | Fang Juan |
| Business Address: | The northeast corner of the intersection between Junshan Avenue and Chuangxin Avenue, |
| Jinggangshan Economic and Technological Development Zone |
| Postal Code: | 343000 |
| Tel.: | 0796-8736999 | Fax: |
Pursuant to the laws and regulations of the People’s Republic of China and other relevant regulations, the Borrower and the Lender have reached an agreement with respect to the matter that the Lender grants a working capital loan to the Borrower, and hereby execute this Contract by consensus, which shall be binding on both parties.
Chapter 1 Execution Provisions
Article 1 Loan Amount and Currency
Loan Amount (in words): CNY Five Million.
(In Figures) CNY 5,000,000.00.
The loan amount under this Contract is: £revolving borrowing limit Rnon-revolving loan amount.
Article 2Loan Term
The valid loan term under this Contract shall be: 12 months from May 17, 2024 to May 16, 2025.
☐ In the event that the loan amount hereunder is a revolving borrowing limit, the term of borrowing limit shall be the same as the valid loan term as agreed herein. The term of each loan shall be subject to the term recorded in the loan note.
þ In the event that the loan amount hereunder is a non-revolving borrowing limit, the loan term shall be the same as the valid loan term as agreed herein. The specific loan term shall be subject to the term recorded in the loan note.
If the Borrower has any default circumstance listed in Article 19 of this Contract, and the Borrower agrees that the Lender may recover the loan in advance, then the Lender may announce that the date of recovering the loan in advance is the due date of the loan.
Article 3 Loan Purpose
The loan borrowed hereunder shall be used for turnover of working capital.
Without the written consent of the Lender, the Borrower may neither change the loan purpose nor use the loan for any other purposes. The Lender shall have the right to supervise the Borrower’s use of the loan.
Article 4 Loan Interest Rate, Interest Calculation and Settlement
1. Loan Interest Rate
The method as described in following Item (1) shall apply for the determination of loan interest rate and a simple interest calculation shall be applied:
(1) Fixed Interest Rate. The annual interest rate shall be 3.65%.
The loan prime rate (LPR) recently published on þ the date of signature hereof ☐ withdrawal date for 1 years’ loan, which is 3.45, and þ increased percentage points ☐ decreased percentage points, which is 20 bp (1bp = 0.01%). The annual interest rate shall be 3.65%. The interest rate shall remain unchanged during the loan term.
(2) Floating Interest Rate.
The loan interest rate shall be determined by the loan prime rate (LPR) recently published on the working day before the withdrawal date for _____ years’ loan and £increased percentage points £decreased percentage points, which is ____ bp. The increased or decreased percentage points shall remain unchanged during the term of this Contract. In case of any adjustment to the LPR, its loan interest rate determination method shall be handled according to the following Item and the Lender will not give a further notice to the Borrower:
① Annual Adjustment. From January 1 of the next year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
② Annual Adjustment. From the corresponding date of the corresponding month in the corresponding year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
③ Quarterly Adjustment. From the corresponding date of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
④ Quarterly Adjustment. From the first day of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑤ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein (If there is no corresponding day in the month of adjustment, the last day of such month shall be treated as the corresponding day);
⑥ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑦ Immediate Adjustment. From the date immediately following the date of the LRP recently published, the loan interest rate shall be adjusted, on the basis of the new LPR, in accordance with the increased or decreased percentage points agreed herein.
(3) The loan interest rate shall be determined by other methods: ________/________________.
If the Borrower chooses the “(2) floating interest rate” method, and when the loan prime rate (LPR) of the loan market increases, the monthly repayment amount of the Borrower will increase. If the Borrower still makes the repayment according to the repayment amount before adjustment, the monthly repayment amount will be insufficient, resulting in penalty interest and compound interest and affecting the credit record of the Borrower.
2. Interest Settlement Method
The Borrower will settle the interest in a method as described in following Item (2) :
(1) Quarterly Interest Settlement. The 20th day of the last month of each quarter shall be the interest settlement date, and the 21st day shall be the interest payment date.
(2) Monthly Interest Settlement. The 20th day of each month shall be the interest settlement date, and the 21st day shall be the interest payment date.
(3) The interest shall be settled by other methods: _____/__________________________.
In the event that the repayment date of the last installment of loan principal is not the interestpayment date, such repayment date of the last installment of loan principal shall be the interest payment date on which the Borrower shall pay off all the interests payable.
3. Penalty Interest Rate
(1) In the event that the Borrower fails to repay the loan within the agreed time limit, interest shall be calculated and charged over the overdue part at the penalty interest rate for overdue loan from the overdue day, until the principal and interest are paid off;
(2) In the event that the Borrower uses the loan for any purposes other than those agreed herein, interest shall be calculated and charged over the misappropriated part at the penalty interest rate for misappropriated loan from the misappropriation date, until the principal and interest are paid off;
(3) In the event that the loan is overdue and misappropriated, interest shall be calculated and charged at the penalty interest rate for misappropriated loan;
(4) With respect to the interest and penalty interest that the Borrower fails to pay as scheduled, compound interest shall be calculated and charged at the penalty interest rate agreed in this paragraph in the interest settlement method as agreed in Paragraph 2 hereof;
(5) In case of any adjustment to the loan interest rate agreed herein, the penalty interest and compound interest shall be calculated at the adjusted interest rate from the adjustment date;
(6) Penalty Interest Rate
The penalty interest rate for overdue loan shall be 30% higher than the loan interest rate agreed in Paragraph 1 hereof; the penalty interest rate for misappropriated loan shall be 50% higher than the loan interest rate agreed in Paragraph 1 hereof.
Article 5 Loan Disbursement and Repayment Account
The Borrower shall open an account as follows with the Lender as the loan disbursement and repayment account, which shall be used for loan disbursement, payment and repayment.
Bank of deposit: Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch
Account Name: Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd.
Account Number: *
Article 6 Repayment
Unless otherwise agreed by the parties, the Borrower shall repay the loan hereunder in accordance with the repayment schedule as set forth in Item 1 below:
1. Repay the loan hereunder in full upon the expiration of the loan term.
2. Repay the loan hereunder in accordance with the following repayment schedule:
| Repayment Time | Repayment Amount |
| 1. | |
| 2. | |
| 3. | |
| 4. | |
| 5. | |
| 6. | |
| 7. | |
| 8. | |
| 9. | |
| Total |
3. Other Repayment Schedule: ________/____________________________.
4. Where the Borrower makes repayment in advance, it shall obtain the consent from the Lender 7 banking days in advance.
Article 7 Guarantee
The loan hereunder shall be a guaranteed (credit/ guaranteed) loan. The guarantee type shall be guarantee (guarantee/ mortgage/ pledge), and the guarantee contract shall be executed separately.
Article 8 Contract Agreements on the Borrower’s Financial Indicators:
Article 9 Dispute Resolution
1. After this Contract takes effect, any dispute arising from the execution or performance hereof or in connection with this Contract shall be settled by both parties through negotiation. If such negotiation fails, either party may file a lawsuit with the People’s Court having jurisdiction over the place of the Lender in accordance with the law.
2. During the dispute resolution, in the event that the dispute does not affect the performance of the remaining provisions of this Contract, such remaining provisions shall continue to be performed.
3. After negotiation between the parties, the parties may conduct notarization for the compulsory enforcement of this Contract. The Borrower agrees that this Contract shall have the compulsory enforcement effect after it is notarized. In the event that the Borrower fails to perform its obligations under this Contract, the Lender may apply to the People’s Court having jurisdiction for compulsory enforcement according to law.
Article 10 Effectiveness of the Contract
This Contract shall take effect from the date when both parties affix their signatures and seals hereto.
This Contract is made out in duplicate, with the Borrower, the Lender holding one counterpart each. Each counterpart shall have the same legal effect.
Article 11 Other Agreements
Chapter 2 Standard Provisions
Article 12 Interest Calculation
The interest shall be calculated from the Borrower’s actual withdrawal date and shall be calculated according to the actual withdrawal amount and use days of loan.
Interest Formula: Interest = Principal × Actual Days × Daily Interest Rate.
The daily interest rate is calculated on a base of 360 days a year. Conversion Formula: Daily Interest Rate = Annual Interest Rate / 360.
Article 13 Loan Disbursement Conditions
1. The Borrower must meet all the following conditions for loan disbursement, otherwise the Lender shall have no obligation to disburse any loan to the Borrower, unless the Lender agrees to disburse the loan in advance:
(1) The Contract and its appendixes have become effective;
(2) The Borrower has reserved to the Lender the Borrower’s documents, receipts, seals, lists of persons and specimen signatures in relation to the execution and performance of this Contract and filled in the relevant vouchers;
(3) The Borrower has, according to the Lender’s requirements, opened an account necessary for the performance of this Contract;
(4) The Borrower, within 3 banking days prior to the withdrawal, has submitted to the Lender the written withdrawal notice and the relevant supporting documents for loan purpose which is consistent with the purpose as agreed herein, and has completed the relevant withdrawal procedures;
(5) The Borrower has submitted to the Lender the resolution and letter of authorization of the board of directors or other competent authorities, which agree to the execution and performance of this Contract;
(6) In accordance with relevant regulatory provisions and management requirements of the Lender, if the loan exceeds a certain amount or meets other conditions, the Lender shall, according to the Borrower’s withdrawal application and payment authorization, pay the loan to the payment object conforming to the purpose agreed herein in a manner of authorized payment by the Lender;
(7) In addition to the credit loan, the Borrower has provided the corresponding guarantee as required by the Lender and has completed the relevant guarantee procedures, and the guarantee is legal and valid;
(8) The Borrower has not breached this Contract or any other contracts executed by and between the Borrower and the Lender;
2. In the event that the Borrower fails to make any withdrawal for 3 consecutive months from the contract execution date, the Lender shall be entitled to cancel the borrowing limit.
Article 14 Special Arrangements on Revolving Loan (Maximum Loan)
1. During the term of revolving borrowing limit, the sum of the loan principal balance of at any time shall not exceed the revolving borrowing limit; the repayment date of any withdrawal shall not exceed the term of revolving borrowing limit.
2. As agreed by both parties, the Lender shall reasonably set the amount and term of each revolving loan according to the scale and cycle of the Borrower’s production and operation.
Article 15 Loan Amount Payment
1. The authorized payment by the Lender means that the Lender pays the loan fund to the Borrower’s counter-party in a transaction conforming to the purpose agreed herein according to the Borrower’s withdrawal notice and payment authorization.
Payment of the Borrower’s loan fund for which the amount of a single payment under this Contract exceeds the specified amount shall be made in a manner of authorized payment by the Lender.
In the event of the authorized payment by the Lender, the Borrower shall make express payment authorization and provide other necessary payment information (including name of counter-party who receives payment, account number of such counter-party, and amount of payment) in the withdrawal notice, and submit to the Lender the supporting documents for loan purpose such as business contracts required for the examination. In this case, the Lender shall pay the loan fund to the counter-party of the Borrower via the Borrower’s account upon examination and approval. In the event of the Lender’s failure to perform its obligation to pay upon authorization resulting from untruthfulness, incorrectness, and incompleteness of the information of payment authorization and relevant transactions furnished by the Borrower, the Lender shall not be held liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. The Lender will make payment to the account of the Borrower’s counter-party in accordance with the Borrower’s withdrawal notice and the payment certificate as required by the Lender.
In the event that the Lender, upon examination, discovers that the supporting documents for loan purpose such as business contracts furnished by the Borrower fail to comply with the Contract or there is any other defects, the Lender shall be entitled to request the Borrower to supplement, replace, explain or re-furnish such documents, and the Lender may suspend granting or paying of such loans until the Borrower has furnished the supporting documents such as business contracts to the satisfaction of the Lender.
In the event that the account-holding bank of the counterparty returns such payments, resulting in the Lender’s failure to transfer such loans to the Borrower’s counterparty as authorized by the Borrower in a timely manner, the Lender shall not be liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. With respect to the funds returned by the account-holding bank of the counterparty, the Borrower shall re-furnish the payment authorization and the supporting documents for loan purpose such as business contracts required for the examination, and the Lender shall pay the loan fund to the counterparty of the Borrower via the Borrower’s account upon examination and approval.
All the expenses incurred by the payment of loan to the counterparty designated by the Borrower in a manner of authorized payment under this Contract shall be borne by the Borrower. The Borrower shall pay the above expenses to the Lender at the time of the authorized payment of each loan.
The Borrower shall not violate the above provisions to dodge the authorized payment by the Lender by way of breaking up a large amount into several small amounts.
2. Except for the cases where the authorized payment by the Lender must be adopted as stipulated in the preceding paragraph, unless otherwise agreed by both parties, payment of other loans shall be made by the Borrower itself, namely, after the Lender disburses the loans to the Borrower’s account pursuant to the withdrawal application submitted by the Borrower, the Borrower pay by itself to the its counterparty that complies with the purpose as agreed in the Contract.
In the event that the Borrower needs to change the aforesaid repayment schedule, it shall submit a written application to the Lender 10 banking days prior to the maturity date of the loan, and the changed repayment schedule is subject to the written confirmation by the Parties.
3. In the event that the Borrower needs to extend the loan term agreed herein, it shall submit a written application of extension to the Lender 30 banking days prior to the maturity date of the loan, and the Lender shall decide whether to approve the extension. In applying for the extension of a guaranteed loan, mortgage loan or pledged loan, the guarantor, mortgagor or pledgor shall also issue a written certificate of approval. the parties shall enter into a renewal agreement after the Lender approves the extension. In the event that the Borrower’s application for extension is not approved by the Lender, the Borrower shall still repay the loan in full according to the repayment term agreed herein.
4. Unless otherwise agreed by the Parties, if both the principal and the interests are overdue by the Borrower, the Lender shall be entitled to decide on the sequences for repaying the principal or the interests; under the condition of installment repayment, if several mature installments and overdue installments exist under this Contract, the Lender shall be entitled to decide the sequences of repayment; if several outstanding loan contracts exist between the Parties, the Lender shall be entitled to decide the sequences for repaying any contract.
5. The Borrower shall repay the loan principal, interests and other amounts payable in full and on time according to provisions stated herein. The Borrower shall, before the end of counter business on the repayment date and each interest settlement date, deposit in full the current interests, principal and other amounts payable to the repayment account opened with the Lender, and the Borrower shall authorize the Lender to collect the funds on the repayment date or the interest settlement date or the Borrower shall be required to cooperate in handling the relevant transfer procedures. In the event that the amount in the repayment account is insufficient to pay the full amount due from the Borrower, the Borrower shall agree that Lender is entitled to decide the sequences for repayment.
6. The Lender shall be entitled to collect the loan in advance on the basis of the capital withdrawal of the Borrower.
7. Loan Note: The loan note shall be an integral part of this Contract. In the event that there is no record in this Contract, or the loan amount, withdrawal amount, repayment amount, borrow date and maturity date of the loan, loan term, loan interest rate and loan purpose as recorded in this Contract is inconsistent with those recorded in the loan note, the loan note shall prevail.
Article 16 Guarantee
In the event that any event occurs to the Borrower or the guarantor, and causes the Lender to believe that it may affect the performing capability of the Borrower or the guarantor; or the guarantee contracts are deemed as invalid, canceled or resolved; or the performing capability of the Borrower or guarantor may be affected due to the deterioration in their financial condition or that the Borrower and the guarantor are involved in substantial lawsuit or arbitration or other reasons; or the guarantor breaches the guarantee contracts or other contracts with the Lender; or the collateral value decreases or gets lost due to the devaluation, damage, lost or sequestration of the collateral; the Lender shall be entitled to require, and the Borrower shall have the obligation to provide new guarantee, supplement or replace the guarantor to guarantee the liabilities under this Contract.
Article 17 Representations and Undertakings
1. The Borrower is a legal entity incorporated, registered and existing under the administration for industry and commerce or other competent authorities and has full capacity of civil rights and conduct to conclude and perform the Contract, and capacity of loan repayment.
2. The Borrower fully agrees to the contents and terms of this Contract, executes and performs this Contract out of true intention, has obtained all legal and valid authorizations required by the Borrower’s Articles of Association and bylaws, and will not be in violation of any agreement, contract, or other legal documents with binding force to the Borrower. The Borrower has obtained or will obtain all the required approval, consent, documentation or registration for executing and performing this Contract.
3. The Borrower is in good faith and all the documents, financial statements, certifications and other information provided by the Borrower to the Lender under this Contract are true, complete, accurate and valid, and free from false records, material omissions or misleading statements. The financial and accounting reports provided to the Lender are prepared in accordance with Chinese accounting standards, and truly, fairly and completely present the Borrower’s operating and liability condition.
4. The transaction background that the Borrower represents to the Lender is real and legal, not for any illegal purposes such as money laundering. The loan purpose and the source of repayment are clear and legal. The loan purpose and the source of repayment are clear and legal.
5. The Borrower has a good credit status, does not have material bad credit record, and does not conceal from the Lender any fact that may affect the Borrower’s and the Guarantor’s financial condition and performance capability. The Borrower does not conceal from the Lender any litigation, arbitration or claim in which it is involved.
6. The borrower has repaid other debts payable as scheduled and has not maliciously defaulted on the payment of principal and interest of the bank loan.
7. The Borrower shall withdraw and use the loan in accordance with the term and purpose agreed herein. The loan borrowed hereunder shall neither be used for the investment in fixed asset and equity and other investments, nor flow into the securities market or the futures market in any form, or be used for other purposes prohibited or restricted by relevant laws and regulations.
8. The Borrower shall deliver its financial statements (including but not limited to annual, quarterly and monthly reports) and other relevant documents to the Lender on a regularly and timely basis in accordance with the requirements of the Lender; the Borrower shall ensure that the financial indicators will comply with the Contract all the time. If the production and operation qualification/license is subject to the annual audit, such qualification/license will pass the annual examination as scheduled.
9. The Borrower shall withdraw, repay and use the loan as stipulated herein.
10. If the Borrower has executed or will execute with the guarantor under this Contract a counter-guarantee agreement or similar agreement regarding its guarantee obligations, this counter-guarantee agreement or similar agreement will not prejudice any Lender’s right under this Contract.
11. The Borrower shall accept the credit inspection and supervision conducted by the Lender, and provide sufficient assistance and cooperation; from the effective date of this Contract and prior to discharge of the principal and interests and related expenses hereunder, the Borrower agrees and authorizes the Lender to monitor the account opened with the Lender, examine and analyze the Borrower’s production and operation (including but not limited to the construction and operation of the Borrower’s projects), and make dynamic monitoring on the income cash flow and overall fund flow of the Borrower; the Borrower shall accept and actively cooperate with the examination and supervision made by the Lender on the usage of the loan funds including the loan purpose by account analysis, proof inspection and site investigation, and make summary report in a periodic manner as required by the Lender.
12. The Borrower’s merger, division, decrease of capital, equity transfer, external investment, substantial increase of debt financing, transfer of material assets and claims and other events which may have adverse effect on the solvency of the Borrower shall be subject to the written consent of the Lender.
The Borrower shall give a notice to the Lender within 7 days after it becomes or should have become aware of any of the following circumstances:
(1) Change of the Articles of Association, business scope, registered capital, legal representative of the Borrower or the guarantor;
(2) Change of management mode such as joint management in any form, cooperation with foreign enterprises, cooperation, contracting management, reorganization, reform and planned listing;
(3) Involved in material litigation or arbitration cases, sequestration, attachment or supervision of properties or collateral, or establishment of new material liabilities on the collateral;
(4) Winding up, dissolution, liquidation, stopping business for rectification, cancellation, revocation of business license, (applied for) applying for bankruptcy;
(5) Shareholders, directors and current senior managers are suspected of being involved in material cases or economic disputes; or the legal representative/person in charge and current senior executives are found to be in bad health or other material conditions that the they are unqualified for their job;
(6) Events of default by the Borrower under other contracts;
(7) Difficulty in business operation and deterioration of financial position;
(8) In the event that the Borrower is closed, suspended, merged or changes the line of production due to change, restructuring and contracting or with the approval of the competent departments, the Borrower undertakes to give a notice to the Lender in writing within one month prior to the occurrence of the above events and to discharge all debts owed to the Lender immediately. Subject to the consent of the Lender, the Borrower may transfer the debts to the receiving entity or the newly incorporated entity (The Borrower shall, in the process of debt transfer, present and submit to the Lender the documents issued by its competent authority or the contract-issuing party or relevant documents); however, the debt receiving entity must execute a new loan contract with Lender and submit a written certificate of the corresponding guarantor’s approval or implement new guarantee measures, and before the execution of the new contract, the Lender shall have the right to recover the debts from the Borrower, the Guarantor or the Borrower’s receiver at any time.
13. Liquidation of the debts owed by the Borrower to the Lender shall have priority to the loan extended by the shareholders of the Borrower, and precede the debts of the same kind owed by the Borrower to other creditors. In addition, from the effectiveness of the Contract to the time when all the principal, interests and relative fees under the Contract are paid off, the Borrower shall not return the loan from its shareholders.
14. In respect of the loan hereunder, the loan conditions such as guarantee conditions, loan rate pricing, discharge sequence provided by the Borrower for the Lender shall be no less than the current or future conditions provided for any other financial institution.
15. The Borrower shall bear the expenses incurred in connection with the execution and performance of this Contract and the expenses paid and payable by the Lender for realization of its creditor’s right hereunder, including but not limited to litigation or arbitration fees, property preservation costs, attorney fees, enforcement fees, evaluation fees, auction fees, and announcement fees.
16. Account Management
(1) The repayment account opened by the Borrower with the Lender (the account stipulated in Article 5) is a special capital withdrawal account, which is used to collect the corresponding sales revenue or the planned repayment fund. Where the corresponding sales revenue is settled in a non-cash manner, the Borrower shall ensure that it will be promptly transferred into the capital withdrawal account upon receipt.
(2) The Lender shall have the right to supervise the capital withdrawal account, including but not limited to the understanding and supervision of the fund income and expenditure of the account, and the Borrower shall provide relevant cooperation. At the request of the Lender, the Borrower shall execute a special account supervision agreement with the Lender.
17. The Borrower shall dispose the assets in a manner that will not reduce its repayment capability. The Borrower undertakes that the total amount of the Borrower’s external guarantee is equal to or less than _____ times of its net asset, and the total amount of external guarantee as well as the amount of a single guarantee may not exceed the limit as stipulated in its Articles of Association; without the consent of the Lender, the Borrower shall not provide guarantee to any third party or the loans borrowed by the Borrower from any other financial institution with the assets formed by the loans under the Contract.
Article 18 the Related-party Transaction within the Borrower
☐ 1.The Borrower is not identified by the Lender as the group client in accordance with the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients (hereinafter referred to the “Guidelines”).
☐ 2.If the Borrower is identified by the Lender as the group client in accordance with the Guidelines, it shall report to the Lender any of the related-party transaction in a timely manner.
☐ 3.The Borrower is subject to such events as major merger, acquisition or reorganization, which in the opinion of the Lender may affect the safety of the loan.
Article 19 Breach of Contract and Settlement
1. The Borrower shall constitute or be deemed to have breached the Contract and shall be liable for breach of contract under any of the following circumstances:
(1) The Borrower fails to perform the obligations of payment and liquidation to the Lender according to the stipulations of the Contract;
(2) The Borrower fails to use the loan in a purpose and way stipulated in this Contract or fails to use the loan borrowed hereunder for the purpose stipulated in the Contract; or the Borrower fails to go through the withdrawal procedures as scheduled according to the withdrawal plan, or changes the withdrawal plan without the Lender’s consent; or the Borrower is in violation of this Contract and dodges the authorized payment by the Lender by way of breaking up a large amount into several small amounts;
(3) The Borrower provides an untrue representation or violates the undertaking it made in this Contract;
(4) If any circumstance under Subparagraph 12 of Article 17 arises, and the Lender believes that may affect the financial condition and performing capability of the Borrower or guarantor, but the Borrower refuses to provide new guarantee or change a guarantor according to this Contract;
(5) The Borrower violates any stipulation under any other contract between the Borrower and the Lender; the Borrower violates any stipulation under any Credit Extension Contract between the Borrower and any other financial institution;
(6) The guarantor violates the stipulations of the guarantee contract, or any default events arise under other contract between the guarantor and the Lender;
(7) The Borrower closes down or is dissolved, withdraw or bankrupted;
(8) Where the Borrower involves in or possibly involves in material economic disputes, litigation, arbitration, or its capital is sealed up, seized or enforced for execution, or the administrative organs such as judicial organs or taxation authorities, and industrial and commercial administration file for investigation or adopt punishment measures on the Borrower according to law which has influenced or may influence the performance of the liabilities under this Contract;
(9) Where the main individual investors and key managerial personnel of the Borrower are changed abnormally, disappear or are investigated or the personal freedom thereof is limited by judicial organs according to law which has influenced or may influence the performance of the liabilities under this Contract;
(10) Where the credit circumstances of the Borrower lowers or finance indexes of the Borrower such as profitability, debt-paying ability, operating capacity and cash flow seriously deteriorate and break through the index binding of this Contract or other financial agreements;
(11) The Borrower takes advantage of the false contracts between the Borrower and the affiliated party to obtain funds or credit from the Lender through transactions without true transaction background, and the affiliated party is subject to such events as major merger, acquisition or reorganization which in the opinion of the Lender may affect the safety of the loan; or the Borrower intends to evade the creditor’s right of the Lender through related-party transactions;
(12) The Borrower causes any liability accident due to its violation of food safety, production safety, environmental protection and other relevant laws and regulations, regulatory provisions or industrial standards which has influenced or may influence the performance of the liabilities under this Contract;
(13) In the event that the loan under this Contract is granted on the basis of credit rating, the Borrower’s credit rating, profitability, asset-liability ratio, net cash flow from operating activities and other indicators do not meet the Lender’s credit loan conditions; or the Borrower, without the written consent of the Lender, establishes mortgage/pledge guarantee or provide guarantee to others with its valid operating assets, which has influenced or may influence the performance of the liabilities under this Contract;
(14) Other circumstances that may have adverse effect on the realization of the creditor’s rights of the Lender under this Contract.
2. When the aforesaid breaches arise, as the case maybe, the Borrower agrees that the Lender may take following measures respectively or simultaneously:
(1) Require the Borrower and guarantor to rectify their breach within time limit.
(2) Decrease, suspend or terminate all or part of the credit lines of the Borrower.
(3) Suspend or terminate all or part of the business application (such as withdrawal) of the Borrower under this Contract or other contracts between the Borrower and the Lender; partly or totally suspend or cancel to issue, pay and transact the unissued loans.
(4) Declare that all or part of the outstanding principal and interest of the loan and other amounts payable of the Borrower under this Contract and other contracts between the Borrower and the Lender shall become due immediately.
(5) Negotiate with the Borrower to supplement the terms of loan issuance and payment; or the Lender shall have the right to change the loan disbursement and payment conditions in accordance with the credit status of the Borrower such as lowering the minimum amount of authorized payment of the Borrower; or the Lender shall have the right to transfer back the loan fund which the Borrower has paid for default.
(6) Terminate or dissolve this Contract, partly or totally terminate or dissolve other contracts between the Borrower and the Lender.
(7) Require the Borrower to compensate the Lender for the Lender’s loss caused by the Borrower’s default.
(8) Deduct from the Borrower’s account which is opened in the Rural Commercial Bank system within the jurisdiction of Jiangxi with notice before or after the deduction, so as to discharge all or part of the Borrower’s debts to the Lender hereunder. The undue deposit in the account shall be deemed to become due in advance.
(9) Exercise security interest; and require the guarantor to take guarantee responsibility.
(10) In the event that the Borrower fails to repay the principal, interest (including penalty interest and compound interest) or other amounts payable as scheduled, the Lender may disclose the default information of the Borrower and the Guarantor and make an announcement for collection through the media or other forms.
(11) Have the right to deduct and debit the deposits and dividends within any account opened by the Borrower in the Rural Commercial Bank system within the jurisdiction of Jiangxi, and to dispose of the Borrower’s equities.
(12) Other measures stipulated by laws and regulations and deemed necessary and possible by the Lender.
Article 20 Reservation of Rights
Any failure by a party to exercise all or part of its rights hereunder or to require the other party to perform or assume all or part of obligations or responsibilities shall not constitute a waiver of such rights or release of the obligations and responsibilities of such party.
Any tolerance, grace or postponement for exercising the rights under this Contract of one Party shall not affect its rights stipulated by this Contract, laws and regulations, and shall not be deemed as a waiver of such rights.
Article 21 Confidentiality
Each party undertakes to keep confidential the trade secrets, technical information, business information and other business secrets obtained from the other party which are not available through public channels. Without the consent of the original provider of the trade secret, neither party shall disclose all or part of the trade secret to any third party, unless otherwise stipulated by laws and regulations or otherwise agreed by both parties.
In the event that either party is in violation of the aforesaid confidentiality obligation, it shall assume the corresponding liability for breach of contract and compensate for the losses caused thereby.
Article 22 Force Majeure
The term Force Majeure as specified in this Contract refers to the objective events that cannot be foreseen, overcome, or avoided and have a significant impact on one party, including but not limited to the natural disasters such as flood, earthquake, fire and storm, as well as the social events such as war and turmoil.
In the event that the Contract cannot be performed as a result of the occurrence of force majeure events, the party affected by the force majeure shall immediately notify the other party of the event in writing, and within 7 days, provide written documents certifying the details of accident and the reasons for non-performance or delay in performance hereof. Upon consensus through negotiation, both Parties may terminate or temporarily delay the performance of the Contract.
Article 23 Alteration, Amendment and Termination
This Contract can be altered and amended in written form upon consensus through negotiation of the Parties, and any alternation and amendment agreed on by the Parties shall constitute an integral part of this Contract.
This Contract may not be terminated until all the rights and obligations are fully preformed, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
The invalidity of any provision of this Contract shall not affect the legal validity of other provisions, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
Article 24 Agreements on Service
1. The contact information (including mailing address, telephone number, fax number, etc.) provided by the Borrower in this Contract shall be true and valid and shall be the address for service of any notice of the Lender for the Borrower. In case of any change to the contact information, the Borrower shall immediately send/mail the change information in writing to the mailing address provided by the Lender in this Contract. Such information change shall become effective upon the Lender’s receipt of the change notice.
2. Unless otherwise expressly provided for in this Contract, the Lender shall be entitled to give notice to the Borrower in any of the following methods. The Lender shall be entitled to choose the notification method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, WeChat or any other communication system. Where the Lender simultaneously chooses several notification methods, the one by which the notice is served to the Borrower earlier shall prevail.
(1) By announcement. The notice shall be deemed to be served on the date on which the Lender publishes the announcement on its website, online banking, telephone banking or business outlets;
(2) By hand. The notice shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower refuses to sign for the receipt, the date on which the server makes a record on the proof of service on the spot;
(3) By mail (including express mail, surface mail or registered mail). The notice, when addressed to the Borrower’s mailing address last known to the Lender, shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower fails to sign for the receipt, the date on which the mail is returned;
(4) By fax, mobile phone SMS, WeChat or other electronic communication methods. The notice, when sent to the Borrower’s fax number, the mobile phone number, WeChat account number or email address designated by the Borrower which is last known to the Lender, shall be deemed to be served on the date on which the notice is sent.
3. Borrower agrees that, unless the Lender receives from the Borrower a written notice concerning the change of mailing address, the Borrower’s domicile stated in this Contract is the correspondence and contact address. In the future, the delivery addresses of bank statements, collection statements, relevant legal instruments and litigation documents related to the loans under this Contract shall prevail. The Borrower promises to notify the Lender in time when the communication and contact information change, otherwise the documents delivered by the Lender according to the communication and contact information stated in this Contract will be effectively delivered, and the relevant economic and legal responsibilities arising therefrom will be borne by the Borrower and the Mortgagor. During the dispute settlement, if the court serves the judicial documents or other written documents by mail (including express mail, surface mail or registered mail) to the Borrower mailing address last known to the Lender, such documents shall be deemed to be served on the date on which the Borrower signs for receipt of the proof of service; or if Borrower fails to sign for receipt of the proof of service, the date on which the mail is returned;
The court or notary organ shall be entitled to give any notice to the Borrower by any methods of communication agreed in this Paragraph 2. The court or notary organ shall be entitled to choose the communication method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, telex or any other communication system. Where the court or notary organ simultaneously chooses several communication methods, the one by which the notice is served on the Borrower earlier shall prevail.
Article 25 Appendix
The appendixes confirmed by both parties shall constitute an integral part of this Contract and shall have the same legal effect as this Contract.
Article 26 Other Agreements
1. The Borrower shall not transfer any rights and obligations under this Contract to the third party without written consent of the Lender.
2. The Lender has the right to transfer the creditor’s rights under this Contract to the third party, and shall notify the Borrower.
3. This Contract shall be legally binding upon both Parties and their successors and assignees without prejudice to other provisions of this Contract.
4. All the transactions under this Contract are carried out for each Party’s independent benefits. If, in accordance with relevant laws, regulations and regulatory provisions, other parties to the transaction become the related parties or affiliated persons of the Lender, no Party may seek to affect the fairness of the transaction out of this related-party relationship.
5. The headings and business names in this Contract are used only for convenient reference, which shall not be used to interpret the provisions or the rights and obligations of both Parties.
6. In accordance with relevant laws, regulations and regulatory provisions, the Lender shall have the right to provide the information related to this Contract and other relevant information of the Borrower to the credit reference system of the People’s Bank of China and other credit information database established according to law for reference and use by the institutions or individuals with proper qualification according to law. The Lender shall also have the right to refer the relevant information of the Borrower through credit reference system of the People’s Bank of China and other credit information database established according to law for the purpose of the execution and performance of this Contract.
The parties acknowledge that the Borrower and the Lender have made a full negotiation in connection with all the terms of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and provisions of the Contract. The Borrower confirms that there is no misunderstanding or doubt about all the contents and terms of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
The Borrower and the Lender have made a full negotiation in connection with all the provisions of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and terms of the Contract. The Borrower confirms that there is no misunderstanding or ambiguity about all the contents and provisions of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
(The Borrower shall fill in the following by contrast)
(The remainder of this page is intentionally left blank for signatures)
| Borrower (Official Seal): | Jiangxi Universe Pharmaceuticals Commerce and Trade Co.,Ltd. 3608013004965 [seal] |
| Legal Representative or Authorized Agent (Signature & Seal): | /s/ Lai Gang |
| May 17, 2024 |
| Lender (Seal): | Ji’an Rural Communications Co., Ltd.Jingkaiqu Branch Special Seal for Credit Business Contract 3601000182066. [seal] |
| Legal Representative or Authorized Agent (Signature & Seal): | /s/ Fan Juan |
| May 17, 2024 |
| Contract Execution Place: | Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch |
19
Exhibit 4.7
C22017
Contract No.: [A705558]
Loan Contract
(Applicable to online signing of working capital revolving loan for corporate customers of channels such as
Internet Banking/“Little Giant” APP/ Bank of Beijing Corporate Banking APP)
| Borrower: | Jiangxi Universe Pharmaceuticals Co., Ltd. | |
| Lender: | Nanchang Branch of Bank of Beijing Co., Ltd. | |
| Date of Conclusion: July 3, 2024 | ||
In accordance with the Civil Code of the People’s Republic of China and other laws and regulations, and on the basis of equality, willingness and consensus, this Contract is hereby made by and between and shall be binding on the parties hereto on the date of conclusion as set out on the cover page hereof at the domicile of Nanchang Branch of Bank of Beijing Co., Ltd. (hereinafter referred to as the “Lender” or “BOB”).
Borrower: Jiangxi Universe Pharmaceuticals Co., Ltd.
Unified Social Credit Code: 913608217670218430 Business License No.: 913608217670218430
Legal Representative/Person in Charge: Lai Gang
Correspondence Address: No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County, Ji’an City, Jiangxi Province
| Tel.: | 8403309 | ||||
| Zip Code: | 343100 | Fax: 8403637 | |||
| Contact Person: | Yang Lin | Position: | * | ||
| Contact Person’s Phone No.: | * | Email: | * | ||
Lender: Nanchang Branch of Bank of Beijing Co., Ltd.
Legal Representative/Person in Charge: Yang Yungaung
Correspondence Address: No. 1115, Middle Fenghuang Avenue, Honggutan New District, Nanchang City, Jiangxi Province
| Tel.: | 0791-86712706 | |||||
| Zip Code: | 330038 | Fax: | 0791-83792320 | |||
Part I Schedule of Contract Terms
A. Related contract (fill in if applicable):
This Contract is a specific business contract under the Comprehensive Credit Contract (No. [A074631]) entered into by and between the creditor Nanchang Branch of Bank of Beijing Co., Ltd. and the debtor Jiangxi Universe Pharmaceuticals Co., Ltd.
B. Loan amount and term:
| B.1 | The currency of the loan hereunder shall be RMB, and the amount shall be (in case of inconsistency between the amount in words and the amount in figures, the amount in words shall prevail; the same below): |
(in words) RMB Ten Million Only, (in figures) ￥10000000.00.
| B.2 | The loan term of this Contract is (it applies if you tick the box □; it does not apply if you cross the box □; the same below): |
☒ __/___ from the date of the first withdrawal.
☑ From the date of withdrawal until July 3, 2025.
| B.3 | The final maturity date of the loan shall be the date of expiration of the loan term as agreed in Paragraph B.2 above. |
| C. | Contractual interest rate (annual interest rate, interest shall be calculated at the simple interest) (it applies if you tick the box □; it does not apply if you cross the box □; the same below): |
| C.1 | In case of a RMB loan, the contractual interest rate hereunder shall be: |
☑ (1) Fixed interest rate, i.e., the interest rate for ☑ 1 year ☒ 5 years or more ☒ Other [ / ] of the day before the withdrawal date (☑ the Central Bank’s LPR ☒ this Bank’s LPR) plus [70.000000] bps ☒ minus [ / ] bps, which will not be adjusted in accordance with the changes in the Central Bank’s LPR or this Bank’s LPR.
☒ (2) Floating interest rate, i.e., the interest rate for ☒1 year ☒5 years or more ☒ Other [ / ] of the day before the withdrawal date (☒ the Central Bank’s LPR ☒ this Bank’s LPR) ☒ plus [ / ] bps ☒ minus [ / ] bps, and floating in accordance with Paragraph 2.4 hereof; the contractual interest rate shall be adjusted as follows: ☒ on the monthly first day ☒ on the monthly corresponding day ☒ on the quarterly first day ☒ on the quarterly corresponding day ☒ on the yearly first day ☒ on the yearly corresponding day ☒ on the fixed day of each month (the specified date is [ / ] (month) [ / ] (day), [ / ] (year)) ☒ on the fixed day of each quarter (the specified date is [ / ] (month) [ / ] (day), [ / ] (year)) ☒ on the fixed day of each six months (the specified date is [ / ] (month) [ / ] (day), [ / ] (year)) ☒ on the fixed day of each year (the specified date is [ / ] (month) [ / ] (day), [ / ] (year)) ☒ Immediately.
C.2 In case of a foreign currency loan, the interest rate shall be determined by adding points to the “HIBOR (for Hong Kong dollar) or LIBOR (for other foreign currencies)” for a term of / month (based on the interest rate of the second business day prior to the date of withdrawal), with the additional basis points not less than [ / ] basis points, and shall fluctuate in accordance with Paragraph 2.4 of this Agreement. The details shall be subject to the records in the loan receipt reviewed and approved by BOB.
D. Withdrawal period, disbursement of loan fund and account monitoring:
D.1 The withdrawal period is 364 days from the date of conclusion of this Contract.
D.2 The method of disbursement of the loan fund shall be subject to the records in the loan receipt reviewed and approved by BOB; however, if the amount of a single disbursement exceeds RMB 10 million, the Lender’s entrusted disbursement shall be adopted.
D.3 The loan fund shall be disbursed to the Borrower’s account at BOB:
The account number is * (the account may be changed with the consent of BOB, but the Borrower shall choose the changed account when the withdrawal application is initiated on the Internet banking system). If the Borrower makes payment with the loan fund, the Borrower shall process with such account and accept the inspection and supervision of BOB.
D.4 The account opened by the Borrower at Nanchang Xihu Sub-branch of Bank of Beijing Co., Ltd. (name of account bank) (account no.: *, account name: Jiangxi Universe Pharmaceuticals Co., Ltd.) shall be the Borrower’s fund withdrawal account (the account may be changed with the consent of BOB); the Borrower shall regularly (i.e., at the end of each quarter) provide BOB with the information on fund withdrawal and transaction flow of the account, and undertake to cooperate for BOB’s supervision and inspection.
D.5 With respect to the said account, BOB shall carry out inspection, supervision and management in accordance with ☑ the provisions of this Contract ☒ the provisions of the account supervision agreement separately signed by both parties and this Contract.
E. Loan purpose:
Business turnover, purchase of goods and materials for production, etc.
F. Loan principal repayment plan:
All loan principal must be paid off on the final maturity date, and the loan principal will be repaid during the loan term in accordance with the following provisions, and the specific repayment plan shall be subject to the loan receipt reviewed and approved by BOB:
☑ All loan principal shall be repaid in one lump sum at maturity.
G. Interest repayment plan:
All interest must be paid off on the final maturity date and shall be repaid in installments during the loan term as agreed below:
| ☑ | Interest is payable on a fixed day on a monthly basis (the 21st day of each month). |
| ☒ | Interest is payable on a fixed day on a quarterly basis (the 21st day of the last month of each quarter). |
| ☒ | Other: __/____. |
☒ (For foreign currency loan option only) Interest shall be paid once per period in light of the number of months of the interest rate term selected in accordance with Paragraph C.2, and the interest payment date shall be the day immediately following the corresponding day of the last month of each period from the fund withdrawal date (or, if there is no corresponding day, the last day of current month).
M. Guarantee (Other guarantees are listed in the column of Special Agreements of this Contract, details of which are subject to the guarantee documents):
☒ Security guarantee, name of guarantor ________________________ / _______________________.
☒ Pledge guarantee, name of pledgor________________________ /_______________________.
☒ Mortgage guarantee, name of mortgagee ________________________ /_______________________.
U. Attachments (The loan receipt and the following attachments constitute an integral part of this Contract):
__________________________________ /___________________________________________。
W. Enforcement notarization:
☒ Enforcement notarization shall be completed within ___/____ days from the date of conclusion of this Contract.
☑ This Contract is not subject to the enforcement notarization.
X. Special agreements:
X.1 This Contract is executed by the Borrower and the Lender through the electronic channel of BOB, and both parties shall, in addition to complying with this Contract and the effective amendments and supplements thereof, also comply with relevant service agreements, regulations and policies for the electronic channel of BOB as well as relevant business rules such as reminders, announcements and notices related to this business which the Lender may from time to time announce to the Borrower through such channel, and the said agreements, regulations, policies and business rules shall be applicable to the relationship of rights and obligations between the Borrower and the Lender under this Contract.
| / |
Part II Basic Terms of Contract
1. Definitions and interpretations
1.1 For the purposes of this Contract, unless otherwise expressly stated, the following terms are defined as follows:
This Contract: refers to the entirety of the following documents: the Schedule of Contract Terms, the Basic Terms of Contract, the Electronic Loan Receipt generated on the Bank of Beijing’s online corporate loan platform under which the loan has been successfully released, the attachments hereto, and any other documents (including, but not limited to, the supplementary agreements, letters of undertaking, etc.) that effectively determine the rights and obligations of the parties hereunder in accordance with the laws; if not stated differently, only the agreements in the Schedule of Contract Terms and the Basic Terms of Contract.
BOB’s electronic channel (or e-channel): refers to the electronic channel provided by BOB to its customers, through which customers may submit their need instructions to the account bank via the Internet, so as to meet the business needs such as application for withdrawal and inquiry as the BOB service system. At present, the electronic channels available for use are the “Little Giant” APP developed by BOB, the Bank of Beijing Corporate Banking APP, and the Bank of Beijing Corporate Internet Banking.
The Central Bank’s loan prime rate (the Central Bank’s LPR): refers to the basic loan reference rate quoted by a representative quoting bank based on the bank’s loan rate to the highest-quality customers in the form of the open market operation interest rate plus basis points, and calculated and published by China Foreign Exchange Trade System (CFETS) under the authorization of the People’s Bank of China; if the Central Bank’s LPR for corresponding term has not been published by the CFETS on the day immediately preceding the date of withdrawal hereof/the corresponding date determined in line with the adjustment frequency, the Central Bank’s LPR published on the second day immediately preceding the said date shall prevail, and so on. If the Central Bank’s LPR is canceled, the applicable interest rate determined and announced by BOB in accordance with the laws shall prevail.
This Bank’s loan prime rate (this Bank’s LPR): refers to this Bank’s loan prime rate independently proposed and published by Bank of Beijing Co., Ltd.; if this Bank’s LPR for corresponding term has not been published by Bank of Beijing Co., Ltd. on the day immediately preceding the date of withdrawal hereof/the corresponding date determined in line with the adjustment frequency, this Bank’s LPR published on the second day immediately preceding the said date shall prevail, and so on.
LIBOR (HIBOR): refers to the London (Hong Kong) Interbank Offered Rate published on relevant pages of the authoritative financial telecommunications systems such as Reuters or Bloomberg at around 11:00 a.m. (London (Hong Kong) time) on the current day. If the abovementioned interest rate data does not exist on the current day, the data of the latest day shall prevail.
Entrusted disbursement: refers to that BOB, on the basis of the Borrower’s withdrawal application and payment entrustment, pays the loan fund through the Borrower’s account to the Borrower’s counterparty which meets the agreed purposes of this Contract.
Independent disbursement: refers to that after BOB disburses the loan fund to the Borrower’s account on the basis of the Borrower’s withdrawal application, the Borrower will independently make disbursement to the Borrower’s counterparty which meets the agreed purposes of this Contract.
Guarantee document: refers to any guarantee contract, guarantee clauses, guarantee letter and other documents and commitments setting guarantee and signed or approved by the guarantor.
Actual controller: refers to a natural person who is a controlling shareholder of the Borrower/guarantor or a natural person who is able to practically dominate the Borrower’s/guarantor’s behaviors through an investment relationship, agreement or other arrangements.
Missing: refers to that BOB is still unable to contact relevant party with reasonable efforts in light of the contact information listed on the top of this Contract.
Laws and regulations: refer to laws, administrative regulations and judicial interpretations of the Supreme People’s Court that are applicable in the mainland of the People’s Republic of China, except for Hong Kong, Macao and Taiwan.
Financial regulations: refer to the regulations, rules and orders of the banking regulators, the People’s Bank of China and the foreign exchange administrations.
Business day: refers to any day on which BOB processes general corporate businesses, excluding statutory holidays and Saturdays and Sundays, but including Saturdays and Sundays on which the government temporarily stipulates that the public shall work.
Corresponding day: the monthly corresponding day refers to the corresponding day in each month of the withdrawal date under this Contract (the last day of current month if there is no corresponding day); the quarterly corresponding day refers to the corresponding day in the last month of each three months of the withdrawal date under this Contract (the last day of current month if there is no corresponding day), and the yearly corresponding day refers to the corresponding day in each year of the withdrawal date under this Contract (the last day of current month if there is no corresponding day).
Fixed day: the monthly fixed day refers to the corresponding day of each month from the specified date (the last day of current month if there is no corresponding day), the quarterly fixed day refers to the corresponding day of each three months from the specified date (the last day of current month if there is no corresponding day), the semi-annual fixed day refers to the corresponding day of each six months from the specified date (the last day of current month if there is no corresponding day), and the annual fixed day refers to the corresponding day of each twelve months from the specified date (the last day of current month if there is no corresponding day).
1.2 In any document prepared under or pursuant to this Contract, the foregoing definitions shall apply unless otherwise expressly stated in such document.
1.3 The order of the clauses in this Schedule of Contract Terms shall follow the arrangement of serial numbers given herein other than the natural alphabetical order.
2. Loan
2.1 The currency, amount and term of the loan hereunder are set out in Paragraph B hereof. The actual amount and date of each withdrawal hereunder shall be subject to the records in the loan receipt reviewed and approved by BOB.
2.2 The Borrower may request the withdrawal during the withdrawal period as agreed in Paragraph D hereof, and any loan fund not withdrawn after the expiration of the withdrawal period shall be automatically canceled and may not be withdrawn again. Each time the Borrower requests a withdrawal, all of the following conditions shall be met:
(1) The guarantee documents for the guarantees referred to herein have been concluded and are in force and the procedures for delivery and registration have been completed (in other words, the registration shall be respectively completed with corresponding legal registration authorities for types such as real estate (if any) mortgage, chattel (if any) mortgage and right (if any) pledge); if the guarantor is a legal person or non-legal person organization, the Borrower has provided BOB with relevant internal effective resolution or reply for guarantee that the guarantor agrees to provide (except for entities that are not required by the laws and regulations to provide internal resolutions such as financial institutions issuing guarantee letters or guarantee companies providing guarantees). If the guarantor is a listed company, a publicly disclosed controlled subsidiary of a listed company, or a company whose shares are traded on other national securities exchanges approved by the State Council, the resolutions shall also be publicly disclosed in accordance with the laws and regulations;
(2) The Borrower has completed relevant procedures reasonably required by BOB such as account opening, and has provided BOB with documents and relevant certificates reasonably describing the specific purpose of the fund and the fund flow arrangement, which have been examined and certified by BOB, and in the event that this Contract is a credit granted under the Comprehensive Credit Contract referred to in Paragraph A, a sufficient available credit line of the Borrower shall be retained under such Comprehensive Credit Contract;
(3) The Borrower has successfully registered with the BOB’s e-channel as an e-channel user;
(4) The Borrower has not committed any breach of contract under this Contract, and the guarantor has not committed any breach of contract under the guarantee documents;
(5) The laws and regulations and financial regulations, national credit policies, and credit line management requirements then in effect have not had material adverse effect on the performance of this Contract by one party hereto, nor have they prohibited or restricted the release or withdrawal of loan under this Contract;
(6) Other conditions specified by this Contract and stipulated by laws, regulations and financial regulations.
2.3 After the Borrower meets the conditions for withdrawal, the Borrower shall initiate an irrevocable application for withdrawal through BOB’s electronic channel on a business day, and if the Borrower meets the conditions for withdrawal, with review and approval of BOB, BOB shall disburse the full amount of the loan within 3 business days. Once the loan is disbursed to the Borrower’s account, the loan is deemed to have been withdrawn and used by the Borrower, and the same day will be the withdrawal date of the loan and the loan interest shall start to be calculated at the contractual interest rate on a simple interest basis (interest shall be calculated on a daily basis at the daily interest rate). If the RMB loan is withdrawn in several installments, the contractual interest rate applicable to each withdrawal shall be respectively determined at the Central Bank’s loan prime rate (the Central Bank’s LPR) or this Bank’s loan prime rate (this Bank’s LPR) of the day immediately preceding the date of withdrawal plus or minus basis points as stated in Paragraph C.1 of this Contract.
If BOB’s entrusted disbursement is adopted for the loan fund, (i) the Borrower shall submit complete business contracts and other relevant transaction materials (including but not limited to transaction documents or certificates with clear transaction subjects and complete signatures and seals and filled in normatively) at least 3 business days in advance (or within such other period as reasonably required by BOB), so that BOB may review whether the said materials are consistent with the conditions as agreed in this Contract before the disbursement of the loan fund. After the materials are reviewed and approved by BOB, BOB shall disburse the loan fund to the Borrower’s counterparty through the Borrower’s account (the Borrower is not required to separately provide a settlement certificate for the disbursement) and keep records appropriately, and the time for the loan fund received by the account of the Borrower’s counterparty shall be determined with reference to the time of receipt through the foreign exchange settlement method and be affected by the opening time of relevant system, and the settlement fees shall be deducted by BOB one by one or in a lump sum from the Borrower’s account in line with then in-effect charge standards (the Borrower may also take the initiative to pay such fees in advance); (ii) as the disbursement or the entrusted disbursement is delayed on the grounds that materials submitted by the Borrower are incomplete, unqualified, untimely or bear reasonable doubts, the Borrower shall be responsible; (iii) if the fund is not timely paid or fails to timely reach the account of the Borrower’s counterparty after the fund is received by the Borrower’s account due to abnormal status of the Borrower’s account, incomplete and inaccurate information or abnormal status of the counterparty’s account provided by the Borrower, the interbank payment system or the clearing system and other reasons unattributable to BOB, the settlement service charges, loan interest and other losses and delays and other adverse consequences arising accordingly shall be borne by the Borrower provided, however, that BOB shall make reasonable efforts to continuously complete the procedures for disbursement to the account of the Borrower’s counterparty, or leave it in the Borrower’s account/pending item and notify the Borrower to complete relevant procedures.
If the independent disbursement by the Borrower is adopted for the loan fund, the Borrower shall, as required by BOB, timely provide a loan fund use plan, and summarize and report the fund payment information to BOB within 10 days at the beginning of each month after the disbursement of the loan, and BOB shall have the right to verify whether the disbursement of the loan fund is consistent with the provisions of this Contract by means of account analysis, fund transfer proof checking, on-site investigation and so on, and the Borrower shall cooperate.
If the loan fund is subject to BOB’s entrusted disbursement or use supervision, BOB has the right to monitor relevant account and the use of fund in the account by refusing to sell the check, process the universal deposit and withdrawal and open Internet banking or mobile banking.
In the course of loan disbursement, if BOB determines that the Borrower’s credit status has declined, the profitability of the main business is not strong, or the use of the loan fund has become abnormal, BOB has the right to request a change in the loan fund disbursement method, and the Borrower shall accept and cooperate for the same.
2.4 If the interest rate of the loan contract under this Contract is the floating interest rate or the loan belongs to a foreign currency loan, the interest rate shall be adjusted as follows: (i) for the floating interest rate for the RMB loan, in accordance with the adjustment frequency agreed in Paragraph C.1 hereof, the interest rate shall be automatically adjusted at the Central Bank’s loan prime rate (the Central Bank’s LPR) or this Bank’s loan prime rate (this Bank’s LPR) of the day immediately preceding the corresponding date as specified in Paragraph C.1 plus or minus the basis points (1 basis point is 0.01%) as specified in Paragraph C.1 on the corresponding date, and the interest shall be calculated by period; (ii) for the foreign currency loan, the contractual interest rate applicable to each interest calculation period (the first but the last day shall be counted) shall be LIBOR (HIBOR) (annual interest rate expressed in the form of percent) for corresponding currency and term of the second business day of such foreign currency market before the day immediately preceding the start day of the interest calculation period plus additional basis points as agreed in Paragraph C.2 hereof (1 basis point is 0.01%); the said automatic adjustment shall not be considered as a modification to this Contract. Where the contractual interest rate is converted from an annual interest rate to a daily interest rate, the Hong Kong dollar interest rate shall be calculated on the basis of 365 days per year, and the interest rate for RMB and other foreign currencies shall be calculated on the basis of 365 days per year.
2.5 The Borrower guarantees that the loan will be used for the purposes stated in Paragraph E hereof and that the said purposes do not violate the laws, regulations and financial regulations; the Borrower undertakes that the loan will not be used for investment in fixed assets, equity, real estate, etc., or for fields and purposes which are prohibited by the State in terms of production and operation, nor will it be used for any other projects or businesses for which the commercial bank loan is prohibited by laws, regulations or financial regulations. If the Borrower needs to change the use of the loan, the Borrower shall obtain the prior written consent of BOB. The Borrower guarantees that the information provided by the Borrower to BOB, such as transaction materials and counterparty information, is true, accurate, complete, legal and valid, and is consistent with the purposes as agreed in this Contract.
2.6 The Borrower shall repay the principal of the loan in accordance with Paragraph F hereof and pay the loan interest on schedule in accordance with Paragraph G hereof; each interest payment date (inclusive) to the next interest payment date (exclusive) shall be an interest-bearing period (with the first interest-bearing period commencing on the withdrawal date, and the last interest-bearing period ending on the maturity date of the loan principal); where each loan principal is repaid, all interest accrued of such loan principal shall be paid off, and on the final maturity date, all loan principal, interest and other payables shall be paid off. In case of a non-business day, the Borrower shall deposit sufficient amount into the account in advance so that BOB may deduct relevant amount from the account on the same day or the first business day thereafter, and the interest for the extension period shall still be calculated on a simple interest rate basis in light of the contractual interest rate.
2.7 In order to timely repay relevant payables, the Borrower shall open and maintain at all times relevant account with BOB as agreed in this Contract (in case of change of the account number, this Contract shall continuously apply after the change) and deposit the repayable amount in full and in a timely manner into the agreed account for the deduction of BOB, or the Borrower may also directly transfer funds to the BOB account for repayment and shall notify BOB in a timely manner of the disbursement business number corresponding to the loan repayment. BBO may independently deduct the amount due and payable by the Borrower from the Borrower’s account opened in the system of Bank of Beijing Co., Ltd. and notify the Borrower by means of statement or other forms after the deduction.
2.8 The loan under this Contract is a revolving loan, i.e., after relevant debt has been fully repaid and until the expiration date of the withdrawal period, the Borrower may apply for withdrawal again in accordance with the terms and conditions of this Contract within the range of the principal balance of the loan not exceeding the total amount agreed in Paragraph B.1 of this Contract, and the number of revolving may be unlimited during the withdrawal period.
2.9 The bank vouchers internally generated by BOB are valid evidences for the disbursement of the loan and the repayment of principal and interest hereunder, unless there are conclusive and sufficient evidences to the contrary.
3. Early repayment and grace period
3.1 After the loan is disbursed, the Borrower may apply for early repayment. The early repayment includes partial early repayment and full early repayment. The Borrower shall initiate an irrevocable early repayment application through BOB’s electronic channel from 9:00 a.m. to 8:00 p.m. on weekdays. If the Borrower chooses the partial early repayment, with BOB’s review and approval, the Borrower shall repay the principal amount of the early repayment on the early repayment date, and the corresponding interest arising from the principal portion repaid early shall still be paid off in accordance with the agreements of this Contract on the interest payment date; if the Borrower chooses the full early repayment, with BOB’s review and approval, the Borrower shall settle all the loan principal, interest and other payables (if any) on the early repayment date. In case of early repayment, the Borrower shall initiate the repayment on its own in accordance with BOB’s requirements in its Internet banking system and other electronic channels, or submit a written application to BOB with the written consent of BOB, and complete the early repayment outside of the electronic channels in accordance with BOB’s instructions.
3.2 If the Borrower requests a grace period, the Borrower shall submit a written application for a grace period to BOB at least 30 days prior to the maturity date, stating the reasons for the grace period and making repayment fund arrangements after the grace period, and with the review and approval of BOB and after relevant conditions required by BOB are met, both parties shall sign an agreement for the grace period and complete the procedures for the grace period in accordance with the agreement. If BOB does not agree with the grace period or both parties fail to sign an agreement for the grace period, the Borrower shall still make repayment in accordance with the period as agreed in this Contract.
3.3 During the loan term, BOB has the right to request the Borrower to repay the loan in advance on the basis of the Borrower’s fund withdrawal situation (including, but not limited to, the early fund withdrawal proposed by the Borrower for repayment, and the Borrower’s available working capital being sufficient and still able to meet the normal fund need after the early repayment, etc.); after BOB’s notice of early repayment is served on the Borrower, the principal and interest of relevant loan shall become due on the early repayment date designated by BOB, and the Borrower shall make timely repayment as required.
4. Undertakings and warranties
4.1 The parties mutually undertake and warrant that: (1) the parties have the qualification and ability to execute and perform this Contract, and the persons signing this Contract on behalf of the parties have been fully authorized to enter into this Contract on behalf of the parties; (2) the parties’ execution and performance of this Contract do not violate the parties’ Articles of Association and other organizational documents, laws, regulations and financial regulations, and other legal documents that shall be complied with by the parties, and any necessary internal and external authorizations, permits, filings and other procedures have been obtained or completed to ensure that this Contract is legally binding on and enforceable by the parties.
| 4.2 | The Borrower undertakes and warrants to perform the following obligations prior to the completion of the performance of this Contract: |
(1) The Borrower shall always be legally existing, with good credit and no significant adverse records, and prior to the execution of this Contract and each withdrawal application, provide BOB with truthful and complete information about its financial and operation status and other important information related to this Contract;
(2) Have sufficient and legal sources of repayment to match the repayment plan and have sufficient solvency;
(3) Production and operation are legal and compliant, and comply with and meet the environmental protection standards and requirements, tax/fee payment provisions and other provisions stipulated in laws, regulations and other normative documents, and the Borrower obtains the necessary approvals and licenses in a timely, legal and effective manner;
(4) Provide BOB with complete, true and effective materials, and accept and actively cooperate for BOB’s inspection and supervision on its financial status, operation status and payment and utilization of the loan hereunder, including but not limited to: (i) reasonably explain the fund flow of each loan hereunder as required by BOB, and provide relevant payment vouchers and the basis for payment and certify the compliance with the provisions of this Contract, and (ii) provide BOB with the complete audited financial statements (including notes) for the previous year and the audit report by the end of each April, and provide BOB with copies of the balance sheet, statement of profit and loss, cash flow statement and other financial statements as of the end of the previous quarter in the first month of each quarter (or the complete audited statements and the audit report if there are audited semiannual or quarterly financial statements); and (iii) such other information as BOB may reasonably require; (5) Abide by the principle of honesty and trustworthiness, all application materials, financial statements and other information provided by the Borrower to BOB are true, accurate, complete, legal and valid, and there is no fraud, material omission or significant misleading;
(6) In case of merger, separation, reduction in registered capital, application for rectification after business suspension/takeover/dissolution/bankruptcy or other matters affecting the existence or continuous operation of the applicant as subject, or equity transfer, external investment, substantive increase in debts and financings and other events of the Borrower, the Borrower shall notify BOB in writing and obtain the written consent of BOB at least 30 days in advance; if a third party applies for or an administrative/judicial body orders the Borrower to carry out rectification for business suspension/takeover/dissolution/bankruptcy, or suspension or cancellation of licenses for main or significant businesses of the Borrower, the Borrower shall notify BOB in writing as soon as possible (no later than 3 business days) after the Borrower is aware, and timely take measures to make remedy;
(7) The Borrower shall notify BOB in writing as soon as possible (no later than 5 business days) where the Borrower changes its industrial and commercial registration/filing items, actual controller, top ten shareholders, directors, financial controller or contact address;
(8) If the Borrower provides a third party with guarantee (or similar arrangements with the guarantee effect such as debt assumption), or conclude significant transactions with a third party such as partnership/contracting, waiver of significant creditor’s right, acquisition and restructuring, main business transfer or other similar transactions that are likely to reduce the Borrower’s solvency, or significant adverse events having impact on the solvency occur, the Borrower shall promptly notify BOB in writing and obtain BOB’s prior written consent, except that the above events do not have a material adverse effect on the Borrower’s ability to perform this Contract and the total amount of the said material transactions or total guaranteed amount does not exceed 30% of total assets or 50% of net assets of the Borrower;
(9) The Borrower shall promptly notify BOB in writing of any related transactions of which total amount reaches or exceeds more than 10% of the net assets thereof (related parties and related transactions shall be determined in accordance with the Chinese or international accounting standards legally applicable to the Borrower), including: the association relationship between the parties to the transactions, transaction items and transaction nature, transaction amount or corresponding ratio, pricing policy (including transactions with no amount or only nominal amount), etc., and the Borrower may not illegally withdraw registered capital or fake transactions, conclude related transactions evading debts and seriously damaging its solvency by deceiving of the bank fund or credit, transferring assets and other means, or enter into other improper transactions such as money laundering;
(10) The Borrower shall always keep relevant financial indicators (calculated on the basis of the Chinese or international accounting standards legally applicable to the Borrower) within the scope of relevant laws and regulations, financial regulations and BOB’s requirements; The amounts under this Contract are all tax-inclusive, and relevant tax rates shall be implemented in accordance with laws and regulations.
(11) In the event that the net profit after tax for the fiscal year is zero or negative or insufficient to make good the accumulated losses of previous fiscal years, or that the profit before tax is insufficient to settle the principal and interest of the loan payable in the next installment, no dividends or bonuses will be distributed to shareholders in any form;
(12) The Borrower shall, no later than the date of the first withdrawal, provide BOB with the guarantees as agreed in this Contract; see the guarantee documents for details; and the Borrower undertakes to maintain the pledge rate and the mortgage rate under the guarantee documents within the scope as agreed in the guarantee documents (if any); the Borrower undertakes that it fully understands and accepts the terms and contents of relevant guarantee documents, and guarantees that all the guarantees provided to BOB on the basis of relevant guarantee documents are lawful and valid, and enforceable in accordance with the laws.
5. Taxes
The Borrower and the Lender shall each bear the stamp duty, and taxes and administrative fees imposed by the government or organizations exercising administrative authority, etc. payable under this Contract. Other costs (if any) such as notarization fees, guarantee fees, insurance premiums and appraisal fees shall be borne in accordance with laws and regulations; if not provided for by laws and regulations, they shall be borne by the parties through negotiation.
6. Default and remedies
| 6.1 | The occurrence of any one or more following circumstances constitutes an event of default by the Borrower: |
(1) The Borrower fails to use the loan for the purpose agreed herein, or to use or disburse the loan fund in the agreed manner (or circumvents the express provisions on BOB’s entrusted disbursement herein by breaking up the whole into parts), or to pay the interest, the principal amount of the Loan, or any other sums payable in full and on schedule;
(2) The Borrower has breached any of the undertakings and warranties set forth in Article 4 of this Contract.
(3) The information in the documents or material representations relating to the Borrower’s application for a loan or application for a withdrawal proves to be untrue or fraudulent, materially omitted or materially misleading, or the Borrower fails to, or expressly represents or acts in a manner that it will not, fully and properly fulfill its undertakings, warranties, obligations or liabilities under this Contract;
(4) Any guarantor fails to fully and properly perform its undertakings, warranties, obligations or liabilities under the guarantee documents, or any other event of default under the guarantee documents occurs, or the collateral/pledge (if any) is destroyed, lost, title transferred, retained under any lien by any other third party, seized/frozen/detained or enforced, or the right of occupancy is set on the collateral (real estate) (if any) without prior written consent of BOB, or the guarantee documents or BOB’s guarantee interest is held to be invalid, revoked or discharged without BOB’s prior written consent; (5) The Borrower is unable to perform any material credit facilities, guarantees, indemnities or other debt repayment liabilities as and when they fall due, or the licenses for its main or significant businesses have been suspended or cancelled, or the Borrower is subject to rectification after business suspension/takeover/dissolution/declaration of bankruptcy and other procedures;
(6) The Borrower’s financial or operation condition has undergone a material adverse change, or a bad credit record has been generated, or the credit status declines, or the Borrower is involved in disputes or administrative penalties, etc. that have a material adverse effect on its solvency or the fulfillment of this Contract, or any other circumstance has occurred that has a material adverse effect on BOB’s claims or guarantee interests;
(7) The legal representative/person in charge/actual controller of the Borrower/guarantor, etc. is missing.
6.2 If the Borrower fails to repay in full and on schedule any loan principal due and payable (including the loan principal which has been declared by BOB to be fully or partially matured in advance) and other payables, the Borrower shall additionally pay the penalty interest on the overdue loan principal and other payables at a rate 50% higher than the applicable contractual interest rate for the same term (overdue penalty interest rate) on a daily basis, and on the interest that is not paid on time, calculate and pay the compound interest in accordance with the overdue penalty interest rate as agreed in this Contract, until the principal and interest are settled. If the Borrower fails to use the loan principal for the purpose agreed in this Contract or violates the provisions of laws, regulations and financial regulations, the Borrower shall immediately repay the principal and interest of the loan used in violation of this Contract above, and calculate and pay the penalty interest on such loan principal portion at a rate 100% higher than the contractual interest rate applicable for the same term (misappropriation penalty interest rate) on a daily basis, and calculate and pay the compound interest at the misappropriation penalty interest rate as agreed in this Contract for the unpaid interest for the period when the loan principal is not used for the purpose as agreed herein until the loan is paid off. If the loan is used in violation of this Contract and repaid late, the misappropriation penalty interest rate shall be applicable to calculation and payment of penalty and compound interest. Calculation and collection of the penalty and compound interest in accordance with the agreements above shall not prejudice other remedies for default enjoyed by BOB.
6.3 In case of an event of default by the Borrower, BOB shall be entitled to exercise its remedies in accordance with the provisions of this Contract or/and laws, regulations and financial regulations, including, but not limited to, requesting the rectification of default, changing the loan fund use or disbursement method, ceasing to release the loan, charging penalty and compound interest, exercising the guarantee interest and lien in accordance with the laws, declaring that the debt hereunder shall, in whole or in part, become immediately due, and announcing the collection, requesting compensation for losses and demanding the repayment of expenses incurred by BOB for realization of claims and guarantee interests (including, but not limited to, litigation/arbitration costs, disposal costs such as appraisal/assessment/auction, attorney’s fees, costs of investigation and evidence collection, travel costs and other reasonable expenses), etc.
6.4 If the currency of the amount recovered by BOB in exercising its rights is different from the currency of the amount owed by the Borrower, the exchange rates announced by BOB for the currency of the overdue amount sold by the bank and the currency of the amount bought back by the bank shall be applied to discharge the claims of BOB, and the Borrower shall bear the exchange rate loss and the exchange fee incurred accordingly, and the Borrower shall be obliged to cooperate to complete the exchange procedures.
6.5 Amounts recovered by BOB in exercising its rights shall be used to discharge its claims in the following order: (1) costs for realizing claims and guarantee interests and other fees that shall be borne by the Borrower, (2) damages, compensation and liquidated damages, (3) penalty and compound interest, (4) loan interest, (5) the loan principal, and (6) other sums payable; provided, however, that BOB may change the discharge order above. If the Borrower’s multiple amounts are due and payable, the order of discharge determined by BOB shall prevail.
6.6 If one party is affected by force majeure and provides the other party with the certificate from the competent authority within 5 business days from the occurrence of force majeure, the party may be exempted from corresponding liabilities for default in accordance with the laws, but for the avoidance of doubt, the parties confirm that the Borrower may be exempted from corresponding liabilities for default in accordance with the laws after the occurrence of force majeure, but it is still obliged to pay back the withdrawn loan principal, the loan interest calculated in the form of simple interest in accordance with the contractual interest rate and the costs of realizing the claims and guarantee interests.
7. Enforcement notarization
7.1 If Paragraph W of this Contract requires the enforcement notarization, the Borrower shall, with the period as agreed herein, process the notarization in a notary office recognized by BOB. Both parties agree to process the notarization of relevant debt instrument having the enforcement effect for this Contract, and both parties are fully aware of the meaning, content, procedure and effect of notarization of the debt instrument with enforcement effect. The parties agree that this Contract shall have the enforcement effect upon the notarization, and that if BOB’s rights and interests under this Contract or/and the guarantee documents are not fully realized in a timely manner, or if the Borrower/guarantor commits an event of default under this Contract or/and the guarantee documents, BOB shall have the right to directly apply for an enforcement certificate and submit the enforcement application to relevant competent people’s court by virtue of this Contract or/and the guarantee documents, the performance records of the Borrower issued by BOB and the notary certificate, to realize the interests of BOB under this Contract or/and the guarantee documents. The Borrower hereby specifically undertakes to voluntarily waive the right to defense and voluntarily and unconditionally accept the enforcement.
7.2 Both parties hereto agree that the notary office has the right to verify whether the Borrower has fulfilled its debts to BOB in full and on time by using any one of the methods of verification such as mail, telephone, fax and e-mail. The notary office has the right to verify the information from the Borrower in light of the name of the contact person, the reserved contact telephone number, the reserved fax number, the reserved mailing address and the reserved e-mail address as agreed in this Contract. The Borrower agrees that the notary office may issue an enforcement certificate on the basis of the supporting materials provided by BOB unilaterally under the following circumstances: (1) the notary office notifies the Borrower of the reserved contact person in accordance with the contact information as agreed in this Contract, and the contact person cannot be reached; (2) the Borrower disagrees with the supporting materials provided by BOB, but fails to provide evidence to the contrary or provides insufficient evidence to the contrary within three days upon the receipt of the notice from the notary office; and (3) the Borrower has no objection to the supporting materials provided by BOB.
8. Applicable laws and dispute settlement
8.1 This Contract shall be governed by the laws and regulations of the People’s Republic of China; all disputes under and in connection with this Contract shall first be settled through amicable negotiation, and if the negotiation fails, the disputes shall be submitted to relevant people’s court in the place where this Contract is signed for litigation.
8.2 If, in the guarantee documents, there are other express written provisions regarding the application of laws and settlement of dispute under such document and BOB only sues the guarantor, it shall proceed in accordance with such provisions, and if there is no written provision, the written provision is unclear, the provision is invalid/revoked in accordance with the laws, or BOB initiates litigation against the Borrower and the guarantor together, the provisions of this Contract shall apply.
9. Assignment
If the Borrower assigns any of its rights, obligations or liabilities hereunder to other parties, or sets guarantees or trusts on its rights, it shall be subject to the prior written consent of BOB. BOB has the right to unilaterally assign its interests under this Contract and relevant guarantee documents to other parties, as investment assets for trust, etc., to create guarantees or/and trusts, or to process the securitization of assets, etc., without the consent of the Borrower, and may inform the Borrower of the same by means of public announcements (which shall not be deemed to be a breach of the confidentiality obligation), written notice and so on. The Borrower shall continue to assume the liabilities to BOB and assignees and beneficiaries thereof in accordance with this Contract.
10. Supplementary provisions
10.1 This Contract is a specific business contract under the related contract (if any) mentioned in Paragraph A hereof. Matters not covered herein shall be executed in accordance with the related contract, and this Contract shall prevail in case of any inconsistency between the two. In the event of any inconsistency between the special agreements in Paragraph X of this Contract and other provisions in the body of this Contract, the special agreements in that paragraph shall prevail; unless otherwise expressly specified in writing, the body of this Contract shall prevail in the event of any inconsistency between the attachments to this Contract and the body of this Contract.
10.2 Notices or documents sent by either party hereunder: (i) if delivered in person or by proxy, the date of service shall be the day on which the notified party, or legal representative, person in charge, actual controller, major shareholder, or receiving agent thereof, signs for the delivery; (ii) if sent by express mail service or registered mail in the same city (including urban and suburban areas), the date of service shall be the third day following the date of posting, (iii) if sent by other means, the date of service shall be the 7th day following the date of posting, (iv) if sent by fax, text, email or other electronic means, the date of service shall be the day on which relevant information enters into the electronic system such as fax, phone number, telephone number or e-mail first written above, or the day on which the sender receives such information and the information fails to enter into the aforesaid electronic system; in case of inconsistency between the date of service determined in accordance with the aforesaid provisions and the date of actual receipt by the notified party or the date of official signature, the earliest date shall prevail. However, for the avoidance of doubt, the parties confirm that the documents required by BOB to be delivered in person by the Borrower shall be delivered by a person specially assigned by the Borrower directly to the case officer authorized by BOB in person, and that BOB has the right to deliver the notices or documents to the Borrower by means of official announcements and so on (including, but not limited to, the official website, Internet banking, mobile banking, electronic channels, official WeChat public account, etc.), and the date of announcement shall be the date of service. Any party changing its contact information shall promptly notify the other party in writing, otherwise the other party still has the right to regard the contact information before the change as valid.
10.3 The Borrower hereby irrevocably undertakes that its contact person, mailing address, zip code, telephone number, fax number, e-mail address and other contact information first written above shall be valid contact information (including, but not limited to, the receipt of various notices, agreements and other documents, as well as relevant documents and legal instruments in case of disputes over this Contract, and also including the receipt of relevant documents and legal instruments in the trial procedures such as the first instance, second instance and retrial and the enforcement procedure after disputes enter into arbitration and civil litigation procedures). The Borrower agrees that relevant people’s court, arbitration institution, notary office and the like may use the said contact information directly as the service address of legal instruments and notarized documents that they have confirmed to be valid. Relevant notices, documents, legal instruments, notarized documents, etc. may be served in the manner agreed in Paragraph 10.2 of this Contract. The Borrower shall notify BOB in writing at least 3 business days in advance of the change of its service address, and shall fulfill the service address change notification obligation to the notary office, arbitration institution or court where the Borrower changes its service address in arbitration and civil litigation procedures. If the Borrower fails to fulfill the notification obligation in the aforesaid manner, the address of service first written and confirmed by the Borrower above shall still be regarded as a valid address of service. If notices or relevant legal instruments mailed and served by BOB, relevant people’s court, arbitration institution or notary office fail to be delivered to or actually received by the Borrower on the grounds that the address of service provided or confirmed by the Borrower is inaccurate, the changed service address fails to be timely notified to BOB, relevant notary office, court and arbitration institution in writing, the Borrower or the designated agent thereof refuses to sign for such notices, etc., the date of return of the document or the date of proof of service indicating the situation shall be regarded as the date of service if sent by mail, and the earliest date shall prevail provided that the date of service determined in accordance with the provision is different from the date of actual receipt by the parties or the date of official signing; if served directly, the date of service shall be the day when the serving person indicates relevant situation in the proof of service on site. In case of fulfillment of the obligation to notify the change of service address, the changed service address shall be the valid service address. For the service address confirmed by the Borrower at the top of this Contract, relevant court or arbitration institution may directly serve by mail in case of service, and even if the party fails to directly receive the documents served by relevant court or arbitration institution by mail, it shall be deemed to have been served due to its aforementioned provision. If the Borrower accepts letters sent by BOB, the legal documents sent by relevant people’s court or arbitration institution, or the notarized document sent by the notary office by any means of service and in any document format, regardless of whether they are actually received by the Borrower directly or not, the Borrower shall bear all the legal consequences that may occur as of the date of service or deemed service; at the time of signing this Contract, the Borrower has accurately and correctly understood and learned about the agreed matters regarding the service address, and is willing to bear the legal consequences arising from the service by relevant people’s court, arbitration institution or notary office to the abovementioned service address, addressee or receiving agents, and the Borrower will not object to any terms related to the service for any reason such as material misunderstanding or unconscionability.
10.4 The Borrower agrees and authorizes Bank of Beijing Co., Ltd. and branches thereof to, in the course of providing financial products and services to the Borrower, collect, inquire about, understand, analyze, print, save and use the Borrower’s credit status related to credit, loan, loan-related transaction, guarantee, guaranteed property (including but not limited to collateral, pledge, etc.) and other assets, provident fund contribution, social insurance contribution, tax payment, consumption, indebtedness and so on, information on judicial measures such as seizure, information on relevant administrative penalties for illegal loan fund misappropriation and other information through the basic personal credit information database of the People’s Bank of China, the basic enterprise credit information database of the People’s Bank of China, the information base legal established with the approval of relevant competent department of the government and the qualified institution or authority (including but not limited to relevant public security bureau, court, industrial or commercial administration, ownership registration authority, regulator, and institution which is able to provide data on real estate/provident fund/social insurance/tax/credit). Bank of Beijing Co., Ltd. and branches thereof are allowed to enter the said information it knows and situation and information provided by other borrowers into the said database and information base for inquiry and use by any qualified institution or unit (including but not limited to relevant credit bureau, public security bureau, court, industrial and commercial administration, ownership registration authority, regulator, and institution which is able to provide data on real estate/provident fund/social insurance/tax/credit).
At the same time, Bank of Beijing Co., Ltd. and branches thereof have the right to provide the said information of the Borrower that Bank of Beijing Co., Ltd. and branches thereof learn about and situation and information provided by other borrowers to third parties in case that they assign the interests under the business carried out by and between Bank of Beijing Co., Ltd. and branches thereof and the Borrower to other parties, as investment assets for trust, etc., to set guarantee or trust, process the asset securitization, implement the financial service outsourcing and demand the overdue amount; and also have the right to provide relevant information to relevant regulatory, judicial, administrative and other departments in accordance with laws and regulations and regulatory requirements.
10.5 Unless otherwise agreed in this Contract, either party shall keep confidential the trade secrets belonging to the other party and other undisclosed information expressly requested by the other party to be kept confidential in the course of conclusion and performance of this Contract before the said information loses the confidentiality, and shall not disclose them publicly or to any third party without the written permission of the other party; however, if one party discloses them in accordance with relevant laws and regulations, or in accordance with requirements of relevant competent authorities or regulatory bodies or the exchange on which it is listed, or reasonably reveals the same to the party’s auditor, financial adviser, legal adviser or other intermediary institutions for the purpose of this Contract (the party shall require the said institutions and persons to bear the obligation of confidentiality), it shall not be regarded as a breach of obligation of confidentiality.
10.6 The validity of this Contract is independent of the guarantee documents, related contracts (if any) and any contracts/agreements/undertakings, and is not affected by the validity and enforceability of the said documents. In the event that any provision or content of this Contract is revoked or held invalid in accordance with the laws, the validity of other provisions and content shall not be affected and shall remain valid. The failure of the other party to exercise corresponding right of remedy in the event of a breach by one party shall not be deemed to be a waiver of the right or a consent to the breach.
10.7 This Contract shall come into effect after it is electronically signed by both parties, and the electronic signature shall have the same legal effect and evidential effect as the handwritten signature or seal; the Borrower expressly understands that it shall use the electronic signature that can be certified by a third party in accordance with the Electronic Signature Law of the People’s Republic of China to sign this Contract online. The Borrower may log onto the online platform for contract signing to view and download the text of this Contract. If there is a guarantor, the Borrower shall be responsible for providing the electronic copy of this Contract to the guarantor, but the Borrower’s failure to do so shall not adversely affect the claims and guarantee interests of BOB.
10.8 The Borrower and the Lender recognize that this Contract shall be signed by means of electronic signature. The Borrower guarantees that the electronic signature used in the Lender’s electronic channel is a reliable electronic signature consistent with the agreements between the Borrower and the Lender; the Borrower shall log onto the Lender’s electronic channel through the mutually recognized identity authentication, and any operation after the identity authentication shall be regarded as done by the Borrower itself, and the Borrower undertakes to be responsible for the legal consequences arising therefrom.
The Borrower hereby confirms that: it has fully reviewed this Contract, and BOB has drawn its attention to the clauses relating to the limitation of liabilities or rights, and has provided sufficient explanations and clarifications in respect of this Contract; and after negotiation and discussion with BOB, the Borrower fully understands and agrees with all the contents of this Contract including the Schedule of Contract Terms, Basic Terms of Contract and the attachments to this Contract, and has a clear, accurate and comprehensive understanding of the rights and obligations of both parties, and does not have any doubts or objections.
(No text below)
The parties sign below:
| Borrower: Jiangxi Universe Pharmaceuticals Co., Ltd. | Bank of Beijing |
Nanchang Branch of Bank of Beijing Co., Ltd.
Special Seal for Contract
(2)
3601020107028
19
Exhibit 4.8
Working Capital Loan Contract
No.: 68 (2024) 248
Working Capital Loan Contract
Bank of Communications Co., Ltd.
Working Capital Loan Contract
No.: 68 (2024) 248
Working Capital Loan Contract
|
Important Notice
The borrower is requested
to read the full text of this
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In view of the Borrower’s application for working capital loan line of credit from the Lender, and in order to clarify the rights and obligations of both parties, the Borrower and the Lender hereby conclude this contract through negotiation.
Article 1 Definition
“Line of credit” refers to the maximum amount of loan balance (under revolving line of credit) or total loan (under lump-sum line of credit) that the Lender may issue to the Borrower according to the contract, and the line of credit can be revolving line of credit or lump-sum line of credit (only used once or can be used several times) according to the contract.
“Revolving line of credit” means that the Borrower can apply for using the line of credit several times as agreed in this contract to obtain the loan, but the loan balance cannot exceed the agreed line of credit.
“Lump-sum line of credit” means that the Borrower can apply for using the line of credit at one time or several times as agreed in this contract to obtain the loan, but the total amount of loans withdrawn cumulatively cannot exceed the agreed line of credit.
“Loan balance” refers to the sum of the loan principal amount obtained by the Borrower under this contract and not yet paid off.
“Line of credit balance” refers to the amount after deducting the loan balance (under the revolving line of credit) or the total loan (under the lump-sum line of credit) from the line of credit.
“Credit period” refers to the period during which the Lender grants the loan to the Borrower according to the Borrower’s application and the agreement in this contract, and which belongs to the loan occurrence period rather than the loan term.
“Loan term” refers to the term of each loan determined by both parties in the corresponding Application for Use of Loan Line of Credit of Bank of Communications (hereinafter referred to as “Application for Use of Line of Credit”).
“Pricing benchmarks” refers to the benchmark chosen by the Borrower and the Lender to determine the lending rate, including but not limited to the following specific pricing benchmarks and other types.
“Loan prime rate (LPR)” refers to the loan prime rate released by the National Interbank Funding Center on the 20th day of each month (postponed in case of holidays).
Working Capital Loan Contract
“Secured Overnight Financing Rate (SOFR)” refers to the secured overnight financing rate governed by the Federal Reserve Bank of New York (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the dollar.
“Term SOFR Reference Rate” refers to the term SOFR reference rate governed and published by CME Group Benchmark Administration Limited (or other entities that take over its pricing benchmark), and displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the dollar.
“Euro Interbank Offered Rate (EURIBOR)” refers to the Euro interbank offered rate governed by the European Money Markets Institute (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the euro.
“Hong Kong Interbank Offered Rate (HIBOR)” refers to the Hong Kong interbank offered rate governed by the Hong Kong Association of Banks (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the Hong Kong dollar.
“Tokyo Term Risk Free Rate (TORF)” refers to the Tokyo term risk free rate governed by QUICK Benchmarks Co., Ltd (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the Japanese yen.
“Term SONIA Reference Rate (TSRR)” refers to the term SONIA reference rate governed and published by Intercontinental Exchange Benchmark Administration Limited (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the British pound.
“London Interbank Offered Rate (LIBOR)” refers to London interbank offered rate governed by Intercontinental Exchange, Inc. (or other entities that take over its pricing benchmark), displayed on certain pages of financial telecommunication terminals Bloomberg/Refinitv (or other pages of information service institutions recognized by Lender showing this pricing benchmark) that can be applied to loans of the dollar.
“Bank working day” and “working day” refer to the opening day of the bank’s corporate business in the place where the Lender is located, excluding legal holidays and rest days (except for business due to holiday adjustment). If the loan date, repayment date, interest payment date, maturity date and other obligation fulfillment dates meet non-bank working day, it shall be postponed to the next bank working day accordingly.
“Foreign currency working day” refers to the bond trading days of the U.S. government (excluding Saturdays and Sundays) recommended by the Securities Industry and Financial Markets Association (or its successor) to the Fixed Income divisions of its members for SOFR or Term SOFR Reference Rate; refers to the normal opening day (excluding Saturdays and Sundays) of the commercial banks in London for LIBOR or TSRR; refers to Euro payment cleaning days of TARGET 2 for EURIBOR; refers to the normal opening day (excluding Saturdays and Sundays) of banks in Hong Kong for HIBOR; and refers to the normal opening day (excluding Saturdays and Sundays) of banks in Tokyo for TORF.
Working Capital Loan Contract
“Related parties” refer to the authorized handler, agent, legal representative, person in charge, controlling shareholder or actual controller, beneficial owner and other related parties directly or indirectly of the Borrower.
“Business related parties” refer to all parties to the transaction under the basic transaction contract, other related entities other than the parties to the transaction, as well as the parties to the transaction, authorized handlers, agents, legal representatives, persons in charge, controlling shareholders or actual controllers, beneficial owners and other parties.
Related parties, related party transactions, individual major investors and other words have the same meanings as those in Accounting Standards for Business Enterprises No.36 - Related Party Disclosure (CAI KUAI No.3 [2006]) and subsequent amendments to the standards.
Article 2 Use of Line of Credit
2.1 The Borrower should apply to the Lender at least 5 banking days in advance when it needs to use the line of credit. When applying, the Borrower should fill in the Application for Use of Line of Credit, which can only be used after being examined and approved by the Lender.
▲▲ 2.2 Every use of the line of credit is subject to all the following conditions:
(1) The loan balance (under the revolving line of credit) or the total loan (under the lump-sum line of credit) does not exceed the line of credit;
(2) The applied loan amount does not exceed the balance of the line of credit;
(3) The application date and loan date are within the credit period;
(4) The loan term and maturity date of the loan are in line with this contract;
(5) The guarantee contract under this contract (if any) has come into force and continues to be valid. If the guarantee contract is a mortgage contract and/or pledge contract, the real rights granted by way of security have been established and continue to be valid;
(6) The Borrower has completed the government permission, approval, registration and other procedures that must be handled by law when applying for the loan, and the permission, approval or registration continues to be valid;
(7) After the contract comes into effect, the Borrower’s operating and financial conditions have no significant adverse changes;
(8) The application of the Borrower meets the requirements of relevant rules and regulations of the Lender;
(9) The Borrower has not violated the contract;
(10) The payment method of the loan is in accordance with this contract.
Working Capital Loan Contract
If the Lender is entrusted to pay, the Lender agrees to pay; (11) In case of drawing foreign currency loans, the Borrower has provided proof documents that the loans comply with relevant foreign exchange management policies, including but not limited to valid foreign exchange purpose certificates or registration documents;
(12) The Borrower has designated a special fund withdrawal account and signed an account management agreement as required by the Lender.
▲▲2.3 If the Lender agrees to grant the loan, the final loan information shall be subject to the contents of the bank print column of the Application for Use of Line of Credit. The Application for Use of Line of Credit is also used as the Loan Voucher.
▲▲2.4 If the currency of the Application for Use of Line of Credit is inconsistent with the currency of the line of credit, only for the purpose of determining the line of credit balance, it shall be converted according to the exchange rate published by Bank of Communications Co., Ltd. at the beginning of each day; if there is no directly applicable exchange rate, it shall be converted by Bank of Communications Co., Ltd. according to the exchange rate determined in a reasonable way.
▲▲2.5 After the Borrower becomes the shareholder of the guarantor or the “actual controller” as defined in the Company Law, the Lender has the right to suspend or cancel the unused loan line of credit of the Borrower before the guarantor provides the resolution on agreeing to provide guarantee for the Borrower by its shareholders’ meeting (General Meeting of Shareholders) accepted by the Lender.
Article 3 Interest Rate, Interest Calculation and Payment
3.1 Basic rules for determining the interest rate
3.1.1 The annual loan interest rate (simple interest) under this contract shall be agreed by both parties in the Application for Use of Line of Credit after negotiation every time the Borrower uses its line of credit, determined according to the pricing benchmark, and calculated according to the pricing benchmark agreed in the Application for Use of Line of Credit plus (minus) points (1 basis point is 0.01 percent, 1 percentage point is 100 basis points).
3.1.2 If both parties agree to apply the fixed interest rate in the Application for Use of Line of Credit, and the specific value is recorded in the fixed interest rate value field, the specific interest rate of each loan shall be subject to the value recorded in the fixed interest rate value field in the Application for Use of Line of Credit (If the currency of the loan is RMB, the specific value will be determined based on the specific value of the pricing benchmark applicable to the applicable date of the pricing benchmark agreed in the Application for Use of Line of Credit (hereinafter referred to as “pricing benchmark value”) and according to the value of plus (minus) points agreed in the Application for Use of Line of Credit.). If the specific value is not recorded in the fixed interest rate value field, the specific interest rate of each loan shall be determined based on the pricing benchmark value applicable to the applicable date of the pricing benchmark agreed in the Application for Use of Line of Credit and according to the value of plus (minus) points agreed in the Application for Use of Line of Credit.
If both parties agree to apply the floating interest rate in the Application for Use of Line of Credit, the specific interest rate of each loan will be determined based on the LPR value applicable to the applicable date of the pricing benchmark agreed in the Application for Use of Line of Credit, the value of the plus (minus) points, the interest rate fluctuation rules, the interest rate fluctuation period, the unit of interest rate fluctuation period and the floating start date of a specific date (if necessary) agreed in the Application for Use of Line of Credit.
Working Capital Loan Contract
3.1.3 If the currency is RMB, the daily interest rate = interest rate/30, and the monthly interest rate = annual interest rate/12; If the currency is Hong Kong dollars, British pounds and Australian dollars, the daily interest rate = annual interest rate/365; If the currency is USD, Euro, Japanese yen and other foreign currencies accepted by the Lender, the daily interest rate = annual interest rate/360.
▲▲3.2 Loan interest rate
If both parties agree to apply the fixed interest rate in the Application for Use of Line of Credit, and the specific value is recorded in the fixed interest rate value field, the interest rate of each loan shall be subject to the value recorded in the fixed interest rate value field. If both parties agree to apply the fixed interest rate in the Application for Use of Line of Credit, and the specific value is not recorded in the fixed interest rate value field and both parties agree to apply the floating interest rate in the Application for Use of Line of Credit, the loan interest rate for each loan is determined based on the applicable LPR value of the “applicable date of the pricing benchmark” agreed in the corresponding Application for Use of Line of Credit, and according to the plus (minus) point value agreed in the Application for Use of Line of Credit. Take the “applicable date of the pricing benchmark” as the T-day, and value rules for the applicable pricing benchmark value on T-day shall be executed according to Article 3.5.1 of this contract.
3.3 Adjustment of the interest rate
3.3.1 If a fixed interest rate is recorded in the Application for Use of Line of Credit, the recorded interest rate will be implemented for the loan within the loan term.
▲▲3.3.2 If a floating interest rate is recorded in the Application for Use of Line of Credit, the loan interest rate adjustment date shall be determined according to the interest rate fluctuation rules, interest rate fluctuation period, unit of interest rate fluctuation period and floating start date of specific date (if necessary) agreed in the Application for Use of Line of Credit, and the adjusted interest rate shall apply from the loan interest rate adjustment date.
3.3.2.1 During the loan period, the period of adjustment of the loan interest rate will be calculated from the “loan entry date” or the “floating start date of the specific date” according to the “floating by loan entry date” or “floating on specific starting date” selected in “interest rate fluctuation rules”. The blank column of interest rate floating cycle shall be filled with the number of interest rate floating cycles, and the unit of interest rate floating cycle can be selected as daily or monthly. If “1” is filled in the number of interest rate floating cycles and “daily” is selected as the floating cycle unit, every day from the “loan entry date” or the “floating start date of the specific date” will be taken as the adjustment date of loan interest rate; If “3” is filled in the number of interest rate floating cycles and “daily” is selected as the floating cycle unit, the loan interest rate adjustment date will be the date every 3 days from the “loan entry date” or “floating start date of specific date”; If “1” is filled in the number of interest rate floating cycles and “monthly” is selected as the floating cycle unit, the loan interest rate adjustment date will be the date of every month from the “loan entry date” or “floating start date of specific date”; If “3” is filled in the number of interest rate floating cycles and “monthly” is selected as the floating cycle unit, the loan interest rate adjustment date will be every 3 months from the “loan entry date” or “floating start date of specific date”, and so on.
3.3.2.2 The loan interest rate on the loan interest rate adjustment date is determined on the basis of the applicable pricing benchmark value on the loan interest rate adjustment date, and the value of interest rate plus (minus) points shall be executed according to the value of interest rate plus (minus) points agreed in the Application for Use of Line of Credit, except for the value of plus (minus) points adjusted by both parties through consultation in this contract. Take the “loan interest rate adjustment date” as the T-day, and the applicable pricing benchmark value on the T-day shall be executed according to Article 3.5.1 of this contract.
Working Capital Loan Contract
▲▲3.3.3 If applicable pricing benchmark of certain loan is canceled or the corresponding publishing institution stops publishing, both parties shall negotiate and adjust the loan interest rate separately, but the adjusted interest rate shall not be lower than the applicable interest rate at that time; If the two parties still fail to reach an agreement on the adjusted interest rate after more than one month from the date when the pricing benchmark is canceled or stopped publishing, the Lender has the right to declare the loan to expire in advance.
▲▲3.3.4 Both parties can adjust the value of the plus (minus) points of the corresponding loan interest rate after consensus on each loan interest rate adjustment date.
3.4 The penalty interest rate of overdue loans will be increased by 50% according to the interest rate agreed in this contract, and the penalty interest rate of misappropriated loans will be increased by 100% according to the interest rate agreed in this contract. In case of adjustment of pricing benchmark for floating rate loans, the Lender has the right to adjust the applicable penalty interest rate for each loan accordingly, and apply the new penalty interest rate from the adjustment date of loan interest rate agreed in the corresponding Application for Use of Line of Credit.
3.5 Calculation of interest
3.5.1 According to different applicable pricing benchmarks, the value rules for applicable pricing benchmark in T-day (namely, “applicable date of the pricing benchmark”, “loan interest rate adjustment date”, and “re-pricing day”) agreed in Article 3.2, Article 3.3.2.2 and Article 9. 3.3.2 are as follow:
If the pricing benchmark is LPR, the pricing benchmark value applicable for T-day will be the latest published value of LPR before T-day.
If the pricing benchmark is SOFR and the T-day is a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of SOFR displayed on the corresponding financial telecommunication terminal page on the fifth foreign currency working days before T-day; If the T-day is not a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of SOFR of the latest foreign currency working day (which is the value of SOFR displayed on the corresponding financial telecommunication terminal page on the fifth foreign currency working days before the latest foreign currency working day).
If the pricing benchmark is Term SONIA Reference Rate, LIBOR, EURIBOR, TORF, or TSRR, and the T-day is a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of the pricing benchmark displayed on the corresponding financial telecommunication terminal page on the second foreign currency working days before T-day; if the T-day is not a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of the pricing benchmark of the latest foreign currency working day (which is the value of the pricing benchmark displayed on the corresponding financial telecommunication terminal page on the second foreign currency working days before the latest foreign currency working day).
If the pricing benchmark is HIBOR, and the T-day is a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of HIBOR displayed on the corresponding financial telecommunication terminal page on T-day; if the T-day is not a foreign currency working day, the pricing benchmark value applicable for T-day will be the value of HIBOR of the latest foreign currency working day (which is the value of HIBOR displayed on the corresponding financial telecommunication terminal page on the latest foreign currency working days).
Working Capital Loan Contract
If the pricing benchmark value displayed on the corresponding financial telecommunication terminal page is larger than or equal to 0, the value of the pricing benchmark for determining the loan rate of this contract will be determined based on the pricing benchmark value displayed on the corresponding financial telecommunication terminal page; If pricing benchmark value displayed on the corresponding financial telecommunication terminal page is smaller than 0, the value of the pricing benchmark for determining the loan rate of this contract will be determined as 0.
3.5.2 Normal interest = interest rate agreed in this contract × loan amount × occupied days.
The occupied days are calculated from the loan date (inclusive) to the expiration date (exclusive), which will be postponed when the expiration date is not a working day. The postponed period will be counted as occupied days, and the interest will still be calculated according to the contract.
3.5.3 The penalty interest for overdue loans and misappropriated loans is calculated according to the overdue or misappropriated amount and actual days (from the overdue or misappropriated date (inclusive) to the date of repayment of principal and interest (exclusive)).
3.5.4 If the calculated interest/penalty interest has a large number of decimal places, the Lender will keep two decimal places by rounding.
▲▲3.6 If the Borrower repays the loan in advance or the Lender withdraws the loan in advance according to this contract, the corresponding interest rate grade will not be adjusted, and the interest rate agreed in this contract will still be applied.
3.7 If the loan currency is a currency rather than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, and British pound, the determination of the pricing benchmark of the loan, the calculation rule of daily interest rate and applicable date of pricing benchmark, the adjustment date of loan interest and the pricing benchmark value on repricing date shall be subject to the agreement in Article 17 of this contract.
Article 4 Payment of Loan
4.1 If the loan account designated by the Borrower is a special loan issuance account opened at the Lender, the issuance and payment of the loan shall be handled through this account. This account is only used for the issuance of loan funds and external payment, only for the sale of “Application for Settlement Business” vouchers; It cannot be used for handling checks, bills of exchange, bank acceptance bills and other businesses, and cannot be used for other settlements. When the Borrower pays for the loan fund allocation independently, it must be handled at the counter of the account opening outlet. The deposit interest of this account is included in the Borrower’s repayment account.
4.2 When the Borrower withdraws the loan according to this contract, it should specify the payment method (the Lender’s entrusted payment or the Borrower’s independent payment), and only one payment method can be used for each withdrawal.
4.3 The Lender’s entrusted payment means that the Lender directly pays the loan funds to the Borrower’s counterparty that meets the purpose agreed in this contract through the Borrower’s account after issuing the loan according to the Borrower’s entrusted payment power of attorney.
If the single payment amount exceeds the independent payment line of credit or meets one of the conditions agreed in Article 19.3, the entrusted loan payment method shall be adopted.
Working Capital Loan Contract
In case of the Lender’s entrusted payment, the Borrower shall submit to the Lender the Application for Use of Line of Credit, the corresponding entrusted payment power of attorney and other information required by the Lender (including but not limited to business contracts, invoices, receipt documents and other transaction information), and specify the amount of the loan to withdraw and the object and amount of payment, and the amount of the loan to withdraw should be equal to the total amount to be paid.
▲▲If the payment to be made by the Borrower does not conform to this contract or the corresponding commercial contract or has other defects, the Lender has the right to refuse the payment and return the entrusted payment power of attorney submitted by the Borrower.
▲▲If the Lender agrees to pay, and if it can’t be paid or it is refunded due to the wrong information provided by the Borrower, the Borrower must resubmit the relevant documents and materials containing the correct information within the time line of credit specified by the Lender, and the Lender will not be responsible for the delay or unsuccessful payment.
4.4 The Borrower’s independent payment means that after the Lender grants the loan funds to the Borrower’s account according to the agreement in this contract, the Borrower pays the loan funds to the Borrower’s counterparty that meets the purpose agreed in this contract.
If the Borrower’s independent payment is adopted, the Borrower shall submit to the Lender the Application for Use of Line of Credit, instructions on the use of funds and other materials required by the Lender. The Borrower shall summarize and report the payment of loan funds to the Lender on time. The Lender has the right to check whether the payment of loan funds meets the agreed purpose by means of account analysis, voucher inspection, on-site investigation, etc. The Borrower shall cooperate with the Lender’s verification.
Article 5 Repayment of Loan
5.1 The Borrower shall repay the loan according to the repayment date and amount recorded in the corresponding Application for Use of Line of Credit.
▲▲5.2 Without the written consent of the Lender, the Borrower cannot repay the loan in advance.
▲▲5.3 The repayment arrangement of the principal and interest agreed by the Borrower and the Lender in the Application for Use of Line of Credit is the real intention reached by both parties on a voluntary basis after consultation. Under the repayment arrangement chosen by both parties, whether the principal is repaid before the interest does not affect the Borrower’s repayment responsibility for the interest payable, and the Borrower shall not argue against the repayment of the interest payable. Under any repayment arrangement, the Borrower shall bear the repayment responsibility for all the principal and interest payable.
▲▲5.4 When the repayment of the Borrower (including the repayment voluntarily repaid by the Borrower and deducted by the Lender according to this contract) cannot fully pay off all the debts of the Borrower:
(1) It should be used to pay off the overdue expenses first. If the principal and interest are overdue for less than 90 days, the balance after offsetting the expenses shall be used to offset the overdue interest or penalty interest and compound interest, and then used to offset the overdue principal; If the principal or interest is overdue for more than 90 days, the balance after offsetting the expenses shall be used to offset the overdue principal first, and then used to offset the overdue interest or penalty interest and compound interest; (2) If the Borrower has multiple debts (including the debts of the Borrower to the Lender under other contracts), the Lender has the right to decide the repayment and offset order of each debt of the Borrower by itself, as long as the offset order does not violate the mandatory provisions of laws, regulations, rules and regulations as well as relevant regulatory requirements applicable to the Lender.
Working Capital Loan Contract
The Lender shall inform the Borrower of the result of debt repayment. Unless otherwise agreed by both parties to this article.
Article 6 Statement and Guarantee of the Borrower
6.1 The Borrower is legally established and legally exists; It has all necessary rights and capabilities, and it can perform the obligations of this contract in its own name and bear civil liabilities.
6.2 Signing and performing this contract is the true intention of the Borrower after all necessary consent, approval and authorization, and there is no any legal flaw.
6.3 The Borrower’s production and operation are legal and compliant, with the ability of going concern, legal sources of repayment, no major environmental and social risks and no major bad credit record. The senior management of the Borrower has no bad record.
6.4 All documents, statements, data and information provided by the Borrower to the Lender during the signing and performance of this contract are true, accurate, complete and effective. No information that may affect its financial status and repayment ability has been concealed from the Lender, and the financial status of the Borrower has no significant adverse changes since the reporting date of the latest financial statements.
▲▲6.5 The Borrower, its related parties and business related parties are not listed in the sanctions list issued by the United Nations and related countries, organizations and institutions, or the enterprises or individuals listed in the risk list related to terrorism and anti-money laundering issued by Chinese government departments or authorities; They are not located in countries and regions that are not sanctioned by the United Nations and related countries, organizations and institutions.
▲▲6.6 The Borrower promises to abide by the national anti-money laundering laws, regulations and relevant policies, not to engage in illegal activities such as assisting others in money laundering, terrorist financing, tax evasion, evasion of bank debts, cash extraction, telecom fraud, illegal fund-raising, etc., actively cooperate with the Lender to carry out various anti-money laundering work such as customer identification, transaction record keeping, due diligence on customer identity and transaction background, large and suspicious transaction reports, etc., and provide relevant certification materials as required by the Lender.
Article 7 Rights and Obligations of the Lender
7.1 The Lender has the right to recover the loan principal and interest (including compound interest, penalty interest for overdue loans and misappropriation of loans, etc.) according to this contract, collect the fees payable by the Borrower, decide to recover the loan in advance according to the Borrower’s fund withdrawal, and exercise other rights stipulated by law or this contract.
▲▲7.2 During the performance of this contract, the Lender only conducts formal review on the information provided by the Borrower. If the materials provided by the Borrower are untrue, inaccurate or incomplete, or the Borrower violates the agreement of this contract to make payment, resulting in the Lender’s failure to complete the entrusted payment in time, the Lender will not be liable.
▲▲7.3 The Lender shall issue the loan and handle the payment according to this contract. If the Lender fails to issue the loan or make payment on time due to any of the following reasons, the Lender will not be liable, but it will inform the Borrower in time: The loan account designated by the Borrower is frozen, the payment object account is frozen, force majeure, communication or network failure, system failure of the Lender, etc. Unless otherwise agreed in this contract.
Working Capital Loan Contract
▲▲7.4 According to the regulatory requirements for the Lender, the Lender shall conduct a dynamic evaluation of the Borrower’s risks of money laundering, terrorist financing, and tax evasion and be entitled to adopt one or all of the measures agreed in Article 9.2 when it the risks of the Borrower or the Borrower’s trading instructions of money laundering, terrorist financing, and tax evasion are considered high.
Article 8 Obligations of the Borrower
8.1 The Borrower shall repay the loan principal under this contract and pay the interest according to the time, amount, currency and interest rate recorded in this contract and the corresponding Application for Use of Line of Credit.
The fund withdrawal account designated by the Borrower is used to collect the corresponding sales revenue or planned repayment funds. If the corresponding sales revenue is settled in a non-cash manner, the Borrower shall ensure that the money is promptly transferred to the fund withdrawal account after being received. The Borrower shall provide the capital inflow and outflow of the capital withdrawal account as required by the Lender.
8.2 The Borrower shall use the line of credit according to the purpose agreed in this contract, and use the loan according to the purpose determined in the corresponding Application for Use of Line of Credit, and shall not use the loan for other purposes, or use the loan for fixed assets investment, equity investment, fields and purposes prohibited by the state from production and operation.
The Borrower shall use the loan funds as agreed, and shall not avoid the Lender’s entrusted payment by breaking up the whole into parts; If the Borrower’s independent payment is adopted, the Borrower shall use the loan within a reasonable time according to the requirements of the Lender’s supervisory authority, and the payment of loan funds shall comply with this contract.
▲▲8.3 The Borrower shall bear the settlement fees (if any) for the loan fund payment (including the Lender’s entrusted payment and the Borrower’s independent payment), and the specific fees shall be implemented according to laws, regulations, rules, regulatory requirements and the Service Charges List of the Bank of Communications effective at that time published by the Lender.
For loan fund payments involving no cross-border payment, when the loan funds are paid (including the Lender’s entrusted payment and the Borrower’s independent payment), if the collection account does not belong to the account opened in the Bank of Communications, the payment of the funds may be handled through the payment system of the People’s Bank of China or the local exchange system. If the loan account is not a special loan issuing account, when the loan funds are paid (including the Lender’s entrusted payment and the Borrower’s independent payment), if the collection account is an account of another bank in different places, all the payment of funds will be handled through the payment system of the People’s Bank of China.
For loan fund payments involving cross-border payment, the loan fund payment may be handled through the SWIFT system or other payment systems.
▲▲8.4 The Borrower shall cooperate with the Lender to handle the loan payment and supervise and inspect the loan usage as well as the Borrower’s operation; It shall timely provide the financial statements, loan fund usage records and materials, related party and related party transaction information, environmental and social risk reports, other materials and information required by the Lender for post-loan risk management, and ensure that the documents, materials and information provided are true, complete and accurate.
Working Capital Loan Contract
▲▲8.5 In case of any of the following events, the Borrower shall notify the Lender in writing at least 30 days in advance, and shall not take any action before paying off all the loan principal and interest under this contract or providing the repayment scheme and guarantee approved by the Lender:
(1) The Borrower disposes of all or most assets or important assets by selling, donating, leasing, lending, transfer, mortgage, pledge or otherwise;
(2) Significant changes have taken place in the Borrower’s management system or property right organization form, including but not limited to the implementation of contract, lease, joint venture, company system reform, joint-stock cooperation system reform, enterprise sale, merger (acquisition), joint venture (cooperation), division, establishment of subsidiaries, equity transfer, property right transfer, capital reduction, etc.
(3) The Borrower’s foreign equity or increased debt financing exceeds the agreed line of credit.
▲▲8.6 The Borrower shall notify the Lender in writing within 7 days from the date when the following events happen or may happen and submit relevant supporting documents according to laws, regulatory provisions, and the Lender’s requirements:
(1) The Borrower or its related party modifies the articles of association, changes the business registration items such as enterprise name, legal representative (person in charge), residence, postal address or business scope, or makes decisions that have a significant impact on finance and personnel;
(2) The Borrower, its related party or guarantor intends to apply for bankruptcy or may have been or has been applied for bankruptcy by creditors;
(3) The Borrower or its related party is involved in major litigation, arbitration and administrative measures, or property preservation or other compulsory measures have been taken for its main assets or collateral under this contract, or the safety and integrity of its main assets or collateral under this contract has been or may be affected, or its value is reduced or may be reduced;
(4) The Borrower or its related party provides a guarantee for a third party, which has a significant adverse impact on its economic status, financial status or ability to perform its obligations under this contract;
(5) The Borrower or its related party signs a contract that has a significant impact on its operation and financial status;
(6) The Borrower pays off the unexpired debts in advance or gives priority to paying off other due debts, adds any form of guarantee such as pledge for other existing debts, or makes any arrangement or signs relevant documents with similar effect;
(7) The Borrower, its related party or guarantor suspends production, closes down, dissolves or suspends business for rectification, is revoked or its business license is revoked; (8) The Borrower or its related party, the individual principal investor of the Borrower or its related party, the legal representative (person in charge), director or key management personnel of the Borrower or its related party is missing, involved in violations of laws and regulations or in violation of applicable exchange rules or has any abnormal changes;
Working Capital Loan Contract
(9) The Borrower or its related party has serious difficulties in operation, or its financial situation deteriorates, or other events that have a negative impact on the operation, financial situation, solvency or economic situation of the Borrower or its related parties occur;
(10) Related party transactions occur, and the monthly transaction amount reaches or exceeds 10% of the recently audited net assets;
(11) Before paying off all debts under this contract, the Borrower becomes or may become the shareholder or the “actual controller” as defined in the Company Law of the guarantor;
(12) The Borrower or its related party is exposed by the media because of its violation of laws, regulations, regulatory requirements, national policies or industry standards, etc.;
(13) The Borrower or its related party has any safety or environmental accident;
(14) The controlling or controlled relationship between the Borrower’s related party and the Borrower changes;
(15) The Borrower or its related party has any significant equity change;
(16) The audit opinion issued by the external auditor of the Borrower on its financial statements is not a standard unqualified opinion;
(17) The Borrower has been or may be investigated, punished or taken other similar measures by the competent authority for violating laws, regulations and/or regulatory requirements;
(18) The Borrower or its related party or business related party is included in the sanctions list issued by the United Nations and related countries, organizations and institutions, and the list of risks related to terrorism and anti-money laundering issued by Chinese government departments or authorities; Or the country and region where the Borrower or its related person or business related party is located is included in the list of countries and regions sanctioned by the United Nations and related countries, organizations and institutions;
(19) Other major adverse events that affect the solvency of the Borrower or its related party occur.
(20) According to the Lender’s environmental and social risk assessments standards, if the Borrower belongs to one of the clients in Category A or B of social risk, any one of the following matters happen or may happen to the Borrower:
① Various permissions, reviews, and approvals concerning environmental and social risk during commencement, construction, operation and shutdown;
② The environmental and social risk assessment and examination of the Borrower by environmental and social risk regulator or other institutions it recognized;
③ Supporting construction and operation of environmental facilities; ④ Emission and compliance of contaminants;
Working Capital Loan Contract
⑤ Safety and health condition of employees;
⑥ Major complaints or protests of the Borrower by neighboring communities;
⑦ Major environmental and social claims;
⑧ Other major situations considered relevant to environmental and social risk by the Lender.
▲▲8.7 When the guarantee under this contract changes to the detriment of the Lender’s creditor’s rights, the Borrower shall provide other guarantees recognized by the Lender in a timely manner as required by the Lender.
The “change” mentioned in this paragraph includes but is not limited to: merger, division, suspension of production, suspension of business, dissolution, suspension of business for rectification, being revoked, revocation of business license, application or being applied for bankruptcy of the guarantor; Significant changes have taken place in the operation or financial status of the guarantor; The guarantor involves major litigation, arbitration, administrative measures, or property preservation or other compulsory measures have been taken for its main assets; The security and integrity of the collateral is or may be affected; The value of collateral is reduced or may be reduced, or compulsory measures such as property preservation such as seizure are taken; The guarantor or its legal representative (person in charge) or key management personnel is involved in violation of laws and regulations or the applicable exchange rules; If the guarantor is an individual, the guarantor is missing or dead (declared dead); The guarantor has breached the contract under the guarantee contract; Disputes between the guarantor and the Borrower occur; The guarantor asks to cancel the guarantee contract; The guarantee contract is ineffective, invalid or revoked; The real rights granted by way of security are not established or invalid; Or other events affecting the security of the Lender’s creditor’s rights occur, etc.
▲▲8.8 The Borrower promises that: from the date of signing this contract until all the loan principal and interest and related expenses under this contract are paid off, the financial indicators, external agency rating and production and operation qualifications/licenses of the Borrower always comply with the contract, and if the production and operation qualifications/licenses need to be examined annually, they should pass the annual examination on time.
8.9 The Borrower guarantees that the Borrower, the Borrower’s employees and agents will not provide, give, ask for or accept material benefits in any form other than those stipulated in this contract (including but not limited to cash, physical cards, travel, etc.) or other non-material benefits to the Lender or the Lender’s employees in any form; The Borrower, the Borrower’s employees and agents will not directly or indirectly use the funds or services provided by the Lender for activities related to corruption or bribery in any form; If the Borrower is aware of any violation of this article, it should provide clues and relevant information to the Lender in a timely, truthful, complete and accurate manner, and cooperate with relevant matters as required by the Lender.
8.10 According to the Lender’s environmental and social risk assessments standards, if the Borrower belongs to one of the clients in Category A or B of social risk, the Borrower shall be borne the following obligations:
(1) Set up a sound internal administrative system for environmental and social risks and set forth detailed responsibility, obligation, and penalty measures of relevant responsible persons;
(2) Set up a sound environmental and social risk emergency mechanism and a set of measures;
(3) Set up a special department and/or assign special personnel to be responsible for environmental and social risk events; (4) Cooperate with the Lender or a third party recognized by the Lender to carry out environmental and social risk assessments and examinations for the Borrower;
Working Capital Loan Contract
(5) Provide appropriate responses or take necessary actions when the public or other stakeholders express strong suspicion of the Borrower’s environmental and social risk performance;
(6) Urge important affiliates of the Borrower to enhance management to prevent the contagion of affiliates’ environmental and social risks to the Borrower;
(7) Perform other obligations of controlling environmental and social risks which are considered relevant by the Lender.
▲▲ Article 9 Adjustment of the Line of Credit, Premature Expiration of Loan and Risk Repricing
9.1 Any of the following events shall be regarded as the “premature expiration event” of this contract:
(1) The Borrower fails to repay the loan principal or pay interest as agreed in any Application for Use of Line of Credit under this contract;
(2) The statements and guarantees made by the Borrower under this contract are untrue;
(3) Any of the notifiable matters listed in Article 8.6 actually happens, which affects or may affect the security of the Lender’s creditor’s rights;
(4) The change of laws, regulations and regulatory policies causes that the loan issuance by the Lender as agreed in this contract constitutes or may constitute violations of laws or regulations;
(5) When the Borrower performs other contracts with the Lender or contracts with a third party, there is a breach of contract or the debt may or has been announced to be due in advance;
(6) The Borrower violates other agreements in this contract.
(7) According to the Lender’s environmental and social risk assessments standards, if the Borrower belongs to one of the clients in Category A or B of social risk, the following events happen to the Borrower:
① The Borrower is punished by the competent governmental department for poor management of environmental and social risk;
② The Borrower is strongly questioned by the public and/or the media for poor management of environmental and social risk;
③ he Borrower breaches its obligations of the management of environmental and social risk agreed with the Lender in other contracts.
9.2 When any “premature expiration event” occurs, the Lender has the right to take one, several or all of the following measures:
(1) Reduce, suspend or cancel the line of credit under this contract;
(2) Stop issuing loans that have not been drawn by the Borrower;
(3) Stop handle the payment that the Borrower has withdrawn but not yet used;
(4) Require the Borrower to negotiate with the Lender for supplementary loan issuance and payment conditions within a time limit;
(5) Require the Borrower to change the payment method as required by the Lender; (6) Reprice the risk of loans as agreed in Article 9.3;
Working Capital Loan Contract
(7) Unilaterally declare that all the loan principal issued under the contract is due in advance and require the Borrower to immediately repay all the loan principal due and settle the interest.
9.3 According to the production and operation situation of the Borrower at the time of signing this contract, the interest rate agreed in this contract and its adjustment are determined by both parties through negotiation. The Borrower agrees that in the event of any “premature expiration event”, the Lender has the right to reprice the risk of the loan according to this article.
9.3.1 Risk repricing includes negotiated repricing and direct increase of the loan interest rate. The risk repricing method adopted in this contract is agreed by both parties in Article 21.
9.3.2 “Negotiated repricing” means that the Lender has the right to ask the Borrower to negotiate with the Lender to increase the loan interest rate within a time limit, and both parties determine the “repricing date” and the specific agreement on relevant interest rates by means of supplementary agreement.
9.3.3 “Direct increase of the loan interest rate” means that the Lender has the right to directly increase the loan interest rate according to this article and Article 21.
9.3.3.1 Since the “repricing date” notified by the Lender to the Borrower in writing, the increased loan interest rate will be applied to all loans that the borrower has not repaid as of the “repricing date”.
9.3.3.2 If the loan currency is RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, or British pound, on the basis of the applicable pricing benchmark value on the “repricing date”, the loan interest rate after each loan increase shall be determined according to the value of the plus (minus) points agreed in Article 21.2.1.
Take the “repricing date” as the T-day, and the applicable pricing benchmark value on T-day is subject to Article 3.5.1 in this contract.
9.3.3.3 If the loan currency is other currencies rather than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, or British pound, the loan interest rate after the increase shall be determined according to Article 21.2.2.
9.3.4 After the Lender reprices the risk according to the aforementioned agreement, the new interest rate will be implemented from the “repricing date”. On the basis of this interest rate, it is still subject to the floating adjustment as agreed in Article 3 of this contract. If both parties agree to change the relevant agreement through consultation, the agreement after the change shall prevail. In case of loans overdue (including the Borrower’s failure to repay the loan on time or the Lender’s announcement of premature maturity) or misappropriation, the penalty interest rate for overdue and misappropriation will be determined on the basis of the new interest rate (including the interest rate after floating adjustment as agreed in this contract), and the interest rate for calculating compound interest will also be adjusted accordingly.
9.3.5 The implementation of “risk repricing” shall not be deemed or interpreted as the Lender waiving other rights stipulated by laws and regulations and agreed in this contract. The Lender has the right to take other creditor’s rights protection measures according to laws and regulations and the contract, including but not limited to the measures agreed in Article 9.2.
▲▲Article 10 Breach of Contract
10.1 If the Borrower fails to repay the loan principal in full and on time, pay interest or use the loan according to the purpose agreed in this contract, the Lender will charge interest according to the penalty interest rate of overdue loans or the penalty interest rate of misappropriated loans, and calculate compound interest on the unpaid interest payable. If the penalty interest rate is adjusted according to the contract, the interest rate for calculating compound interest will also be adjusted accordingly.
Working Capital Loan Contract
10.2 If the Borrower fails to repay the loan principal and pay the interest in full and on time, it shall bear the urging fees, litigation fees (or arbitration fees), preservation fees, announcement fees, execution fees, legal fees, travel expenses and other fees paid by the Lender to realize the creditor’s rights.
▲▲Article 11 Agreement on Deduction
11.1 When the Borrower authorizes and there is the loan principal, interest, penalty interest, compound interest or other fees due and payable, the Lender has the right to deduct the funds in any account opened by the Borrower in all branches of Bank of Communications Co., Ltd. for repayment.
11.2 After deduction, the Lender shall notify the Borrower of the account number, contract number, number of Application for Use of Line of Credit, deduction amount and remaining debt amount involved in deduction.
11.3 If the deduction proceeds are not enough to pay off all the debts of the Borrower, the debts to be paid off and offset shall be determined according to this contract.
11.4 If the currency of deduction proceeds is inconsistent with that of the debt to be offset, it shall be converted into the amount of the debt to be offset according to the exchange rate published by Bank of Communications Co., Ltd. at the time of deduction. If any foreign exchange settlement and sales or foreign exchange conversion procedures need to be handled, the Borrower has the obligation to assist the Lender in handling the formalities as required by the Lender, and the exchange rate risk shall be borne by the Borrower.
▲▲Article 12 Notice
12.1 The contact information (including postal address, telephone number, fax number, etc.) filled in by the Borrower in this contract is true and valid. In case of any change of the contact information, the Borrower shall immediately mail/send the change information in writing to the postal address filled in by the Lender in this contract. Such information change will take effect after the Lender receives the notice of change.
12.2 Unless otherwise expressly agreed in this contract, the Lender has the right to notice the Borrower in any of the following ways. The Lender has the right to choose the notice method it deems appropriate, and does not need to be responsible for transmission errors, omissions or delays in postal, fax, telephone or any other communication system. If the Lender chooses multiple notice methods at the same time, the one that arrives at the Borrower sooner shall prevail. For the same matter, if the Lender sends more than one notice to the Borrower with different contents, unless otherwise specified in the notice, the later notice shall prevail.
(1) For announcement, the date when the Lender issues an announcement on its website, online banking, telephone banking or business outlets shall be regarded as the date of delivery;
(2) For delivery by special person, the date of receipt by the Borrower shall be regarded as the date of delivery;
(3) For delivery by post (including express mail, ordinary mail and registered mail) to the latest known address of the Borrower, the 3rd day (in the same place)/5th day (in different places) after the date of mailing shall be regarded as the delivery date;
(4) For fax, mobile phone short message or other electronic communication methods to the latest known fax number of the Borrower, the mobile phone number or email address designated by the Borrower to the Lender, the date of sending is regarded as the date of delivery. The aforementioned delivery means that the relevant information enters the server terminal of the service provider without taking the actual display of the relevant information in the client terminal as the standard.
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12.3 The Borrower agrees that unless the Lender receives a written notice from the Borrower about changing its postal address, the postal address filled in by the Borrower in this contract is the address where the court will serve judicial documents and other written documents to the Borrower. The applicable scope of the aforementioned service address includes, but is not limited to, civil litigation first instance, jurisdiction objection and reconsideration, second instance, retrial, remand for retrial and execution procedures, etc. If the Borrower responds to the lawsuit and directly submits the confirmation of the service address to the court, and if the confirmed address is inconsistent with the latest known postal address of the Lender, the court has the right to serve according to the address on the confirmation of the service address.
During the settlement of this contract dispute, the court may serve the judgment, ruling and conciliation statement to the Borrower in any of the following ways:
(1) For delivery by post (including express mail, ordinary mail and registered mail), the date of receipt by the Borrower shall be regarded as the date of delivery;
(2) For delivery by special person, the date on which the Borrower signs on the delivery receipt shall be regarded as the date of delivery.
If the court uses delivery by post (including express mail, ordinary mail and registered mail), and if the Borrower fails to sign on the service receipt, or the postal address filled in by the Borrower is inaccurate or actually changed, but the Lender does not receive the written notice from the Borrower about the change of postal address, which leads to the rejection of the judgment, ruling and conciliation statement, the date when the statement is returned shall be regarded as the date of delivery.
If the court uses delivery by special person, and if the Borrower fails to sign on the service receipt, the date on which the server records the situation on the service receipt on the spot shall be regarded as the date of delivery.
Except for the judgment, ruling and conciliation statement, the court has the right to make any notice to the Borrower by any means of communication agreed in Article 12.2. The court has the right to choose the communication method it deems appropriate, and does not need to be responsible for transmission errors, omissions or delays in postal, fax, telephone, telex or any other communication system. If the court chooses multiple modes of communication at the same time, the one that arrives at the Borrower sooner shall prevail.
12.4 The agreement in this article belongs to the independent dispute settlement clause in the contract. The invalidity, cancellation or termination of this contract will not affect the validity of this clause.
▲▲Article 13 Information Disclosure and Confidentiality
13.1 For the undisclosed information and materials of the Borrower obtained and known during the signing and performance of this contract, the use of relevant information and materials by the Lender (including but not limited to collection, storage, use, processing, transmission, provision, disclosure, etc.) shall not violate laws, regulations and regulatory requirements; The Lender shall bear the responsibility of confidentiality according to law, and shall not disclose such information and materials to a third party, except for the following situations:
(1) The disclosure is required by applicable laws and regulations;
(2) The disclosure is required by judicial departments or regulatory agencies according to law;
(3) When the Borrower fails to repay the loan principal and/or pay interest in full and on time, the Lender needs to disclose to the Lender’s external professional consultant and allow the Lender’s external professional consultant to use it on the basis of confidentiality in order to realize the claims under this contract; (4) Other acts are reasonably carried out to safeguard public interests or legitimate rights and interests of the Borrower;
Working Capital Loan Contract
(5) The Borrower agrees or authorizes the Lender to make disclosure.
13.2 The Borrower confirms to have signed the Power of Attorney for Credit Information Inquiry and Provision. The Lender inquires, uses and saves the credit information of the Borrower within the scope specified in the Power of Attorney.
13.3 In addition to the situations specified in Articles 13.1 and 13.2 of this contract, the Borrower further agrees that Bank of Communications Co., Ltd. can use or disclose the Borrower’s information and materials in the following situations, including but not limited to the Borrower’s basic information, credit transaction information, bad information and other related information and materials, and is willing to bear all the consequences arising therefrom:
To disclose and allow business outsourcing institutions, third-party service providers, other financial institutions and other institutions or individuals deemed necessary by the Lender, including but not limited to other branches of Bank of Communications Co., Ltd., or wholly or partially owned subsidiaries of Bank of Communications Co., Ltd., to use such information and materials on a confidential basis for the following purposes: ① To carry out or be related to bank credit business, such as promoting the credit business of Bank of Communications Co., Ltd., collecting the Borrower’s arrears, transferring the creditor’s rights of bank credit business, etc.; ② To provide or may provide new products or services or further services for the Lender to the Borrower.
Whether Article 13.3 is applicable or not shall be subject to the agreement of both parties in Article 24.1 of this contract.
Article 14 Applicable Law and Dispute Resolution
This contract shall be governed by the laws of the People’s Republic of China (excluding the laws of Hongkong, Macau and Taiwan for the purpose of this contract). Any dispute under this contract shall be brought to the court with jurisdiction where the Lender is located unless otherwise agreed in this contract. During the dispute, all parties should continue to perform the provisions that are not involved in the dispute.
Article 15 Entry into Force, Loan Attribute, and Composition of Contract
15.1 This contract shall come into force after the legal representative (person in charge) or authorized representative of the Borrower signs (or seals) with the official seal, and the persons in charge or authorized representative of the Lender signs (or seals) with the special contract seal. If the special contract seal of the Lender is the special seal contract for offshore credit business (or any other special contract seal with the word “Offshore”), the loan in this contract is an offshore business loan.
15.2 The Application for Use of Line of Credit signed when using the line of credit under this contract and other relevant documents and materials are integral parts of this contract.
15.3 The Application for Use of Line of Credit is a supplement to this contract. Unless otherwise agreed in the Application for Use of Line of Credit, the rights and obligations and related matters between the Borrower and the Lender shall still be implemented according to the agreement of this contract.
Article 16 Specific Content of the Line of Credit
16.1 Currency of the line of credit: __RMB____; Amount in words: __Eight Million One Hundred Thousand Yuan___; It can be used in P Currency of the line of credit £ Currency of the line of credit and other currencies accepted by the Lender; The line of credit belongs to Prevolving line of credit £lump-sum line of credit (can be used several times) £lump-sum line of credit (only used once).
16.2 Purpose of the line of credit: ___Working Capital __________.
16.3 The term of credit is from 06/16/2024 to 05/13/2025.
Working Capital Loan Contract
Article 17 Agreement on Interest Rate
If the loan currency is other currencies rather than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, and British pound, the relevant agreements on the determination of the type of pricing benchmark of the loan, the calculation rule of daily interest rate and applicable date of pricing benchmark, the adjustment date of loan interest are as follows:
_______________/_______________________________________________________
Article 18 Account Agreement
18.1 The Borrower designates the following account as the loan account, and this account £is £is not a special loan issuing account opened by the Borrower at the Lender. If both parties agree otherwise in the corresponding Application for Use of Line of Credit, the agreement in the Application for Use of Line of Credit shall prevail.
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Number:*
Bank of Deposit: Business Department of Ji’an Branch of Bank of Communications
18.2 Designation of the Borrower:
(1) The repayment account is
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Number:*
Bank of Deposit: Business Department of Ji’an Branch of Bank of Communications
(2) The capital withdrawal account is:
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Number: *
Bank of Deposit: Business Department of Ji’an Branch of Bank of Communications
Article 19 Specific Agreement on Loan Issuance, Payment and Repayment
19.1 The term of each loan drawn under this contract shall not be longer than __12__ £months £days, and the maturity date of all loans shall not be later than 07/13/2025_ .
19.2 The independent payment line of credit under this contract is £ RMB £ ___/____(foreign currency) __/___×10000 Yuan or equivalent in other currencies.
19.3 If one of the following conditions is met, the method of the Lender’s entrusted payment shall be adopted:
__________/_________________________________________________________
_____ __/_______________________ _______________________________
19.4 If the Borrower’s independent payment is adopted, the Borrower shall report the payment of loan funds to the Lender within _/__ days after the loan is issued.
Working Capital Loan Contract
Article 20 Financial Restrictions, External Agency Rating and Production and Operation Qualification/License
20.1 The Borrower’s foreign investment line of credit is RMB __/____×10000 Yuan;
The increase of debt financing line of credit is RMB __/____×10000 Yuan.
20.2 Contract agreement on financial indicators of the Borrower:
(1)___/_________________________________________________________
(2) ___/__________________________________________________________
(3) ____/_________________________________________________________
20.3 Specific agreement on external agency rating:
(1)___/___________________________________________________________
(2) __/___________________________________________________________
20.4 Specific agreement on the Borrower’s production and operation qualification/license:
(1) ______/_______________________________________________________
(2) _____/________________________________________________________
▲▲Article 21 Specific Agreement on Risk Repricing
21.1 This contract adopts the following __1__ risk repricing method: (1) negotiated repricing; (2) raising the loan interest rate directly.
21.2 If the method of “raising the loan interest rate directly” is adopted:
21.2.1 If the loan currency is RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, or British pound, the value of the interest rate plus (minus) points after the increase is: £no plus or minus point £plus __/__ percentage points £minus __/__ percentage points. Unless otherwise agreed in a loan, the value of the interest rate plus (minus) points after the increase of the loan shall be subject to the records in the applicable application for use of line of credit.
21.2.2 If the loan currency is another currency rather than RMB, US dollar, Euro, Hong Kong dollar, Japanese yen, and British pound, the value of the interest rate plus (minus) points after the increase is: __/___
Article 22 Contact Information
The contact information of the Borrower to receive the notice agreed in Article 12 includes:
Working Capital Loan Contract
Postal Address: Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County, Ji’an City, Jiangxi Province
| Attn: | Lai Gang |
| Postal Code: | 34300 |
| Tel.: | * |
| Mobile Phone: | * |
| Fax: | __/__________________________________________________________________________________ |
| Email: | __/__________________________________________________________________________________ |
Article 23 Copies of Contract
There are _3_ originals of this contract, with _1_ copy held by both parties and the guarantor (if any).
Article 24 Other Agreements
24.1 Both parties agree that this contract üis ☐ is not applicable to Article 13.3.
24.2 According to the environmental and social risk evaluation standard, the Borrower ☐ falls into üdoes not fall into the Category A or B of Client concerning environmental and social risk evaluation.
| Jiangxi Universe | ||
| Pharmaceuticals Co., Ltd. | ||
| 3608013004966 |
Borrower: Jiangxi Universe Pharmaceutical Co., Ltd.
Legal Representative (Person in Charge): Lai Gang
Legal Address: Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County
Lender: Bank of Communications Co., Ltd. Ji’an__ (Sub) Branch
Person in Charge: Liu Shuang
Postal Address: *
| The Borrower has read through all the terms of the contract, and the Lender has made detailed explanations at the request of the Borrower. When signing the contract, the Borrower has no doubt or objection to all the contents, and understands the meaning and legal consequences of the terms of the contract, especially those marked with ▲▲. |
(This page is for signatures of the Working Capital Loan Contract and is intentionally left blank)
| Borrower (Official Seal) | Lender (Special Seal for Contract) | |
| Jiangxi Universe | Bank of Communications | |
| Pharmaceuticals | Co., Ltd. | |
| Co., Ltd. | (Ji’an Branch) | |
| 3608013004966 |
Special Seal for Credit Business Contract |
|
|
Seal of LAI Gang.[seal] |
Seal of TONG Zhihong [seal] |
Working Capital Loan Contract
| Seal of LAI Gang.[seal] Borrower (Official Seal) | Lender (Special Seal for Contract) |
|
Legal Representative (Person in Charge) or Authorized Representative Signature or Seal |
Person in Charge or Authorized Representative (Signature or Seal) |
| Date of Signing: 06/16/2024 | Date of Signing: 06/16/2024 |
23
Exhibit 4.9
[2025] L.L.N.S.H.L.J.Z. No.: 17229202504221003004
Working Capital Loan Contract
| Borrower | Jiangxi Universe Pharmaceuticals Co., Ltd. |
| Lender | Jiangxi Luling Rural Commercial Bank Co., Ltd. |
 |
Jiangxi Rural Commercial Bank |
Special Notice: In order to protect the legitimate rights and interests of the Borrower, the Lender hereby requests the Borrower to give full attention to all provisions concerning the rights and obligations of the parties, especially those shown in bold. If the Borrower has any objection, it shall raise the objection to the Lender. Otherwise, after this Contract is entered into by and between the Borrower and the Lender, all the terms and conditions herein represent the true intention of both parties, are protected by law, and shall be legally binding on both parties herein.
Working Capital Loan Contract
[2025] 
LJZ
No.: 17229202504221003004
Borrower: Jiangxi Universe Pharmaceutical Co., Ltd.
Business License No.: 913608217670218430
Legal Representative / Person in Charge: LAI Gang
Business Address: No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County
Mailing Address: The same as above
Postal Code: 343100Tel.: 13970661293
Electronic Contact Information (Email and WeChat Account No.):
Lender: Jiangxi Luling Rural Commercial Bank Co., Ltd.
Legal Representative / Person in Charge: Huang jiaqiang
Business Address: No. 205, Fuchuan Road, Ji’an County
Postal Code: 343100
Tel.: 8435534 Fax:_____________________
Pursuant to the laws and regulations of the People’s Republic of China and other relevant regulations, the Borrower and the Lender have reached an agreement with respect to the matter that the Lender grants a working capital loan to the Borrower, and hereby execute this Contract by consensus, which shall be binding on both parties.
Chapter 1 Execution Provisions
Article 1 Loan Amount and Currency
Loan Amount (in words): CNY Ten Million.
(In Figures) CNY 10,000,000.00.
The loan amount under this Contract is: ☐ revolving borrowing limit ☒ non-revolving loan amount.
Article 2 Loan Term
The valid loan term under this Contract shall be: 12 months from April 22, 2025 to April 21, 2026.
☐ In the event that the loan amount hereunder is a revolving borrowing limit, the term of borrowing limit shall be the same as the valid loan term as agreed herein. The term of each loan shall be subject to the term recorded in the loan note.
☒ In the event that the loan amount hereunder is a non-revolving borrowing limit, the loan term shall be the same as the valid loan term as agreed herein. The specific loan term shall be subject to the term recorded in the loan note.
If the Borrower has any default circumstance listed in Article 19 of this Contract, and the Borrower agrees that the Lender may recover the loan in advance, then the Lender may announce that the date of recovering the loan in advance is the due date of the loan.
Article 3 Loan Purpose
The loan borrowed hereunder shall be used for turnover of working capital.
Without the written consent of the Lender, the Borrower may neither change the loan purpose nor use the loan for any other purposes. The Lender shall have the right to supervise the Borrower’s use of the loan.
Article 4 Loan Interest Rate, Interest Calculation and Settlement
1. Loan Interest Rate
The method as described in following Item (1) shall apply for the determination of loan interest rate and a simple interest calculation shall be applied:
(1) Fixed Interest Rate. The annual interest rate shall be 3.6%.
The loan prime rate (LPR) recently published on ☒ the date of signature hereof ☐ withdrawal date for 1 years’ loan, which is 3.10, and ☒ increased percentage points ☐ decreased percentage points, which is 50 bp (1bp = 0.01%). The annual interest rate shall be 3.6%. The interest rate shall remain unchanged during the loan term.
(2) Floating Interest Rate.
The loan interest rate shall be determined by the loan prime rate (LPR) recently published on the working day before the withdrawal date for _____ years’ loan and ☐ increased percentage points ☐ decreased percentage points, which is ____ bp. The increased or decreased percentage points shall remain unchanged during the term of this Contract. In case of any adjustment to the LPR, its loan interest rate determination method shall be handled according to the following Item and the Lender will not give a further notice to the Borrower:
① Annual Adjustment. From January 1 of the next year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
② Annual Adjustment. From the corresponding date of the corresponding month in the corresponding year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
③ Quarterly Adjustment. From the corresponding date of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
④ Quarterly Adjustment. From the first day of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑤ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein (If there is no corresponding day in the month of adjustment, the last day of such month shall be treated as the corresponding day);
⑥ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑦ Immediate Adjustment. From the date immediately following the date of the LRP recently published, the loan interest rate shall be adjusted, on the basis of the new LPR, in accordance with the increased or decreased percentage points agreed herein.
(3) The loan interest rate shall be determined by other methods: ________/________________.
If the Borrower chooses the “(2) floating interest rate” method, and when the loan prime rate (LPR) of the loan market increases, the monthly repayment amount of the Borrower will increase. If the Borrower still makes the repayment according to the repayment amount before adjustment, the monthly repayment amount will be insufficient, resulting in penalty interest and compound interest and affecting the credit record of the Borrower.
2. Interest Settlement Method
The Borrower will settle the interest in a method as described in following Item (2) :
(1) Quarterly Interest Settlement. The 20th day of the last month of each quarter shall be the interest settlement date, and the 21st day shall be the interest payment date.
(2) Monthly Interest Settlement. The 20th day of each month shall be the interest settlement date, and the 21st day shall be the interest payment date.
(3) The interest shall be settled by other methods: _____/__________________________.
In the event that the repayment date of the last installment of loan principal is not the interest payment date, such repayment date of the last installment of loan principal shall be the interest payment date on which the Borrower shall pay off all the interests payable.
3. Penalty Interest Rate
(1) In the event that the Borrower fails to repay the loan within the agreed time limit, interest shall be calculated and charged over the overdue part at the penalty interest rate for overdue loan from the overdue day, until the principal and interest are paid off;
(2) In the event that the Borrower uses the loan for any purposes other than those agreed herein, interest shall be calculated and charged over the misappropriated part at the penalty interest rate for misappropriated loan from the misappropriation date, until the principal and interest are paid off;
(3) In the event that the loan is overdue and misappropriated, interest shall be calculated and charged at the penalty interest rate for misappropriated loan;
(4) With respect to the interest and penalty interest that the Borrower fails to pay as scheduled, compound interest shall be calculated and charged at the penalty interest rate agreed in this paragraph in the interest settlement method as agreed in Paragraph 2 hereof;
(5) In case of any adjustment to the loan interest rate agreed herein, the penalty interest and compound interest shall be calculated at the adjusted interest rate from the adjustment date;
(6) Penalty Interest Rate
The penalty interest rate for overdue loan shall be 50% higher than the loan interest rate agreed in Paragraph 1 hereof; the penalty interest rate for misappropriated loan shall be 100% higher than the loan interest rate agreed in Paragraph 1 hereof.
Article 5 Loan Disbursement and Repayment Account
The Borrower shall open an account as follows with the Lender as the loan disbursement and repayment account, which shall be used for loan disbursement, payment and repayment.
Bank of deposit: Luling Rural Commercial Bank
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Number: 17229920100001758
Article 6 Repayment
Unless otherwise agreed by the parties, the Borrower shall repay the loan hereunder in accordance with the repayment schedule as set forth in Item 1 below:
1. Repay the loan hereunder in full upon the expiration of the loan term.
2. Repay the loan hereunder in accordance with the following repayment schedule:
| Repayment Time | Repayment Amount |
| 1. | |
| 2. | |
| 3. | |
| 4. | |
| 5. | |
| 6. | |
| 7. | |
| 8. | |
| 9. | |
| Total |
3. Other Repayment Schedule: ________/____________________________.
4. Where the Borrower makes repayment in advance, it shall obtain the consent from the Lender 3 banking days in advance.
Article 7 Guarantee
The loan hereunder shall be a guaranteed (credit/ guaranteed) loan. The guarantee type shall be guarantee (guarantee/ mortgage/ pledge), and the guarantee contract shall be executed separately.
Article 8 Contract Agreements on the Borrower’s Financial Indicators:
| 1. | ||
| 2. | ||
| 3. |
Article 9 Dispute Resolution
1. After this Contract takes effect, any dispute arising from the execution or performance hereof or in connection with this Contract shall be settled by both parties through negotiation. If such negotiation fails, either party may file a lawsuit with the People’s Court having jurisdiction over the place of the Lender in accordance with the law.
2. During the dispute resolution, in the event that the dispute does not affect the performance of the remaining provisions of this Contract, such remaining provisions shall continue to be performed.
3. After negotiation between the parties, the parties may conduct notarization for the compulsory enforcement of this Contract. The Borrower agrees that this Contract shall have the compulsory enforcement effect after it is notarized. In the event that the Borrower fails to perform its obligations under this Contract, the Lender may apply to the People’s Court having jurisdiction for compulsory enforcement according to law.
Article 10 Effectiveness of the Contract
This Contract shall take effect from the date when both parties affix their signatures and seals hereto.
This Contract is made out in duplicate, with the Borrower, the Lender holding one counterpart each. Each counterpart shall have the same legal effect.
Article 11 Other Agreements
Chapter 2 Standard Provisions
Article 12Interest Calculation
The interest shall be calculated from the Borrower’s actual withdrawal date and shall be calculated according to the actual withdrawal amount and use days of loan.
Interest Formula: Interest = Principal × Actual Days × Daily Interest Rate.
The daily interest rate is calculated on a base of 360 days a year. Conversion Formula: Daily Interest Rate = Annual Interest Rate / 360.
Article 13Loan Disbursement Conditions
1. The Borrower must meet all the following conditions for loan disbursement, otherwise the Lender shall have no obligation to disburse any loan to the Borrower, unless the Lender agrees to disburse the loan in advance:
(1) The Contract and its appendixes have become effective;
(2) The Borrower has reserved to the Lender the Borrower’s documents, receipts, seals, lists of persons and specimen signatures in relation to the execution and performance of this Contract and filled in the relevant vouchers;
(3) The Borrower has, according to the Lender’s requirements, opened an account necessary for the performance of this Contract;
(4) The Borrower, within 3 banking days prior to the withdrawal, has submitted to the Lender the written withdrawal notice and the relevant supporting documents for loan purpose which is consistent with the purpose as agreed herein, and has completed the relevant withdrawal procedures;
(5) The Borrower has submitted to the Lender the resolution and letter of authorization of the board of directors or other competent authorities, which agree to the execution and performance of this Contract;
(6) In accordance with relevant regulatory provisions and management requirements of the Lender, if the loan exceeds a certain amount or meets other conditions, the Lender shall, according to the Borrower’s withdrawal application and payment authorization, pay the loan to the payment object conforming to the purpose agreed herein in a manner of authorized payment by the Lender;
(7) In addition to the credit loan, the Borrower has provided the corresponding guarantee as required by the Lender and has completed the relevant guarantee procedures, and the guarantee is legal and valid;
(8) The Borrower has not breached this Contract or any other contracts executed by and between the Borrower and the Lender;
2. In the event that the Borrower fails to make any withdrawal for 3 consecutive months from the contract execution date, the Lender shall be entitled to cancel the borrowing limit.
Article 14 Special Arrangements on Revolving Loan (Maximum Loan)
1. During the term of revolving borrowing limit, the sum of the loan principal balance of at any time shall not exceed the revolving borrowing limit; the repayment date of any withdrawal shall not exceed the term of revolving borrowing limit.
2. As agreed by both parties, the Lender shall reasonably set the amount and term of each revolving loan according to the scale and cycle of the Borrower’s production and operation.
Article 15 Loan Amount Payment
1. The authorized payment by the Lender means that the Lender pays the loan fund to the Borrower’s counter-party in a transaction conforming to the purpose agreed herein according to the Borrower’s withdrawal notice and payment authorization.
Payment of the Borrower’s loan fund for which the amount of a single payment under this Contract exceeds the specified amount shall be made in a manner of authorized payment by the Lender.
In the event of the authorized payment by the Lender, the Borrower shall make express payment authorization and provide other necessary payment information (including name of counter-party who receives payment, account number of such counter-party, and amount of payment) in the withdrawal notice, and submit to the Lender the supporting documents for loan purpose such as business contracts required for the examination. In this case, the Lender shall pay the loan fund to the counter-party of the Borrower via the Borrower’s account upon examination and approval. In the event of the Lender’s failure to perform its obligation to pay upon authorization resulting from untruthfulness, incorrectness, and incompleteness of the information of payment authorization and relevant transactions furnished by the Borrower, the Lender shall not be held liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. The Lender will make payment to the account of the Borrower’s counter-party in accordance with the Borrower’s withdrawal notice and the payment certificate as required by the Lender.
In the event that the Lender, upon examination, discovers that the supporting documents for loan purpose such as business contracts furnished by the Borrower fail to comply with the Contract or there is any other defects, the Lender shall be entitled to request the Borrower to supplement, replace, explain or re-furnish such documents, and the Lender may suspend granting or paying of such loans until the Borrower has furnished the supporting documents such as business contracts to the satisfaction of the Lender.
In the event that the account-holding bank of the counterparty returns such payments, resulting in the Lender’s failure to transfer such loans to the Borrower’s counterparty as authorized by the Borrower in a timely manner, the Lender shall not be liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. With respect to the funds returned by the account-holding bank of the counterparty, the Borrower shall re-furnish the payment authorization and the supporting documents for loan purpose such as business contracts required for the examination, and the Lender shall pay the loan fund to the counterparty of the Borrower via the Borrower’s account upon examination and approval.
All the expenses incurred by the payment of loan to the counterparty designated by the Borrower in a manner of authorized payment under this Contract shall be borne by the Borrower. The Borrower shall pay the above expenses to the Lender at the time of the authorized payment of each loan.
The Borrower shall not violate the above provisions to dodge the authorized payment by the Lender by way of breaking up a large amount into several small amounts.
2. Except for the cases where the authorized payment by the Lender must be adopted as stipulated in the preceding paragraph, unless otherwise agreed by both parties, payment of other loans shall be made by the Borrower itself, namely, after the Lender disburses the loans to the Borrower’s account pursuant to the withdrawal application submitted by the Borrower, the Borrower pay by itself to the its counterparty that complies with the purpose as agreed in the Contract.
In the event that the Borrower needs to change the aforesaid repayment schedule, it shall submit a written application to the Lender 10 banking days prior to the maturity date of the loan, and the changed repayment schedule is subject to the written confirmation by the Parties.
3. In the event that the Borrower needs to extend the loan term agreed herein, it shall submit a written application of extension to the Lender 30 banking days prior to the maturity date of the loan, and the Lender shall decide whether to approve the extension. In applying for the extension of a guaranteed loan, mortgage loan or pledged loan, the guarantor, mortgagor or pledgor shall also issue a written certificate of approval. the parties shall enter into a renewal agreement after the Lender approves the extension. In the event that the Borrower’s application for extension is not approved by the Lender, the Borrower shall still repay the loan in full according to the repayment term agreed herein.
4. Unless otherwise agreed by the Parties, if both the principal and the interests are overdue by the Borrower, the Lender shall be entitled to decide on the sequences for repaying the principal or the interests; under the condition of installment repayment, if several mature installments and overdue installments exist under this Contract, the Lender shall be entitled to decide the sequences of repayment; if several outstanding loan contracts exist between the Parties, the Lender shall be entitled to decide the sequences for repaying any contract.
5. The Borrower shall repay the loan principal, interests and other amounts payable in full and on time according to provisions stated herein. The Borrower shall, before the end of counter business on the repayment date and each interest settlement date, deposit in full the current interests, principal and other amounts payable to the repayment account opened with the Lender, and the Borrower shall authorize the Lender to collect the funds on the repayment date or the interest settlement date or the Borrower shall be required to cooperate in handling the relevant transfer procedures. In the event that the amount in the repayment account is insufficient to pay the full amount due from the Borrower, the Borrower shall agree that Lender is entitled to decide the sequences for repayment.
6. The Lender shall be entitled to collect the loan in advance on the basis of the capital withdrawal of the Borrower.
7. Loan Note: The loan note shall be an integral part of this Contract. In the event that there is no record in this Contract, or the loan amount, withdrawal amount, repayment amount, borrow date and maturity date of the loan, loan term, loan interest rate and loan purpose as recorded in this Contract is inconsistent with those recorded in the loan note, the loan note shall prevail.
Article 16 Guarantee
In the event that any event occurs to the Borrower or the guarantor, and causes the Lender to believe that it may affect the performing capability of the Borrower or the guarantor; or the guarantee contracts are deemed as invalid, canceled or resolved; or the performing capability of the Borrower or guarantor may be affected due to the deterioration in their financial condition or that the Borrower and the guarantor are involved in substantial lawsuit or arbitration or other reasons; or the guarantor breaches the guarantee contracts or other contracts with the Lender; or the collateral value decreases or gets lost due to the devaluation, damage, lost or sequestration of the collateral; the Lender shall be entitled to require, and the Borrower shall have the obligation to provide new guarantee, supplement or replace the guarantor to guarantee the liabilities under this Contract.
Article 17 Representations and Undertakings
1. The Borrower is a legal entity incorporated, registered and existing under the administration for industry and commerce or other competent authorities and has full capacity of civil rights and conduct to conclude and perform the Contract, and capacity of loan repayment.
2. The Borrower fully agrees to the contents and terms of this Contract, executes and performs this Contract out of true intention, has obtained all legal and valid authorizations required by the Borrower’s Articles of Association and bylaws, and will not be in violation of any agreement, contract, or other legal documents with binding force to the Borrower. The Borrower has obtained or will obtain all the required approval, consent, documentation or registration for executing and performing this Contract.
3. The Borrower is in good faith and all the documents, financial statements, certifications and other information provided by the Borrower to the Lender under this Contract are true, complete, accurate and valid, and free from false records, material omissions or misleading statements. The financial and accounting reports provided to the Lender are prepared in accordance with Chinese accounting standards, and truly, fairly and completely present the Borrower’s operating and liability condition.
4. The transaction background that the Borrower represents to the Lender is real and legal, not for any illegal purposes such as money laundering. The loan purpose and the source of repayment are clear and legal. The loan purpose and the source of repayment are clear and legal.
5. The Borrower has a good credit status, does not have material bad credit record, and does not conceal from the Lender any fact that may affect the Borrower’s and the Guarantor’s financial condition and performance capability. The Borrower does not conceal from the Lender any litigation, arbitration or claim in which it is involved.
6. The borrower has repaid other debts payable as scheduled and has not maliciously defaulted on the payment of principal and interest of the bank loan.
7. The Borrower shall withdraw and use the loan in accordance with the term and purpose agreed herein. The loan borrowed hereunder shall neither be used for the investment in fixed asset and equity and other investments, nor flow into the securities market or the futures market in any form, or be used for other purposes prohibited or restricted by relevant laws and regulations.
8. The Borrower shall deliver its financial statements (including but not limited to annual, quarterly and monthly reports) and other relevant documents to the Lender on a regularly and timely basis in accordance with the requirements of the Lender; the Borrower shall ensure that the financial indicators will comply with the Contract all the time. If the production and operation qualification/license is subject to the annual audit, such qualification/license will pass the annual examination as scheduled.
9. The Borrower shall withdraw, repay and use the loan as stipulated herein.
10. If the Borrower has executed or will execute with the guarantor under this Contract a counter-guarantee agreement or similar agreement regarding its guarantee obligations, this counter-guarantee agreement or similar agreement will not prejudice any Lender’s right under this Contract.
11. The Borrower shall accept the credit inspection and supervision conducted by the Lender, and provide sufficient assistance and cooperation; from the effective date of this Contract and prior to discharge of the principal and interests and related expenses hereunder, the Borrower agrees and authorizes the Lender to monitor the account opened with the Lender, examine and analyze the Borrower’s production and operation (including but not limited to the construction and operation of the Borrower’s projects), and make dynamic monitoring on the income cash flow and overall fund flow of the Borrower; the Borrower shall accept and actively cooperate with the examination and supervision made by the Lender on the usage of the loan funds including the loan purpose by account analysis, proof inspection and site investigation, and make summary report in a periodic manner as required by the Lender.
12. The Borrower’s merger, division, decrease of capital, equity transfer, external investment, substantial increase of debt financing, transfer of material assets and claims and other events which may have adverse effect on the solvency of the Borrower shall be subject to the written consent of the Lender.
The Borrower shall give a notice to the Lender within 7 days after it becomes or should have become aware of any of the following circumstances:
(1) Change of the Articles of Association, business scope, registered capital, legal representative of the Borrower or the guarantor;
(2) Change of management mode such as joint management in any form, cooperation with foreign enterprises, cooperation, contracting management, reorganization, reform and planned listing;
(3) Involved in material litigation or arbitration cases, sequestration, attachment or supervision of properties or collateral, or establishment of new material liabilities on the collateral;
(4) Winding up, dissolution, liquidation, stopping business for rectification, cancellation, revocation of business license, (applied for) applying for bankruptcy;
(5) Shareholders, directors and current senior managers are suspected of being involved in material cases or economic disputes; or the legal representative/person in charge and current senior executives are found to be in bad health or other material conditions that the they are unqualified for their job;
(6) Events of default by the Borrower under other contracts;
(7) Difficulty in business operation and deterioration of financial position;
(8) In the event that the Borrower is closed, suspended, merged or changes the line of production due to change, restructuring and contracting or with the approval of the competent departments, the Borrower undertakes to give a notice to the Lender in writing within one month prior to the occurrence of the above events and to discharge all debts owed to the Lender immediately. Subject to the consent of the Lender, the Borrower may transfer the debts to the receiving entity or the newly incorporated entity (The Borrower shall, in the process of debt transfer, present and submit to the Lender the documents issued by its competent authority or the contract-issuing party or relevant documents); however, the debt receiving entity must execute a new loan contract with Lender and submit a written certificate of the corresponding guarantor’s approval or implement new guarantee measures, and before the execution of the new contract, the Lender shall have the right to recover the debts from the Borrower, the Guarantor or the Borrower’s receiver at any time.
13. Liquidation of the debts owed by the Borrower to the Lender shall have priority to the loan extended by the shareholders of the Borrower, and precede the debts of the same kind owed by the Borrower to other creditors. In addition, from the effectiveness of the Contract to the time when all the principal, interests and relative fees under the Contract are paid off, the Borrower shall not return the loan from its shareholders.
14. In respect of the loan hereunder, the loan conditions such as guarantee conditions, loan rate pricing, discharge sequence provided by the Borrower for the Lender shall be no less than the current or future conditions provided for any other financial institution.
15. The Borrower shall bear the expenses incurred in connection with the execution and performance of this Contract and the expenses paid and payable by the Lender for realization of its creditor’s right hereunder, including but not limited to litigation or arbitration fees, property preservation costs, attorney fees, enforcement fees, evaluation fees, auction fees, and announcement fees.
16. Account Management
(1) The repayment account opened by the Borrower with the Lender (the account stipulated in Article 5) is a special capital withdrawal account, which is used to collect the corresponding sales revenue or the planned repayment fund. Where the corresponding sales revenue is settled in a non-cash manner, the Borrower shall ensure that it will be promptly transferred into the capital withdrawal account upon receipt.
(2) The Lender shall have the right to supervise the capital withdrawal account, including but not limited to the understanding and supervision of the fund income and expenditure of the account, and the Borrower shall provide relevant cooperation. At the request of the Lender, the Borrower shall execute a special account supervision agreement with the Lender.
17. The Borrower shall dispose the assets in a manner that will not reduce its repayment capability. The Borrower undertakes that the total amount of the Borrower’s external guarantee is equal to or less than _____ times of its net asset, and the total amount of external guarantee as well as the amount of a single guarantee may not exceed the limit as stipulated in its Articles of Association; without the consent of the Lender, the Borrower shall not provide guarantee to any third party or the loans borrowed by the Borrower from any other financial institution with the assets formed by the loans under the Contract.
Article 18 the Related-party Transaction within the Borrower
☐ 1. The Borrower is not identified by the Lender as the group client in accordance with the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients (hereinafter referred to the “Guidelines”).
☐ 2. If the Borrower is identified by the Lender as the group client in accordance with the Guidelines, it shall report to the Lender any of the related-party transaction in a timely manner.
☐ 3. The Borrower is subject to such events as major merger, acquisition or reorganization, which in the opinion of the Lender may affect the safety of the loan.
Article 19 Breach of Contract and Settlement
1. The Borrower shall constitute or be deemed to have breached the Contract and shall be liable for breach of contract under any of the following circumstances:
(1) The Borrower fails to perform the obligations of payment and liquidation to the Lender according to the stipulations of the Contract;
(2) The Borrower fails to use the loan in a purpose and way stipulated in this Contract or fails to use the loan borrowed hereunder for the purpose stipulated in the Contract; or the Borrower fails to go through the withdrawal procedures as scheduled according to the withdrawal plan, or changes the withdrawal plan without the Lender’s consent; or the Borrower is in violation of this Contract and dodges the authorized payment by the Lender by way of breaking up a large amount into several small amounts;
(3) The Borrower provides an untrue representation or violates the undertaking it made in this Contract;
(4) If any circumstance under Subparagraph 12 of Article 17 arises, and the Lender believes that may affect the financial condition and performing capability of the Borrower or guarantor, but the Borrower refuses to provide new guarantee or change a guarantor according to this Contract;
(5) The Borrower violates any stipulation under any other contract between the Borrower and the Lender; the Borrower violates any stipulation under any Credit Extension Contract between the Borrower and any other financial institution;
(6) The guarantor violates the stipulations of the guarantee contract, or any default events arise under other contract between the guarantor and the Lender;
(7) The Borrower closes down or is dissolved, withdraw or bankrupted;
(8) Where the Borrower involves in or possibly involves in material economic disputes, litigation, arbitration, or its capital is sealed up, seized or enforced for execution, or the administrative organs such as judicial organs or taxation authorities, and industrial and commercial administration file for investigation or adopt punishment measures on the Borrower according to law which has influenced or may influence the performance of the liabilities under this Contract;
(9) Where the main individual investors and key managerial personnel of the Borrower are changed abnormally, disappear or are investigated or the personal freedom thereof is limited by judicial organs according to law which has influenced or may influence the performance of the liabilities under this Contract;
(10) Where the credit circumstances of the Borrower lowers or finance indexes of the Borrower such as profitability, debt-paying ability, operating capacity and cash flow seriously deteriorate and break through the index binding of this Contract or other financial agreements;
(11) The Borrower takes advantage of the false contracts between the Borrower and the affiliated party to obtain funds or credit from the Lender through transactions without true transaction background, and the affiliated party is subject to such events as major merger, acquisition or reorganization which in the opinion of the Lender may affect the safety of the loan; or the Borrower intends to evade the creditor’s right of the Lender through related-party transactions;
(12) The Borrower causes any liability accident due to its violation of food safety, production safety, environmental protection and other relevant laws and regulations, regulatory provisions or industrial standards which has influenced or may influence the performance of the liabilities under this Contract;
(13) In the event that the loan under this Contract is granted on the basis of credit rating, the Borrower’s credit rating, profitability, asset-liability ratio, net cash flow from operating activities and other indicators do not meet the Lender’s credit loan conditions; or the Borrower, without the written consent of the Lender, establishes mortgage/pledge guarantee or provide guarantee to others with its valid operating assets, which has influenced or may influence the performance of the liabilities under this Contract;
(14) Other circumstances that may have adverse effect on the realization of the creditor’s rights of the Lender under this Contract.
2. When the aforesaid breaches arise, as the case maybe, the Borrower agrees that the Lender may take following measures respectively or simultaneously:
(1) Require the Borrower and guarantor to rectify their breach within time limit.
(2) Decrease, suspend or terminate all or part of the credit lines of the Borrower.
(3) Suspend or terminate all or part of the business application (such as withdrawal) of the Borrower under this Contract or other contracts between the Borrower and the Lender; partly or totally suspend or cancel to issue, pay and transact the unissued loans.
(4) Declare that all or part of the outstanding principal and interest of the loan and other amounts payable of the Borrower under this Contract and other contracts between the Borrower and the Lender shall become due immediately.
(5) Negotiate with the Borrower to supplement the terms of loan issuance and payment; or the Lender shall have the right to change the loan disbursement and payment conditions in accordance with the credit status of the Borrower such as lowering the minimum amount of authorized payment of the Borrower; or the Lender shall have the right to transfer back the loan fund which the Borrower has paid for default.
(6) Terminate or dissolve this Contract, partly or totally terminate or dissolve other contracts between the Borrower and the Lender.
(7) Require the Borrower to compensate the Lender for the Lender’s loss caused by the Borrower’s default.
(8) Deduct from the Borrower’s account which is opened in the Rural Commercial Bank system within the jurisdiction of Jiangxi with notice before or after the deduction, so as to discharge all or part of the Borrower’s debts to the Lender hereunder. The undue deposit in the account shall be deemed to become due in advance.
(9) Exercise security interest; and require the guarantor to take guarantee responsibility.
(10) In the event that the Borrower fails to repay the principal, interest (including penalty interest and compound interest) or other amounts payable as scheduled, the Lender may disclose the default information of the Borrower and the Guarantor and make an announcement for collection through the media or other forms.
(11) Have the right to deduct and debit the deposits and dividends within any account opened by the Borrower in the Rural Commercial Bank system within the jurisdiction of Jiangxi, and to dispose of the Borrower’s equities.
(12) Other measures stipulated by laws and regulations and deemed necessary and possible by the Lender.
Article 20 Reservation of Rights
Any failure by a party to exercise all or part of its rights hereunder or to require the other party to perform or assume all or part of obligations or responsibilities shall not constitute a waiver of such rights or release of the obligations and responsibilities of such party.
Any tolerance, grace or postponement for exercising the rights under this Contract of one Party shall not affect its rights stipulated by this Contract, laws and regulations, and shall not be deemed as a waiver of such rights.
Article 21 Confidentiality
Each party undertakes to keep confidential the trade secrets, technical information, business information and other business secrets obtained from the other party which are not available through public channels. Without the consent of the original provider of the trade secret, neither party shall disclose all or part of the trade secret to any third party, unless otherwise stipulated by laws and regulations or otherwise agreed by both parties.
In the event that either party is in violation of the aforesaid confidentiality obligation, it shall assume the corresponding liability for breach of contract and compensate for the losses caused thereby.
Article 22 Force Majeure
The term Force Majeure as specified in this Contract refers to the objective events that cannot be foreseen, overcome, or avoided and have a significant impact on one party, including but not limited to the natural disasters such as flood, earthquake, fire and storm, as well as the social events such as war and turmoil.
In the event that the Contract cannot be performed as a result of the occurrence of force majeure events, the party affected by the force majeure shall immediately notify the other party of the event in writing, and within 7 days, provide written documents certifying the details of accident and the reasons for non-performance or delay in performance hereof. Upon consensus through negotiation, both Parties may terminate or temporarily delay the performance of the Contract.
Article 23 Alteration, Amendment and Termination
This Contract can be altered and amended in written form upon consensus through negotiation of the Parties, and any alternation and amendment agreed on by the Parties shall constitute an integral part of this Contract.
This Contract may not be terminated until all the rights and obligations are fully preformed, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
The invalidity of any provision of this Contract shall not affect the legal validity of other provisions, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
Article 24 Agreements on Service
1. The contact information (including mailing address, telephone number, fax number, etc.) provided by the Borrower in this Contract shall be true and valid and shall be the address for service of any notice of the Lender for the Borrower. In case of any change to the contact information, the Borrower shall immediately send/mail the change information in writing to the mailing address provided by the Lender in this Contract. Such information change shall become effective upon the Lender’s receipt of the change notice.
2. Unless otherwise expressly provided for in this Contract, the Lender shall be entitled to give notice to the Borrower in any of the following methods. The Lender shall be entitled to choose the notification method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, WeChat or any other communication system. Where the Lender simultaneously chooses several notification methods, the one by which the notice is served to the Borrower earlier shall prevail.
(1) By announcement. The notice shall be deemed to be served on the date on which the Lender publishes the announcement on its website, online banking, telephone banking or business outlets;
(2) By hand. The notice shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower refuses to sign for the receipt, the date on which the server makes a record on the proof of service on the spot;
(3) By mail (including express mail, surface mail or registered mail). The notice, when addressed to the Borrower’s mailing address last known to the Lender, shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower fails to sign for the receipt, the date on which the mail is returned;
(4) By fax, mobile phone SMS, WeChat or other electronic communication methods. The notice, when sent to the Borrower’s fax number, the mobile phone number, WeChat account number or email address designated by the Borrower which is last known to the Lender, shall be deemed to be served on the date on which the notice is sent.
3. Borrower agrees that, unless the Lender receives from the Borrower a written notice concerning the change of mailing address, the Borrower’s domicile stated in this Contract is the correspondence and contact address. In the future, the delivery addresses of bank statements, collection statements, relevant legal instruments and litigation documents related to the loans under this Contract shall prevail. The Borrower promises to notify the Lender in time when the communication and contact information change, otherwise the documents delivered by the Lender according to the communication and contact information stated in this Contract will be effectively delivered, and the relevant economic and legal responsibilities arising therefrom will be borne by the Borrower and the Mortgagor. During the dispute settlement, if the court serves the judicial documents or other written documents by mail (including express mail, surface mail or registered mail) to the Borrower mailing address last known to the Lender, such documents shall be deemed to be served on the date on which the Borrower signs for receipt of the proof of service; or if Borrower fails to sign for receipt of the proof of service, the date on which the mail is returned;
The court or notary organ shall be entitled to give any notice to the Borrower by any methods of communication agreed in this Paragraph 2. The court or notary organ shall be entitled to choose the communication method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, telex or any other communication system. Where the court or notary organ simultaneously chooses several communication methods, the one by which the notice is served on the Borrower earlier shall prevail.
Article 25 Appendix
The appendixes confirmed by both parties shall constitute an integral part of this Contract and shall have the same legal effect as this Contract.
Article 26 Other Agreements
1. The Borrower shall not transfer any rights and obligations under this Contract to the third party without written consent of the Lender.
2. The Lender has the right to transfer the creditor’s rights under this Contract to the third party, and shall notify the Borrower.
3. This Contract shall be legally binding upon both Parties and their successors and assignees without prejudice to other provisions of this Contract.
4. All the transactions under this Contract are carried out for each Party’s independent benefits. If, in accordance with relevant laws, regulations and regulatory provisions, other parties to the transaction become the related parties or affiliated persons of the Lender, no Party may seek to affect the fairness of the transaction out of this related-party relationship.
5. The headings and business names in this Contract are used only for convenient reference, which shall not be used to interpret the provisions or the rights and obligations of both Parties.
6. In accordance with relevant laws, regulations and regulatory provisions, the Lender shall have the right to provide the information related to this Contract and other relevant information of the Borrower to the credit reference system of the People’s Bank of China and other credit information database established according to law for reference and use by the institutions or individuals with proper qualification according to law. The Lender shall also have the right to refer the relevant information of the Borrower through credit reference system of the People’s Bank of China and other credit information database established according to law for the purpose of the execution and performance of this Contract.
The parties acknowledge that the Borrower and the Lender have made a full negotiation in connection with all the terms of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and provisions of the Contract. The Borrower confirms that there is no misunderstanding or doubt about all the contents and terms of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
The Borrower and the Lender have made a full negotiation in connection with all the provisions of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and terms of the Contract. The Borrower confirms that there is no misunderstanding or ambiguity about all the contents and provisions of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
(The Borrower shall fill in the following by contrast)
(The remainder of this page is intentionally left blank for signatures)
| Borrower (Official Seal): |
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| Legal Representative or Authorized Agent (Signature & Seal): | 
|
| /s/ Lai Gang | (Signature) |
April 22, 2025
| Lender (Seal): | 
|
Legal Representative or Authorized Agent (Signature & Seal):
| /s/ Luo Meng | (Signature) |
April 22, 2025
| Contract Execution Place: | 
|
Exhibit 4.10
[2025] J.N.S.H.J.L.Z. No.: 17138202503031003001
Working Capital Loan Contract
| Borrower | Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd. |
| Lender | Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch |
 |
Jiangxi Rural Commercial Bank |
Special Notice: In order to protect the legitimate rights and interests of the Borrower, the Lender hereby requests the Borrower to give full attention to all provisions concerning the rights and obligations of the parties, especially those shown in bold. If the Borrower has any objection, it shall raise the objection to the Lender. Otherwise, after this Contract is entered into by and between the Borrower and the Lender, all the terms and conditions herein represent the true intention of both parties, are protected by law, and shall be legally binding on both parties herein.
Working Capital Loan Contract
[2025] 
LJZ No.: 17138202503031003001
Borrower: Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd.
Business License No.: 913608215508749684
Legal Representative / Person in Charge: LAI Gang
Business Address: No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County
Mailing Address: The same as above
Postal Code: 343100 Tel.: 13632301188
Electronic Contact Information (Email and WeChat Account No.):
Lender: Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch.
Legal Representative / Person in Charge: Zhang Zhirong
Business Address: The northeast corner of the intersection between Junshan Avenue and Chuangxin Avenue, Jinggangshan Economic and Technological Development Zone
Postal Code: 343000
Tel.: 0796-8736999 Fax:_____________________
Pursuant to the laws and regulations of the People’s Republic of China and other relevant regulations, the Borrower and the Lender have reached an agreement with respect to the matter that the Lender grants a working capital loan to the Borrower, and hereby execute this Contract by consensus, which shall be binding on both parties.
Chapter 1 Execution Provisions
Article 1 Loan Amount and Currency
Loan Amount (in words): CNY Five Million.
(In Figures) CNY 5,000,000.00.
The loan amount under this Contract is: ☐ revolving borrowing limit ☒ non-revolving loan amount.
Article 2 Loan Term
The valid loan term under this Contract shall be: 12 months from March 3, 2025 to March 2, 2026.
☐ In the event that the loan amount hereunder is a revolving borrowing limit, the term of borrowing limit shall be the same as the valid loan term as agreed herein. The term of each loan shall be subject to the term recorded in the loan note.
☒ In the event that the loan amount hereunder is a non-revolving borrowing limit, the loan term shall be the same as the valid loan term as agreed herein. The specific loan term shall be subject to the term recorded in the loan note.
If the Borrower has any default circumstance listed in Article 19 of this Contract, and the Borrower agrees that the Lender may recover the loan in advance, then the Lender may announce that the date of recovering the loan in advance is the due date of the loan.
Article 3 Loan Purpose
The loan borrowed hereunder shall be used for turnover of working capital.
Without the written consent of the Lender, the Borrower may neither change the loan purpose nor use the loan for any other purposes. The Lender shall have the right to supervise the Borrower’s use of the loan.
Article 4 Loan Interest Rate, Interest Calculation and Settlement
1. Loan Interest Rate
The method as described in following Item (1) shall apply for the determination of loan interest rate and a simple interest calculation shall be applied:
(1) Fixed Interest Rate. The annual interest rate shall be 3.65%.
The loan prime rate (LPR) recently published on ☒ the date of signature hereof ☐ withdrawal date for 1 years’ loan, which is 3.1%, and ☒ increased percentage points ☐ decreased percentage points, which is 55 bp (1bp = 0.01%). The annual interest rate shall be 3.65%. The interest rate shall remain unchanged during the loan term.
(2) Floating Interest Rate.
The loan interest rate shall be determined by the loan prime rate (LPR) recently published on the working day before the withdrawal date for _____ years’ loan and ☐ increased percentage points ☐ decreased percentage points, which is ____ bp. The increased or decreased percentage points shall remain unchanged during the term of this Contract. In case of any adjustment to the LPR, its loan interest rate determination method shall be handled according to the following Item and the Lender will not give a further notice to the Borrower:
① Annual Adjustment. From January 1 of the next year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
② Annual Adjustment. From the corresponding date of the corresponding month in the corresponding year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
③ Quarterly Adjustment. From the corresponding date of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
④ Quarterly Adjustment. From the first day of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑤ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein (If there is no corresponding day in the month of adjustment, the last day of such month shall be treated as the corresponding day);
⑥ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑦ Immediate Adjustment. From the date immediately following the date of the LRP recently published, the loan interest rate shall be adjusted, on the basis of the new LPR, in accordance with the increased or decreased percentage points agreed herein.
(3) The loan interest rate shall be determined by other methods: ________/________________.
If the Borrower chooses the “(2) floating interest rate” method, and when the loan prime rate (LPR) of the loan market increases, the monthly repayment amount of the Borrower will increase. If the Borrower still makes the repayment according to the repayment amount before adjustment, the monthly repayment amount will be insufficient, resulting in penalty interest and compound interest and affecting the credit record of the Borrower.
2. Interest Settlement Method
The Borrower will settle the interest in a method as described in following Item (2) :
(1) Quarterly Interest Settlement. The 20th day of the last month of each quarter shall be the interest settlement date, and the 21st day shall be the interest payment date.
(2) Monthly Interest Settlement. The 20th day of each month shall be the interest settlement date, and the 21st day shall be the interest payment date.
(3) The interest shall be settled by other methods: _____/__________________________.
In the event that the repayment date of the last installment of loan principal is not the interest payment date, such repayment date of the last installment of loan principal shall be the interest payment date on which the Borrower shall pay off all the interests payable.
3. Penalty Interest Rate
(1) In the event that the Borrower fails to repay the loan within the agreed time limit, interest shall be calculated and charged over the overdue part at the penalty interest rate for overdue loan from the overdue day, until the principal and interest are paid off;
(2) In the event that the Borrower uses the loan for any purposes other than those agreed herein, interest shall be calculated and charged over the misappropriated part at the penalty interest rate for misappropriated loan from the misappropriation date, until the principal and interest are paid off;
(3) In the event that the loan is overdue and misappropriated, interest shall be calculated and charged at the penalty interest rate for misappropriated loan;
(4) With respect to the interest and penalty interest that the Borrower fails to pay as scheduled, compound interest shall be calculated and charged at the penalty interest rate agreed in this paragraph in the interest settlement method as agreed in Paragraph 2 hereof;
(5) In case of any adjustment to the loan interest rate agreed herein, the penalty interest and compound interest shall be calculated at the adjusted interest rate from the adjustment date;
(6) Penalty Interest Rate
The penalty interest rate for overdue loan shall be 30% higher than the loan interest rate agreed in Paragraph 1 hereof; the penalty interest rate for misappropriated loan shall be 50% higher than the loan interest rate agreed in Paragraph 1 hereof.
Article 5 Loan Disbursement and Repayment Account
The Borrower shall open an account as follows with the Lender as the loan disbursement and repayment account, which shall be used for loan disbursement, payment and repayment.
Bank of deposit: Ji’an Rural Communications Bank Co., Ltd.Jingkaiqu Branch
Account Name: Jiangxi Universe Pharmaceuticals Commerce and Trade Co., Ltd.
Account Number: 171389101000053276
Article 6 Repayment
Unless otherwise agreed by the parties, the Borrower shall repay the loan hereunder in accordance with the repayment schedule as set forth in Item 1 below:
1. Repay the loan hereunder in full upon the expiration of the loan term.
2. Repay the loan hereunder in accordance with the following repayment schedule:
| Repayment Time | Repayment Amount |
| 1. | |
| 2. | |
| 3. | |
| 4. | |
| 5. | |
| 6. | |
| 7. | |
| 8. | |
| 9. | |
| Total |
3. Other Repayment Schedule: ________/____________________________.
4. Where the Borrower makes repayment in advance, it shall obtain the consent from the Lender 7 banking days in advance.
Article 7 Guarantee
The loan hereunder shall be a guaranteed (credit/ guaranteed) loan. The guarantee type shall be guarantee (guarantee/ mortgage/ pledge), and the guarantee contract shall be executed separately.
Article 8 Contract Agreements on the Borrower’s Financial Indicators:
| 1. | ||
| 2. | ||
| 3. |
Article 9 Dispute Resolution
1. After this Contract takes effect, any dispute arising from the execution or performance hereof or in connection with this Contract shall be settled by both parties through negotiation. If such negotiation fails, either party may file a lawsuit with the People’s Court having jurisdiction over the place of the Lender in accordance with the law.
2. During the dispute resolution, in the event that the dispute does not affect the performance of the remaining provisions of this Contract, such remaining provisions shall continue to be performed.
3. After negotiation between the parties, the parties may conduct notarization for the compulsory enforcement of this Contract. The Borrower agrees that this Contract shall have the compulsory enforcement effect after it is notarized. In the event that the Borrower fails to perform its obligations under this Contract, the Lender may apply to the People’s Court having jurisdiction for compulsory enforcement according to law.
Article 10 Effectiveness of the Contract
This Contract shall take effect from the date when both parties affix their signatures and seals hereto.
This Contract is made out in duplicate, with the Borrower, the Lender holding one counterpart each. Each counterpart shall have the same legal effect.
Article 11 Other Agreements
Chapter 2 Standard Provisions
Article 12 Interest Calculation
The interest shall be calculated from the Borrower’s actual withdrawal date and shall be calculated according to the actual withdrawal amount and use days of loan.
Interest Formula: Interest = Principal × Actual Days × Daily Interest Rate.
The daily interest rate is calculated on a base of 360 days a year. Conversion Formula: Daily Interest Rate = Annual Interest Rate / 360.
Article 13 Loan Disbursement Conditions
1. The Borrower must meet all the following conditions for loan disbursement, otherwise the Lender shall have no obligation to disburse any loan to the Borrower, unless the Lender agrees to disburse the loan in advance:
(1) The Contract and its appendixes have become effective;
(2) The Borrower has reserved to the Lender the Borrower’s documents, receipts, seals, lists of persons and specimen signatures in relation to the execution and performance of this Contract and filled in the relevant vouchers;
(3) The Borrower has, according to the Lender’s requirements, opened an account necessary for the performance of this Contract;
(4) The Borrower, within 3 banking days prior to the withdrawal, has submitted to the Lender the written withdrawal notice and the relevant supporting documents for loan purpose which is consistent with the purpose as agreed herein, and has completed the relevant withdrawal procedures;
(5) The Borrower has submitted to the Lender the resolution and letter of authorization of the board of directors or other competent authorities, which agree to the execution and performance of this Contract;
(6) In accordance with relevant regulatory provisions and management requirements of the Lender, if the loan exceeds a certain amount or meets other conditions, the Lender shall, according to the Borrower’s withdrawal application and payment authorization, pay the loan to the payment object conforming to the purpose agreed herein in a manner of authorized payment by the Lender;
(7) In addition to the credit loan, the Borrower has provided the corresponding guarantee as required by the Lender and has completed the relevant guarantee procedures, and the guarantee is legal and valid;
(8) The Borrower has not breached this Contract or any other contracts executed by and between the Borrower and the Lender;
2. In the event that the Borrower fails to make any withdrawal for 3 consecutive months from the contract execution date, the Lender shall be entitled to cancel the borrowing limit.
Article 14 Special Arrangements on Revolving Loan (Maximum Loan)
1. During the term of revolving borrowing limit, the sum of the loan principal balance of at any time shall not exceed the revolving borrowing limit; the repayment date of any withdrawal shall not exceed the term of revolving borrowing limit.
2. As agreed by both parties, the Lender shall reasonably set the amount and term of each revolving loan according to the scale and cycle of the Borrower’s production and operation.
Article 15 Loan Amount Payment
1. The authorized payment by the Lender means that the Lender pays the loan fund to the Borrower’s counter-party in a transaction conforming to the purpose agreed herein according to the Borrower’s withdrawal notice and payment authorization.
Payment of the Borrower’s loan fund for which the amount of a single payment under this Contract exceeds the specified amount shall be made in a manner of authorized payment by the Lender.
In the event of the authorized payment by the Lender, the Borrower shall make express payment authorization and provide other necessary payment information (including name of counter-party who receives payment, account number of such counter-party, and amount of payment) in the withdrawal notice, and submit to the Lender the supporting documents for loan purpose such as business contracts required for the examination. In this case, the Lender shall pay the loan fund to the counter-party of the Borrower via the Borrower’s account upon examination and approval. In the event of the Lender’s failure to perform its obligation to pay upon authorization resulting from untruthfulness, incorrectness, and incompleteness of the information of payment authorization and relevant transactions furnished by the Borrower, the Lender shall not be held liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. The Lender will make payment to the account of the Borrower’s counter-party in accordance with the Borrower’s withdrawal notice and the payment certificate as required by the Lender.
In the event that the Lender, upon examination, discovers that the supporting documents for loan purpose such as business contracts furnished by the Borrower fail to comply with the Contract or there is any other defects, the Lender shall be entitled to request the Borrower to supplement, replace, explain or re-furnish such documents, and the Lender may suspend granting or paying of such loans until the Borrower has furnished the supporting documents such as business contracts to the satisfaction of the Lender.
In the event that the account-holding bank of the counterparty returns such payments, resulting in the Lender’s failure to transfer such loans to the Borrower’s counterparty as authorized by the Borrower in a timely manner, the Lender shall not be liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. With respect to the funds returned by the account-holding bank of the counterparty, the Borrower shall re-furnish the payment authorization and the supporting documents for loan purpose such as business contracts required for the examination, and the Lender shall pay the loan fund to the counterparty of the Borrower via the Borrower’s account upon examination and approval.
All the expenses incurred by the payment of loan to the counterparty designated by the Borrower in a manner of authorized payment under this Contract shall be borne by the Borrower. The Borrower shall pay the above expenses to the Lender at the time of the authorized payment of each loan.
The Borrower shall not violate the above provisions to dodge the authorized payment by the Lender by way of breaking up a large amount into several small amounts.
2. Except for the cases where the authorized payment by the Lender must be adopted as stipulated in the preceding paragraph, unless otherwise agreed by both parties, payment of other loans shall be made by the Borrower itself, namely, after the Lender disburses the loans to the Borrower’s account pursuant to the withdrawal application submitted by the Borrower, the Borrower pay by itself to the its counterparty that complies with the purpose as agreed in the Contract.
In the event that the Borrower needs to change the aforesaid repayment schedule, it shall submit a written application to the Lender 10 banking days prior to the maturity date of the loan, and the changed repayment schedule is subject to the written confirmation by the Parties.
3. In the event that the Borrower needs to extend the loan term agreed herein, it shall submit a written application of extension to the Lender 30 banking days prior to the maturity date of the loan, and the Lender shall decide whether to approve the extension. In applying for the extension of a guaranteed loan, mortgage loan or pledged loan, the guarantor, mortgagor or pledgor shall also issue a written certificate of approval. the parties shall enter into a renewal agreement after the Lender approves the extension. In the event that the Borrower’s application for extension is not approved by the Lender, the Borrower shall still repay the loan in full according to the repayment term agreed herein.
4. Unless otherwise agreed by the Parties, if both the principal and the interests are overdue by the Borrower, the Lender shall be entitled to decide on the sequences for repaying the principal or the interests; under the condition of installment repayment, if several mature installments and overdue installments exist under this Contract, the Lender shall be entitled to decide the sequences of repayment; if several outstanding loan contracts exist between the Parties, the Lender shall be entitled to decide the sequences for repaying any contract.
5. The Borrower shall repay the loan principal, interests and other amounts payable in full and on time according to provisions stated herein. The Borrower shall, before the end of counter business on the repayment date and each interest settlement date, deposit in full the current interests, principal and other amounts payable to the repayment account opened with the Lender, and the Borrower shall authorize the Lender to collect the funds on the repayment date or the interest settlement date or the Borrower shall be required to cooperate in handling the relevant transfer procedures. In the event that the amount in the repayment account is insufficient to pay the full amount due from the Borrower, the Borrower shall agree that Lender is entitled to decide the sequences for repayment.
6. The Lender shall be entitled to collect the loan in advance on the basis of the capital withdrawal of the Borrower.
7. Loan Note: The loan note shall be an integral part of this Contract. In the event that there is no record in this Contract, or the loan amount, withdrawal amount, repayment amount, borrow date and maturity date of the loan, loan term, loan interest rate and loan purpose as recorded in this Contract is inconsistent with those recorded in the loan note, the loan note shall prevail.
Article 16 Guarantee
In the event that any event occurs to the Borrower or the guarantor, and causes the Lender to believe that it may affect the performing capability of the Borrower or the guarantor; or the guarantee contracts are deemed as invalid, canceled or resolved; or the performing capability of the Borrower or guarantor may be affected due to the deterioration in their financial condition or that the Borrower and the guarantor are involved in substantial lawsuit or arbitration or other reasons; or the guarantor breaches the guarantee contracts or other contracts with the Lender; or the collateral value decreases or gets lost due to the devaluation, damage, lost or sequestration of the collateral; the Lender shall be entitled to require, and the Borrower shall have the obligation to provide new guarantee, supplement or replace the guarantor to guarantee the liabilities under this Contract.
Article 17 Representations and Undertakings
1. The Borrower is a legal entity incorporated, registered and existing under the administration for industry and commerce or other competent authorities and has full capacity of civil rights and conduct to conclude and perform the Contract, and capacity of loan repayment.
2. The Borrower fully agrees to the contents and terms of this Contract, executes and performs this Contract out of true intention, has obtained all legal and valid authorizations required by the Borrower’s Articles of Association and bylaws, and will not be in violation of any agreement, contract, or other legal documents with binding force to the Borrower. The Borrower has obtained or will obtain all the required approval, consent, documentation or registration for executing and performing this Contract.
3. The Borrower is in good faith and all the documents, financial statements, certifications and other information provided by the Borrower to the Lender under this Contract are true, complete, accurate and valid, and free from false records, material omissions or misleading statements. The financial and accounting reports provided to the Lender are prepared in accordance with Chinese accounting standards, and truly, fairly and completely present the Borrower’s operating and liability condition.
4. The transaction background that the Borrower represents to the Lender is real and legal, not for any illegal purposes such as money laundering. The loan purpose and the source of repayment are clear and legal. The loan purpose and the source of repayment are clear and legal.
5. The Borrower has a good credit status, does not have material bad credit record, and does not conceal from the Lender any fact that may affect the Borrower’s and the Guarantor’s financial condition and performance capability. The Borrower does not conceal from the Lender any litigation, arbitration or claim in which it is involved.
6. The borrower has repaid other debts payable as scheduled and has not maliciously defaulted on the payment of principal and interest of the bank loan.
7. The Borrower shall withdraw and use the loan in accordance with the term and purpose agreed herein. The loan borrowed hereunder shall neither be used for the investment in fixed asset and equity and other investments, nor flow into the securities market or the futures market in any form, or be used for other purposes prohibited or restricted by relevant laws and regulations.
8. The Borrower shall deliver its financial statements (including but not limited to annual, quarterly and monthly reports) and other relevant documents to the Lender on a regularly and timely basis in accordance with the requirements of the Lender; the Borrower shall ensure that the financial indicators will comply with the Contract all the time. If the production and operation qualification/license is subject to the annual audit, such qualification/license will pass the annual examination as scheduled.
9. The Borrower shall withdraw, repay and use the loan as stipulated herein.
10. If the Borrower has executed or will execute with the guarantor under this Contract a counter-guarantee agreement or similar agreement regarding its guarantee obligations, this counter-guarantee agreement or similar agreement will not prejudice any Lender’s right under this Contract.
11. The Borrower shall accept the credit inspection and supervision conducted by the Lender, and provide sufficient assistance and cooperation; from the effective date of this Contract and prior to discharge of the principal and interests and related expenses hereunder, the Borrower agrees and authorizes the Lender to monitor the account opened with the Lender, examine and analyze the Borrower’s production and operation (including but not limited to the construction and operation of the Borrower’s projects), and make dynamic monitoring on the income cash flow and overall fund flow of the Borrower; the Borrower shall accept and actively cooperate with the examination and supervision made by the Lender on the usage of the loan funds including the loan purpose by account analysis, proof inspection and site investigation, and make summary report in a periodic manner as required by the Lender.
12. The Borrower’s merger, division, decrease of capital, equity transfer, external investment, substantial increase of debt financing, transfer of material assets and claims and other events which may have adverse effect on the solvency of the Borrower shall be subject to the written consent of the Lender.
The Borrower shall give a notice to the Lender within 7 days after it becomes or should have become aware of any of the following circumstances:
(1) Change of the Articles of Association, business scope, registered capital, legal representative of the Borrower or the guarantor;
(2) Change of management mode such as joint management in any form, cooperation with foreign enterprises, cooperation, contracting management, reorganization, reform and planned listing;
(3) Involved in material litigation or arbitration cases, sequestration, attachment or supervision of properties or collateral, or establishment of new material liabilities on the collateral;
(4) Winding up, dissolution, liquidation, stopping business for rectification, cancellation, revocation of business license, (applied for) applying for bankruptcy;
(5) Shareholders, directors and current senior managers are suspected of being involved in material cases or economic disputes; or the legal representative/person in charge and current senior executives are found to be in bad health or other material conditions that the they are unqualified for their job;
(6) Events of default by the Borrower under other contracts;
(7) Difficulty in business operation and deterioration of financial position;
(8) In the event that the Borrower is closed, suspended, merged or changes the line of production due to change, restructuring and contracting or with the approval of the competent departments, the Borrower undertakes to give a notice to the Lender in writing within one month prior to the occurrence of the above events and to discharge all debts owed to the Lender immediately. Subject to the consent of the Lender, the Borrower may transfer the debts to the receiving entity or the newly incorporated entity (The Borrower shall, in the process of debt transfer, present and submit to the Lender the documents issued by its competent authority or the contract-issuing party or relevant documents); however, the debt receiving entity must execute a new loan contract with Lender and submit a written certificate of the corresponding guarantor’s approval or implement new guarantee measures, and before the execution of the new contract, the Lender shall have the right to recover the debts from the Borrower, the Guarantor or the Borrower’s receiver at any time.
13. Liquidation of the debts owed by the Borrower to the Lender shall have priority to the loan extended by the shareholders of the Borrower, and precede the debts of the same kind owed by the Borrower to other creditors. In addition, from the effectiveness of the Contract to the time when all the principal, interests and relative fees under the Contract are paid off, the Borrower shall not return the loan from its shareholders.
14. In respect of the loan hereunder, the loan conditions such as guarantee conditions, loan rate pricing, discharge sequence provided by the Borrower for the Lender shall be no less than the current or future conditions provided for any other financial institution.
15. The Borrower shall bear the expenses incurred in connection with the execution and performance of this Contract and the expenses paid and payable by the Lender for realization of its creditor’s right hereunder, including but not limited to litigation or arbitration fees, property preservation costs, attorney fees, enforcement fees, evaluation fees, auction fees, and announcement fees.
16. Account Management
(1) The repayment account opened by the Borrower with the Lender (the account stipulated in Article 5) is a special capital withdrawal account, which is used to collect the corresponding sales revenue or the planned repayment fund. Where the corresponding sales revenue is settled in a non-cash manner, the Borrower shall ensure that it will be promptly transferred into the capital withdrawal account upon receipt.
(2) The Lender shall have the right to supervise the capital withdrawal account, including but not limited to the understanding and supervision of the fund income and expenditure of the account, and the Borrower shall provide relevant cooperation. At the request of the Lender, the Borrower shall execute a special account supervision agreement with the Lender.
17. The Borrower shall dispose the assets in a manner that will not reduce its repayment capability. The Borrower undertakes that the total amount of the Borrower’s external guarantee is equal to or less than _____ times of its net asset, and the total amount of external guarantee as well as the amount of a single guarantee may not exceed the limit as stipulated in its Articles of Association; without the consent of the Lender, the Borrower shall not provide guarantee to any third party or the loans borrowed by the Borrower from any other financial institution with the assets formed by the loans under the Contract.
Article 18 the Related-party Transaction within the Borrower
☐ 1. The Borrower is not identified by the Lender as the group client in accordance with the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients (hereinafter referred to the “Guidelines”).
☐ 2. If the Borrower is identified by the Lender as the group client in accordance with the Guidelines, it shall report to the Lender any of the related-party transaction in a timely manner.
☐ 3. The Borrower is subject to such events as major merger, acquisition or reorganization, which in the opinion of the Lender may affect the safety of the loan.
Article 19 Breach of Contract and Settlement
1. The Borrower shall constitute or be deemed to have breached the Contract and shall be liable for breach of contract under any of the following circumstances:
(1) The Borrower fails to perform the obligations of payment and liquidation to the Lender according to the stipulations of the Contract;
(2) The Borrower fails to use the loan in a purpose and way stipulated in this Contract or fails to use the loan borrowed hereunder for the purpose stipulated in the Contract; or the Borrower fails to go through the withdrawal procedures as scheduled according to the withdrawal plan, or changes the withdrawal plan without the Lender’s consent; or the Borrower is in violation of this Contract and dodges the authorized payment by the Lender by way of breaking up a large amount into several small amounts;
(3) The Borrower provides an untrue representation or violates the undertaking it made in this Contract;
(4) If any circumstance under Subparagraph 12 of Article 17 arises, and the Lender believes that may affect the financial condition and performing capability of the Borrower or guarantor, but the Borrower refuses to provide new guarantee or change a guarantor according to this Contract;
(5) The Borrower violates any stipulation under any other contract between the Borrower and the Lender; the Borrower violates any stipulation under any Credit Extension Contract between the Borrower and any other financial institution;
(6) The guarantor violates the stipulations of the guarantee contract, or any default events arise under other contract between the guarantor and the Lender;
(7) The Borrower closes down or is dissolved, withdraw or bankrupted;
(8) Where the Borrower involves in or possibly involves in material economic disputes, litigation, arbitration, or its capital is sealed up, seized or enforced for execution, or the administrative organs such as judicial organs or taxation authorities, and industrial and commercial administration file for investigation or adopt punishment measures on the Borrower according to law which has influenced or may influence the performance of the liabilities under this Contract;
(9) Where the main individual investors and key managerial personnel of the Borrower are changed abnormally, disappear or are investigated or the personal freedom thereof is limited by judicial organs according to law which has influenced or may influence the performance of the liabilities under this Contract;
(10) Where the credit circumstances of the Borrower lowers or finance indexes of the Borrower such as profitability, debt-paying ability, operating capacity and cash flow seriously deteriorate and break through the index binding of this Contract or other financial agreements;
(11) The Borrower takes advantage of the false contracts between the Borrower and the affiliated party to obtain funds or credit from the Lender through transactions without true transaction background, and the affiliated party is subject to such events as major merger, acquisition or reorganization which in the opinion of the Lender may affect the safety of the loan; or the Borrower intends to evade the creditor’s right of the Lender through related-party transactions;
(12) The Borrower causes any liability accident due to its violation of food safety, production safety, environmental protection and other relevant laws and regulations, regulatory provisions or industrial standards which has influenced or may influence the performance of the liabilities under this Contract;
(13) In the event that the loan under this Contract is granted on the basis of credit rating, the Borrower’s credit rating, profitability, asset-liability ratio, net cash flow from operating activities and other indicators do not meet the Lender’s credit loan conditions; or the Borrower, without the written consent of the Lender, establishes mortgage/pledge guarantee or provide guarantee to others with its valid operating assets, which has influenced or may influence the performance of the liabilities under this Contract;
(14) Other circumstances that may have adverse effect on the realization of the creditor’s rights of the Lender under this Contract.
2. When the aforesaid breaches arise, as the case maybe, the Borrower agrees that the Lender may take following measures respectively or simultaneously:
(1) Require the Borrower and guarantor to rectify their breach within time limit.
(2) Decrease, suspend or terminate all or part of the credit lines of the Borrower.
(3) Suspend or terminate all or part of the business application (such as withdrawal) of the Borrower under this Contract or other contracts between the Borrower and the Lender; partly or totally suspend or cancel to issue, pay and transact the unissued loans.
(4) Declare that all or part of the outstanding principal and interest of the loan and other amounts payable of the Borrower under this Contract and other contracts between the Borrower and the Lender shall become due immediately.
(5) Negotiate with the Borrower to supplement the terms of loan issuance and payment; or the Lender shall have the right to change the loan disbursement and payment conditions in accordance with the credit status of the Borrower such as lowering the minimum amount of authorized payment of the Borrower; or the Lender shall have the right to transfer back the loan fund which the Borrower has paid for default.
(6) Terminate or dissolve this Contract, partly or totally terminate or dissolve other contracts between the Borrower and the Lender.
(7) Require the Borrower to compensate the Lender for the Lender’s loss caused by the Borrower’s default.
(8) Deduct from the Borrower’s account which is opened in the Rural Commercial Bank system within the jurisdiction of Jiangxi with notice before or after the deduction, so as to discharge all or part of the Borrower’s debts to the Lender hereunder. The undue deposit in the account shall be deemed to become due in advance.
(9) Exercise security interest; and require the guarantor to take guarantee responsibility.
(10) In the event that the Borrower fails to repay the principal, interest (including penalty interest and compound interest) or other amounts payable as scheduled, the Lender may disclose the default information of the Borrower and the Guarantor and make an announcement for collection through the media or other forms.
(11) Have the right to deduct and debit the deposits and dividends within any account opened by the Borrower in the Rural Commercial Bank system within the jurisdiction of Jiangxi, and to dispose of the Borrower’s equities.
(12) Other measures stipulated by laws and regulations and deemed necessary and possible by the Lender.
Article 20 Reservation of Rights
Any failure by a party to exercise all or part of its rights hereunder or to require the other party to perform or assume all or part of obligations or responsibilities shall not constitute a waiver of such rights or release of the obligations and responsibilities of such party.
Any tolerance, grace or postponement for exercising the rights under this Contract of one Party shall not affect its rights stipulated by this Contract, laws and regulations, and shall not be deemed as a waiver of such rights.
Article 21 Confidentiality
Each party undertakes to keep confidential the trade secrets, technical information, business information and other business secrets obtained from the other party which are not available through public channels. Without the consent of the original provider of the trade secret, neither party shall disclose all or part of the trade secret to any third party, unless otherwise stipulated by laws and regulations or otherwise agreed by both parties.
In the event that either party is in violation of the aforesaid confidentiality obligation, it shall assume the corresponding liability for breach of contract and compensate for the losses caused thereby.
Article 22 Force Majeure
The term Force Majeure as specified in this Contract refers to the objective events that cannot be foreseen, overcome, or avoided and have a significant impact on one party, including but not limited to the natural disasters such as flood, earthquake, fire and storm, as well as the social events such as war and turmoil.
In the event that the Contract cannot be performed as a result of the occurrence of force majeure events, the party affected by the force majeure shall immediately notify the other party of the event in writing, and within 7 days, provide written documents certifying the details of accident and the reasons for non-performance or delay in performance hereof. Upon consensus through negotiation, both Parties may terminate or temporarily delay the performance of the Contract.
Article 23 Alteration, Amendment and Termination
This Contract can be altered and amended in written form upon consensus through negotiation of the Parties, and any alternation and amendment agreed on by the Parties shall constitute an integral part of this Contract.
This Contract may not be terminated until all the rights and obligations are fully preformed, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
The invalidity of any provision of this Contract shall not affect the legal validity of other provisions, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
Article 24 Agreements on Service
1. The contact information (including mailing address, telephone number, fax number, etc.) provided by the Borrower in this Contract shall be true and valid and shall be the address for service of any notice of the Lender for the Borrower. In case of any change to the contact information, the Borrower shall immediately send/mail the change information in writing to the mailing address provided by the Lender in this Contract. Such information change shall become effective upon the Lender’s receipt of the change notice.
2. Unless otherwise expressly provided for in this Contract, the Lender shall be entitled to give notice to the Borrower in any of the following methods. The Lender shall be entitled to choose the notification method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, WeChat or any other communication system. Where the Lender simultaneously chooses several notification methods, the one by which the notice is served to the Borrower earlier shall prevail.
(1) By announcement. The notice shall be deemed to be served on the date on which the Lender publishes the announcement on its website, online banking, telephone banking or business outlets;
(2) By hand. The notice shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower refuses to sign for the receipt, the date on which the server makes a record on the proof of service on the spot;
(3) By mail (including express mail, surface mail or registered mail). The notice, when addressed to the Borrower’s mailing address last known to the Lender, shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower fails to sign for the receipt, the date on which the mail is returned;
(4) By fax, mobile phone SMS, WeChat or other electronic communication methods. The notice, when sent to the Borrower’s fax number, the mobile phone number, WeChat account number or email address designated by the Borrower which is last known to the Lender, shall be deemed to be served on the date on which the notice is sent.
3. Borrower agrees that, unless the Lender receives from the Borrower a written notice concerning the change of mailing address, the Borrower’s domicile stated in this Contract is the correspondence and contact address. In the future, the delivery addresses of bank statements, collection statements, relevant legal instruments and litigation documents related to the loans under this Contract shall prevail. The Borrower promises to notify the Lender in time when the communication and contact information change, otherwise the documents delivered by the Lender according to the communication and contact information stated in this Contract will be effectively delivered, and the relevant economic and legal responsibilities arising therefrom will be borne by the Borrower and the Mortgagor. During the dispute settlement, if the court serves the judicial documents or other written documents by mail (including express mail, surface mail or registered mail) to the Borrower mailing address last known to the Lender, such documents shall be deemed to be served on the date on which the Borrower signs for receipt of the proof of service; or if Borrower fails to sign for receipt of the proof of service, the date on which the mail is returned;
The court or notary organ shall be entitled to give any notice to the Borrower by any methods of communication agreed in this Paragraph 2. The court or notary organ shall be entitled to choose the communication method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, telex or any other communication system. Where the court or notary organ simultaneously chooses several communication methods, the one by which the notice is served on the Borrower earlier shall prevail.
Article 25 Appendix
The appendixes confirmed by both parties shall constitute an integral part of this Contract and shall have the same legal effect as this Contract.
Article 26 Other Agreements
1. The Borrower shall not transfer any rights and obligations under this Contract to the third party without written consent of the Lender.
2. The Lender has the right to transfer the creditor’s rights under this Contract to the third party, and shall notify the Borrower.
3. This Contract shall be legally binding upon both Parties and their successors and assignees without prejudice to other provisions of this Contract.
4. All the transactions under this Contract are carried out for each Party’s independent benefits. If, in accordance with relevant laws, regulations and regulatory provisions, other parties to the transaction become the related parties or affiliated persons of the Lender, no Party may seek to affect the fairness of the transaction out of this related-party relationship.
5. The headings and business names in this Contract are used only for convenient reference, which shall not be used to interpret the provisions or the rights and obligations of both Parties.
6. In accordance with relevant laws, regulations and regulatory provisions, the Lender shall have the right to provide the information related to this Contract and other relevant information of the Borrower to the credit reference system of the People’s Bank of China and other credit information database established according to law for reference and use by the institutions or individuals with proper qualification according to law. The Lender shall also have the right to refer the relevant information of the Borrower through credit reference system of the People’s Bank of China and other credit information database established according to law for the purpose of the execution and performance of this Contract.
The parties acknowledge that the Borrower and the Lender have made a full negotiation in connection with all the terms of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and provisions of the Contract. The Borrower confirms that there is no misunderstanding or doubt about all the contents and terms of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
The Borrower and the Lender have made a full negotiation in connection with all the provisions of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and terms of the Contract. The Borrower confirms that there is no misunderstanding or ambiguity about all the contents and provisions of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
(The Borrower shall fill in the following by contrast)
(The remainder of this page is intentionally left blank for signatures)
| Borrower (Official Seal): |
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Legal Representative or Authorized Agent (Signature & Seal):
| /s/ Lai Gang | (Signature) |
March 3, 2025
| Lender (Seal): |
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| Legal Representative or Authorized Agent (Signature & Seal): |
| /seal/ Zhang Ruirong |
March 3, 2025
| Contract Execution Place: | 
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Exhibit 4.11
Corporate Loan Contract
No. 0100201202460236
Party A (Borrower): Jiangxi Universe Pharmaceuticals Co., Ltd.
Address: No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Jiangxi Province
Zip Code: 343000
Legal Representative/Person in Charge: Lai Gang
Contact Person: Lai Gang
Tel.: 13632301188
Fax:
Email:
Party B (Lender): Jizhou Zhujiang Rural Bank Co., Ltd.
Address: No.33, Yangming West Road, Jizhou District
Zip Code: 343000
Legal Representative/Person in Charge: Li Rongjiang
Contact Person: Xu Kai
Tel.: 18679609990
Fax:
In accordance with the provisions of relevant laws and regulations of China and on the basis of the principles of willingness, equality, mutual benefit and good faith, this Contract is hereby made by and between Party A and Party B with the consensus through negotiation.
Article 1 Amount and Currency of Loan
The currency of the loan hereunder is RMB, and the amount is: (in words) RMB Two Million nine hundred thousand. The loan amount referred to in this contract refers to the limit of the loan principal balance provided by Party B to Party A during the validity period stipulated in this contract.
Within the credit limit, Party A can (select can/cannot) recycle the loan.
Article 2 Purpose of Loan
The loan hereunder shall be used for the working capital of enterprise, and Party A shall not change the use of the loan without Party B’s written consent. Party B has the right to inspect and supervise the use of the loan. Disbursement of the loan fund shall be subject to Party B’s management and control.
The working capital loan disbursed under this Contract shall not be used for investment in fixed assets, equity, etc., or for fields and purposes which are prohibited by the State in terms of production and operation.
Article 3 Loan Term
The term from April 18, 2025 to April 18, 2026. The exact term of the loan shall be subject to the actual date of disbursement and maturity date as stated in the loan receipt.
Article 4 Interest Rate for RMB Loan
| 4.1 | Interest Rate of Loan |
The interest rate for loan hereunder (simple interest rate, which does not affect the calculation and collection of compound interest on interest unpaid on time) shall be implemented as stipulated in Article 1 and Article 4.1.1 below, and shall be converted in line with the following formulas: monthly interest rate = annual interest rate/12, daily interest rate = annual interest rate/360.
| 4.1.1 | Fixed interest rate: 5% (annual interest rate). The said interest rate shall be calculated as follows: on the basis of the 1-year (1 year/5 years or more) LPR of the business day preceding A (A. The date of signing of the last signatory B. Loan disbursement date) of this Contract, plus (plus/minus) 190 basis points (LPR, i.e., Loan Prime Rate, is the loan prime rate published by China Foreign Exchange Trade System; 1 basis point = 0.01%, the same below). The interest rate remains unchanged during the term of the loan. In the event that the interest rate set forth in this Contract is inconsistent with the interest rate calculated in accordance with the interest rate calculation method, the parties hereby confirm that the interest rate set forth in this Contract shall prevail. |
| 4.1.2 | Floating interest rate. The annual interest rate of the first period shall be calculated as follows: on the basis of _____ (1 year/5 years or more) LPR of the business day preceding _______ (A. The date of signing of the last signatory B. Loan disbursement date) of this Contract, _____ (plus/minus) _____ basis points. The interest rate is thereafter determined as follows: |
Every 12 months shall be regarded as one interest rate adjustment cycle, and for the loan interest rate implemented for each period, corresponding LPR of the business day preceding the corresponding day (if there is no corresponding day in the month, the last day of the month shall be the corresponding day and such day shall be the interest rate adjustment date) in the first month of the period of the date of signing of the last signatory/loan disbursement date (the same as the base date of the calculation method of the annual interest of the first period above) of this Contract shall apply, and the loan interest rate shall be determined in line with the said interest rate calculation method.
| 4.1.3 | If the interest rate stated in the loan receipt conflicts with the interest rate stated in this Contract, the loan receipt shall prevail. |
| 4.2 | The following method B is chosen for the settlement and payment of interest on the loan under this Contract: |
| A. | Interest is settled and paid on a monthly basis, with the corresponding day of the actual date of disbursement as the date of settlement and payment of interest; if there is no corresponding day of the month, the last day of the month shall be the date of settlement and payment of interest. |
| B. | Interest is settled and paid on a monthly basis, with the 20th day of each month as the interest settlement date and the 20th of each month as the interest payment date. |
| C. | Interest is settled and paid on a quarterly basis, with the ___ day of the ___ month of each quarter as the interest settlement date and the ___ day of the ___ month of each quarter as the interest payment date. |
If the maturity date of the last installment of the loan is not the interest settlement date and the interest payment date, the maturity date of the last installment of such loan shall be the interest settlement date and the interest payment date.
Article 5 Withdrawal
| 5.1 | The following prerequisites must be satisfied in case of withdrawals by Party A: |
| 5.1.1 | Party A has opened a repayment account with Party B; |
| 5.1.2 | This Contract has entered into force and Party A has completed the administrative licenses, approvals, registrations and other legal formalities relating to the loan under this Contract in accordance with relevant laws, regulations and rules and Party B’s requirements; |
| 5.1.3 | Party A has submitted relevant documents that meet Party B’s requirements; |
| 5.1.4 | All mutually agreed formalities have been completed in respect of the guarantee hereunder and Party B’s mortgage and/or pledge has been established and remains in force; |
| 5.1.5 | The loan receipt has been signed and Party A has not violated any of the matters as agreed in this Contract; |
| 5.1.6 | Up to the time of withdrawal, the representations and warranties made by Party A due to execution of this Contract shall remain true, accurate and valid; |
| 5.1.7 | Up to the time of withdrawal, Party A’s business and financial conditions are basically the same as at the time of the signing of this Contract, and there have been no material unfavorable changes; |
| 5.1.8 | For loan for which the Lender’s entrusted disbursement is adopted, provide relevant transaction materials and documents proving that the use of the loan is consistent with the conditions as agreed in this Contract, as well as written documents authorizing Party B to disburse the loan fund to relevant counterparty of Party A; |
| 5.1.9 | Other conditions that must be met by Party A in accordance with the provisions of laws and regulations or Party B’s requirements. |
| 5.2 | Party A chooses to withdraw the loan under this Contract in the following manner A: |
| A. | Proceed on the basis of the loan receipt; |
| B. | Withdraw in a lump sum on (month day, year); |
| C. | Withdraw in installments at the times and in the amounts listed below: |
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| 5.3 | Method B below is adopted for the loan disbursement and payment under this Contract: |
| A. | The Borrower’s independent disbursement, i.e. Party B disburses the loan fund directly to the loan disbursement account opened by Party A with Party B in accordance with Party A’s withdrawal application, then, Party A disburses the loan fund independently to the counterparty of Party A who is consistent with the purpose as agreed in this Contract; |
| B. | The Lender’s entrusted disbursement, i.e. Party B, on the basis of Party A’s withdrawal application and disbursement entrustment, disburses the loan fund through the loan disbursement account opened by Party A with Party B to Party A’s counterparty who is consistent with the purpose as agreed in this Contract; |
| C. | If the amount of a single disbursement is greater than or equal to RMB _____ or equivalent amount in foreign currency, the Lender’s entrusted disbursement shall be adopted, and if the amount of a single payment does not exceed the above-mentioned standard, the Borrower’s independent disbursement shall be adopted; |
| D. | Other method |
However, in the course of loan disbursement and payment, in case of any of the following circumstances on the part of Party A, Party B has the right to supplement the conditions of loan disbursement and payment, or to change the method of loan disbursement and payment from the Borrower’s independent disbursement to the Lender’s entrusted disbursement, or to stop the disbursement and payment of the loan fund in accordance with the contractual agreements:
| (a) | Decline in credit status; |
| (b) | The profitability of main business is not strong; |
| (c) | Failure to pay the loan fund as agreed herein; |
| (d) | Anomalies in the use of the loan fund. |
| 5.4 | Regardless of which method of disbursement is adopted in the preceding paragraph, Party A and Party B agree that the following account shall be the loan disbursement account and the principal repayment and interest payment account under this Contract, and Party A hereby irrevocably authorizes Party B to transfer the loan to the following account where the conditions set forth in Paragraph 6.1 above are fulfilled: |
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Bank: Jizhou Zhujiang Rural Bank
Account No.: 80001837000000151.
| 5.5 | Party A shall, after the conditions specified in Paragraph 1 of this Article are met, complete the disbursement procedures with Party B and sign the loan receipt with Party B as agreed in this Contract. |
| 5.6 | Party B’s disbursement in the event that Party A fails to meet the conditions for withdrawal as agreed in the first paragraph of this Article shall not constitute a defect in Party B’s performance. |
Article 6 Repayment
| 6.1 | Party A chooses Method A below to repay the principal amount of the loan hereunder: |
| A. | The principal shall be repaid in a lump sum on the maturity date of the loan; |
| B. | The principal shall be repaid in installments in the following order, time, and amount: |
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| (month day, year), | amount (in words) ; | ||
| C. | The principal shall be repaid in a decreasing amount on a __________ (monthly/quarterly) basis. |
| D. | The principal shall be repaid in equal amount on a __________ (monthly/quarterly) basis. |
| E. | Other: ______________________________________________________________________ |
| 6.2 | Party A shall deposit the repayable amount (interest and principal) in full into the account opened with Party B before the termination of Party B’s business hours (Beijing time) on the repayment date (interest payment date and principal repayment date), and Party B shall have the right to transfer the amount directly from Party A’s account; |
| 6.3 | Party B shall have the right to collect the outstanding amount repayable by Party A directly from any account opened by Party A in any institution of Jizhou Zhujiang Rural Bank Co., Ltd. If the currency of the transferred amount is different from the currency under this Contract, it shall be converted at the selling rate announced by Party B on the date of transfer; |
| 6.4 | Payments made by Party A (including payments transferred and collected by Party B pursuant to this Contract) shall be used to satisfy the debt in the following order: costs of realizing claims and guarantee rights, damages, liquidated damages, compound interest, overdue interest and penalty interest, interest, and principal, and Party B shall have the right to change the abovementioned order. |
| 6.5 | Party A designates the account as agreed in Paragraph 6.4 of this Contract and/or the following account as the specialized fund withdrawal account and provides Party B with the information on the capital flow of such accounts in a timely manner. Party A agrees that Party B may monitor such accounts and manage the inflow and outflow of the withdrawn funds. |
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Bank: Jizhou Zhujiang Rural Bank
Account No.: 80001837000000151.
Article 7 Early Repayment and Grace Period of Loan
| 7.1 | Where Party A repays the principal amount of the loan in advance, it shall submit a written application to Party B 30 days in advance, and with Party B’s consent, it may repay the principal amount in whole or in part in advance; |
| 7.2 | Party A may repay the principal in advance only if Party A has repaid to Party B the amount due and payable. In case of early repayment of principal in part, Party A shall also settle the current repayable amount first. For the principal Party A repays in advance, interest shall be calculated and collected as follows: interest = the principal amount repaid in advance × the daily interest rate of the loan executed under this Contract at the time of early repayment × the actual number of days of occupancy (from the last interest settlement date to the date of early repayment), and interest on the loan that has been previously calculated and collected will not be adjusted. |
| 7.3 | The written notice of early repayment is irrevocable. If Party A fails to repay the loan on the scheduled early repayment date, Party B has the right to calculate and collect penalty interest at the overdue penalty interest rate. |
| 7.4 | In the event of early repayment by Party A, Party B shall be entitled to charge the liquidated damages for the early repayment in accordance with Method _____ below: |
| A. | In case of early repayment within _____ months after the loan is actually disbursed, the liquidated damages = the amount repaid in advance × _____%; in case of early repayment after the loan has been actually disbursed for _____ months, the liquidated damages = the amount repaid in advance × _____%; |
| B. | Liquidated damages = Interest loss corresponding to the principal amount repaid during the period from the repayment date to the maturity date x _____%; |
| C. | If the period between the early repayment date and the contractual maturity date is more than one month (inclusive), one month’s interest shall be charged on the principal amount repaid early as the liquidated damages for the early repayment; if it is less than one month, interest shall be charged on the principal amount repaid early in line with the actual number of days between the early repayment date and the contractual maturity date as the liquidated damages; |
| D. | Micro and small-sized enterprises are not charged. |
| E. | Other method:__________________________________________________________ |
________________________________________________________________________
| 7.5 | Where Party A is unable to repay the principal and interest of the loan under this Contract on time and needs to handle the grace period of the loan, it shall submit a written application to Party B 30 days prior to the maturity date of the loan, and if Party B approves the grace period after review, the parties shall otherwise sign a grace period agreement. If Party B does not agree with the grace period, Party A shall still repay the principal and interest of the loan in accordance with this Contract. |
Article 8 Guarantee of Loan
The guarantee for the loan under this Contract is a maximum pledge and guarantee, and the guarantee contract shall be signed separately. If the maximum guarantee is adopted, the guarantee contract number is 2023050900085466, 2023051100086233, and the additional guarantee under this Contract is not restricted by this clause.
Article 9 Rights and Obligations of Party A
| 9.1 | Party A warrants that it is a legal entity incorporated and validly existing in accordance with the laws, and has the right to dispose of the properties under its management and management, operate the business related to the purpose of loan hereunder, and enter into and perform this Contract, and that its execution of this Contract has been approved by the higher authorities or the shareholders’ meeting, the board of directors and other competent bodies of the Company, and that it has obtained all the necessary authorizations; |
| 9.2 | Party A warrants that its execution and performance of this Contract will not violate any provisions or stipulations binding on Party A and assets thereof, or the contents of any guarantee agreements, other agreements and any other documents, stipulations and undertakings binding on Party A signed by Party A with others; |
| 9.3 | Party A guarantees that the loan will be used for the purpose agreed in this Contract; |
| 9.4 | Party A guarantees to repay the principal and interest of the loan as agreed in this Contract; |
| 9.5 | At the request of Party B, Party A shall cooperate with Party B in pre-loan investigation, loan payment management, mid-loan review and post-loan inspection, and provide timely materials including but not limited to: |
| 9.5.1 | Business license and annual inspection certificate, corporation code certificate, legal representative’s identity card and other necessary personal information, list of members of the board of directors, person in charge and financial controller, operation permit, certificate of tax registration that has passed the annual inspection by the tax department, copies of tax payment certificates from the taxation authority in light of the number of years required by Party B, and loan certificates (cards); |
| 9.5.2 | Information on all account banks, account numbers and deposits and loans; |
| 9.5.3 | Audited balance sheets, profit and loss statements, statements of changes in owner’s equity, and sales volume, cash flow statements, financial statements and notes and explanations as requested by Party B; |
| 9.5.4 | Production and operation plans, statistical reports, and information on project budget and final accounts; |
| 9.5.5 | All external guarantees (including to any institution of Party B); |
| 9.5.6 | Information on all affiliates and related relationships, as well as information on related transactions that have occurred and are about to occur that account for more than ten percent of its net assets, and mutual guarantees within the group customer; |
| 9.5.7 | Information on lawsuits, arbitration, administrative penalties, debt disputes with others, and criminal prosecution against individual management personnel: |
| 9.5.8 | Information on use of the loan under this Contract. |
| 9.6 | Party A shall, within thirty days prior to the date of occurrence of the following matters, notify Party B in writing and perform the obligations to settle the debts under this Contract as agreed by Party B in writing, or provide new guarantees approved by Party B in writing, otherwise it shall not carry out the activities described below until it has settled all the debts under this Contract. These matters include, but are not limited to, operation activities such as contracting, lease, trusteeship, asset restructuring, debt restructuring, equity restructuring, joint venture, consolidation (merger), separation, equity joint venture (contractual joint venture), reduction of registered capital or filing for rectification after business suspension, filing for dissolution (or cancellation), filing for reorganization, settlement of bankruptcy, issuance of bonds and borrowing from a third party, and other financing activities that materially increase the indebtedness. |
| 9.7 | Within three days after being declared to be suspended for rectification, declared to be shut down, declared to be dissolved (cancelled), applied for reorganization, bankruptcy and other changes in its own system and legal status, or any other circumstances that are sufficient to jeopardize its own normal operation or the security of Party B’s claims, Party A shall notify Party B in writing, and at the same time, take sufficient and effective measures to preserve Party B’s claims. |
| 9.8 | Party A shall notify Party B in writing within seven days after the change in domicile, name or legal representative or any significant change in other senior management personnel. |
| 9.9 | Party A shall not enter into any contract with any third party which is detrimental to Party B’s rights and interests under this Contract; |
| 9.10 | If Party A Party A belongs to a group customer, it shall provide Party B with relevant information about the group company, including but not limited to the name, legal representative, actual controller, place of incorporation, registered capital, main business, equity structure, situation of senior management personnel, financial status, major asset items, guarantees and important litigations, etc. of each member of the group customer; it shall also report to Party B in writing in a timely manner information on related transactions accounting for more than ten percent (inclusive) of its net assets, including but not limited to the association relationship of the parties to the transaction, the transaction items and the nature of transaction, the transaction amount or corresponding ratio and the pricing policy for the transaction; |
| 9.11 | In the event of guarantee, Party A shall immediately provide a new guarantee recognized by Party B or repay the loan under this Contract in advance to the extent that the guarantor violates any obligation or undertaking hereunder or loses the guarantee ability. |
| 9.12 | If the loan hereunder are secured by a third party guarantee, Party A shall, in the event of any abnormality of the guarantor, including but not limited to being seriously ill, missing or declared to be missing, dead or declared to be dead (applicable if the guarantor is a natural person), or shut-down, dissolution, liquidation, bankruptcy, reorganization, reconciliation, rectification and/or similar legal proceedings (applicable if the guarantor is a company), notify Party B in writing of the event within 7 days from the occurrence of the event, and provide an alternative guarantee to Party B’s satisfaction as requested by Party B. |
| 9.13 | Party A undertakes to provide necessary documents and materials as requested by Party B and to ensure that the documents and materials provided are true, accurate, legal and effective. |
| 9.14 | Party A undertakes that the energy conservation and emission reduction of the projects supported by the loan fund under this Contract shall be in compliance with national laws and regulations and the provisions of the regulatory authorities, and that Party A shall submit an environmental and social risk report if significant environmental and social risks are involved. |
If Party A fails to fulfill its commitment or the risk of energy consumption or pollution arises, Party B may take the following measures: suspend this Contract; accelerate the recovery of the loan hereunder; and announce the early maturity of the loan hereunder. Where Party B takes the aforesaid measures, Party A agrees that Party B may exercise relevant guarantee rights in advance.
| 9.15 | Party A undertakes to notify Party B in a timely manner in the event of material adverse events affecting Party A’s solvency. |
| 9.16 | Party A undertakes to cooperate for Party B’s inspection related to the loan and summarize and report the payments of the loan fund on a regular basis as required by Party B. Party B has the right to check whether the payment of the loan is in line with the agreed purpose through account analysis, voucher checking, on-site investigation, etc. |
| 9.17 | If Party A uses the house as collateral, Party A shall promptly inform Party B provided that Party B is aware that the mortgaged house will be demolished or relocated. If Party A fails to inform Party B in a timely manner and the mortgaged property is lost, Party B has the right to stop releasing the loan or recover the loan in advance. |
| 9.18 | In order to strengthen the monitoring on the settlement cash flow of Party A’s business income and prevent the credit risk of Party B, Party A agrees to cooperate for Party B’s monitoring on Party A’s settlement cash flow, and Party A undertakes that, in the settlement limit for all banks, the proportion for Party B shall not be less than _____%. |
Article 10 Rights and Obligations of Party B
| 10.1 | Party B has the right to request Party A to provide information in connection with the loan under this Contract. |
| 10.2 | Party B has the right to supervise and inspect the use of the loan under this Contract, and understand Party A’s business activities, financial status, provision of guarantees and debt disputes, etc., and the right to request Party A to report or inform the payments of the loan on a regular basis, and Party B has the right to verify whether the payments of the loan are in line with the agreed purpose through account analysis, voucher checking, on-site investigation, etc. |
| 10.3 | Provided that Party A has fully performed the obligations set out in this Contract and satisfied the conditions for withdrawal, Party B shall release the loan to Party A in accordance with the term and amount determined in the loan receipt signed by the parties, except for delays due to reasons attributable to Party A. |
| 10.4 | Party B shall keep confidential the information and circumstances provided by Party A relating to its debts, finance, production and operation, unless otherwise provided by laws and regulations. |
| 10.5 | Where Party B changes its domicile during the validity of this Contract, it shall promptly publish an announcement of the change in address. |
| 10.6 | Party B has the right to recover the loan in advance in accordance with Party A’s fund withdrawal situation. |
| 10.7 | If Party A is liable to Party B for a number of debts and Party A’s payment is not sufficient to settle all the debts, Party A agrees that Party B has the right to specify the order of performance of the debts at the time of repayment by Party A. |
Article 11 Entry into Force, Modification and Rescission of Contract
| 11.1 | This Contract shall enter into force as of the date on which it is signed or sealed by the parties, and in the event of any discrepancy between the dates of signing/sealing of the parties, this Contract shall enter into force on the date on which it is signed or sealed by the last party; |
| 11.2 | After this Contract comes into force, neither Party A nor Party B may change this Contract without authorization. If any change is required, Party A and Party B shall conclude a written modification agreement; |
| 11.3 | During the performance of this Contract, in the event of any of the following circumstances, Party B has the right to suspend or rescind this Contract, recover the principal and interest of the loan released in advance and stop releasing the loan, and require Party A to compensate for all the losses caused to Party B as a result of its breach of contract and bear all the expenses incurred by Party B for realization of its claims (including, but not limited to, litigation costs, attorney’s fees, property preservation fees, travel costs, execution fees, appraisal fees, auction fees, etc.); |
| 11.3.1 | Party A delays the repayment and payment of the principal and interest on any of the loans under this Contract; |
| 11.3.2 | Party A’s operation and financial condition deteriorates, making Party A unable to settle its debts as they fall due; |
| 11.3.3 | Party A is involved in economic or other legal disputes, thus Party A is subject to litigation or arbitration; |
| 11.3.4 | Others have taken seizure or freezing measure against the mortgaged (pledged) property corresponding to the loan; |
| 11.3.5 | There is a serious crisis in the overall credit status, operation condition and financial condition of the group customer to which Party A belongs, which poses a significant threat to the security of Party B’s loan; |
| 11.3.6 | Party A goes out of business, is dissolved, shuts down, has its business license revoked, or is canceled, etc. |
| 11.3.7 | Party A fails to use the loan for the purpose agreed herein or fails to pay the principal, interest and other payables in full and on time; |
| 11.3.8 | Party A fails to make payments of the loan funds in accordance with this Contract; |
| 11.3.9 | Party A provides Party B with the loan materials such as balance sheets and profit and loss statements which are false or conceal material facts, or conceals material operation and financial facts; |
| 11.3.10 | Party A refuses to accept Party B’s supervision and inspection on its use of the loan and related production, operation and financial activities; |
| 11.3.11 | Party A uses the loan fund to engage in speculative operations in marketable securities, futures, real estate, etc., or other unlawful or illegal transactions; |
| 11.3.12 | Party A deceives of the loan for borrowing and lending for illegal income; |
| 11.3.13 | Party A adopts fraudulent means to obtain the loan; |
| 11.3.14 | Party A intends to evade Party B’s claims through related transactions; |
| 11.3.15 | Party A’s mode of operation, own system or legal status changes, including but not limited to contracting, lease, trusteeship, asset restructuring, debt restructuring, shareholding system reform, joint venture, consolidation (merger), acquisition, separation, paid property ownership transfer, equity joint venture (contractual joint venture), reduction of registered capital or application for rectification after business suspension, application for dissolution (or revocation), application for reorganization, reconciliation and bankruptcy, etc.; Party A implements the debt repayment responsibility hereunder or provide new guarantees recognized by Party B without Party B’s written consent; |
| 11.3.16 | The guarantee under this Contract has changed to the detriment of Party B’s claim, including but not limited to the destruction, loss, or reduction in value of the collateral or pledge, or the guarantor’s breach of any of the obligations set for the guarantor in the guarantee contract, and Party A fails to provide a new guarantee as required by Party B; |
| 11.3.17 | The guarantee contract or other guarantee form is not in force, invalid, or declared revoked, or the guarantor becomes partially or totally incapable of guaranteeing or expressly refuses to fulfill its guarantee obligations, or the guarantor is in breach of any of its obligations or undertakings as agreed in the guarantee contract or in breach of the contract it has entered into with a third party, and Party A fails to separately provide a new guarantee as required by Party B; |
| 11.3.18 | The representations and warranties made by Party A are untrue, inaccurate or conceal material facts, or Part A fails to comply with its undertakings under this Contract; |
| 11.3.19 | Party A breaks the constraints of the financial indicators agreed with Party B; |
| 11.3.20 | A material cross-default occurs in respect of Party A; |
| 11.3.21 | Party A expressly or by its own behavior indicates that it will not perform its obligations under this Contract; other circumstances occur that may lead to a threat to the realization of Party B’s claims under this Contract or serious losses. |
| 11.3.22 | Party A violates other obligations stipulated (including, but not limited to, this Contract, the supplementary agreement, the reorganization agreement, the grace period agreement, the escrow agreement, the commitment letter, etc.). |
| 11.4 | If Party A violates the provisions in Paragraph 10.18 of this Contract, Party B, in addition to having the right to take measures as agreed in the preceding paragraph, also has the right to increase the loan interest rate agreed in this Contract by 50 % from the month following the month in which the aforesaid violation occurs. |
| 11.5 | If the number of defaults by Party A, such as default in interest payment, reaches three times cumulatively, Party B, in addition to having the right to take measures as agreed in Paragraph 12.3 of this Contract, also has the right to increase the loan interest rate as agreed herein by 100% from the month following the month in which the aforesaid defaults have cumulatively reached three times. |
Article 12 Liabilities for Breach of Contract
| 12.1 | If corresponding guarantee formalities under this Contract are not completed as agreed due to reasons attributable to Party A or the guarantor hereunder, or Party A fails to complete the withdrawal formalities with Party B at the time agreed in this Contract, and the time has exceeded 30 days (including legal holidays and rest days) after the date of disbursement of the loan as agreed in this Contract, Party B has the right to rescind this Contract and recover the loan disbursed in advance. |
| 12.2 | If Party A fails to repay the principal amount of the loan due and payable (including early maturity) in accordance with the repayment period as agreed herein, from the date of delay, interest shall be calculated and collected at the interest rate agreed herein plus 50% as a penalty interest rate: for the interest that Party A fails to pay on time, compound interest shall be calculated and collected at the penalty interest rate as agreed in the present paragraph. |
| 12.3 | If Party A does not use the loan in line with the purpose of loan as agreed in this Contract (including but not limited to sub-lending the loan fund or purchasing other financial products for arbitrage), fails to expend the loan fund in the agreed manner, fails to comply with the commitments, submits the loan application documents with false information, breaks through the constraints of the stipulated financial indicators and breaches other obligations as agreed, Party B has the right to increase the interest rate as agreed herein by 100% as penalty interest rate to calculate and collect the penalty and compound interest on the principal and interest of the loan from the date of breach by Party A. |
| 12.4 | In the event that a loan under this Contract is overdue or not utilized for the purpose as agreed in this Contract, overdue, penalty and compound interest shall be charged on a monthly basis. |
| 12.5 | If the same loan is both overdue and misappropriated, the penalty interest rate shall be the higher. |
| 12.6 | If Party B is unable to release credit loan to Party A in accordance with this Contract due to reasons unattributable to Party B, such as the credit line obtained by Party A from Party B exceeding the credit line that Party B may grant to a single customer or a group customer, or regulatory requirements such as the regulatory authorities’ control on the limit of loan of the government financing platforms, or the regulatory authorities’ restrictions on the size of loan released by Party B, Party B shall not bear the liabilities for breach of contract for failure to release the credit loan. |
Article 13 Transfer
| 13.1 | Party B may assign its rights hereunder to any third party without prior consent of Party A; |
| 13.2 | Without Party B’s prior written consent, Party A shall not assign any of its rights or obligations under this Contract to any third party. |
Article 14 Settlement of Dispute
All disputes between Party A and Party B arising out of this Contract shall be settled through negotiation, and if the negotiation fails, either party may settle the dispute in accordance with Method A:
| A. | File a lawsuit with relevant competent people’s court in the place where Party B is located; |
| B. | Submit the dispute to the _____ Arbitration Commission for arbitration. |
Article 15 Notice and Service
| 15.1 | Notices, letters, etc. sent by one party to the other under this Contract shall be sent to the address and contact person first written above. If one party changes its name, address, contact person and contact number, it shall promptly notify the other party in writing of the change within 5 days after the change, and the service before the other party actually receives the notice of the change shall still be valid service. In case of failure to notify the change in the agreed manner, the original party, service address, contact person and contact number remain valid. |
| 15.2 | Notices, letters and other written materials sent by one party to the other party shall be deemed to have been served on the third day after they are posted. If the date of service falls on a day that is not a business day, it shall be deemed to have been served on the next business day. |
| 15.3 | The addresses and contact persons specified in this Contract shall also be the addresses for the parties’ work contacts and the service of legal documents and legal instruments from relevant people’s court or arbitration institution in the event of dispute settlement, and if various litigation materials issued by relevant people’s court or arbitration institution (including the complaint, evidentiary materials, summons for the court hearing, various notices, and judgments, etc.) are served on the other party hereto at the said address, it shall be deemed as valid service. The abovementioned service address is continuously applicable during the period for the main contract performance, first instance, second instance and retrial and enforcement by relevant people’s court, and arbitration and award enforcement. |
| 15.4 | Where the parties hereto or relevant people’s court or arbitration institution mail or send relevant documents to the other party at the abovementioned service address for performance, modification, rescission and dispute settlement of the main contract, the date of return of the documents shall be regarded as the date of service in the event of failure in service (including but not limited to no one signing for the documents, unknown address, relocation of address, or failure to pick up the documents for a long time); and where the documents are directly served at the foregoing mailing address, the date when the serving person indicates relevant situation in the proof of service or the documents are left or posted shall be deemed as the date of service in the event of failure in service (including, but not limited to, no one signing for the documents, unknown address, relocation of address, rejection of the documents, etc.). |
| 15.5 | The parties confirm that the contract number, names and addresses of service are filled in by the parties on their own, and clearly knows that if the parties or relevant people’s court or arbitration institution serves the documents at the abovementioned addresses, even if the service fails, the legal consequences of constructive service also arise. |
| 15.6 | The service clause and the dispute settlement clause are independent and not affected by the validity of this Contract as a whole or any other clause. |
Article 16 Supplementary Provisions
| 16.1 | If Party A and Party B have entered into the Comprehensive Credit Contract (No. ), this Contract shall be the specific business contract under such Comprehensive Credit Contract. |
| 16.2 | The reference to quarter herein means every three months as a quarter rather than natural season. |
| 16.3 | In the event of any inconsistency between the contents of this Loan Contract and the loan receipt hereunder, the loan receipt shall prevail; |
| 16.4 | This Contract shall be executed in two originals, one copy for Party A and one copy for Party B, and each copy has the same legal effect. |
Article 17 Other Agreements
Party A (Seal):
Signature of Party A’s Legal Representative (or Authorized Representative):
| /s/ Gao Xiang /seal/ Lai Gang |
 |
|
Date of Signing:
April 18, 2025
Party B (Seal):
Signature of Party B’s Person in Charge (or Authorized Representative): (Signature)
Date of Signing: April 18, 2025
Place of Signing: Jizhou Zhujiang Rural Bank
Exhibit 4.12
[2023] L.L.N.S.H.L.J.Z. No.: 17229202311231003001
Working Capital Loan Contract
| Borrower | Jiangxi Universe Pharmaceuticals Co., Ltd. |
| Lender | Jiangxi Luling Rural Commercial Bank Co., Ltd. |
 |
Jiangxi Rural Commercial Bank |
Special Notice: In order to protect the legitimate rights and interests of the Borrower, the Lender hereby requests the Borrower to give full attention to all provisions concerning the rights and obligations of the parties, especially those shown in bold. If the Borrower has any objection, it shall raise the objection to the Lender. Otherwise, after this Contract is entered into by and between the Borrower and the Lender, all the terms and conditions herein represent the true intention of both parties, are protected by law, and shall be legally binding on both parties herein.
Working Capital Loan Contract
[2023] LJZ No.: 17229202311231003001
Borrower: Jiangxi Universe Pharmaceutical Co., Ltd.
Business License No.: 913608217670218430
Legal Representative / Person in Charge: LAI Gang
Business Address: No. 265, Jingjiu Avenue, Jinggangshan Economic and Technological Development Zone, Ji’an County
Mailing Address: The same as above
Postal Code: 343100 Tel.: 13970661293
Electronic Contact Information (Email and WeChat Account No.):
Lender: Jiangxi Luling Rural Commercial Bank Co., Ltd.
Legal Representative / Person in Charge: HU Fushan
Business Address: No. 205, Fuchuan Road, Ji’an County
Postal Code: 343100
Tel.: 8435534 Fax:_____________________
Pursuant to the laws and regulations of the People’s Republic of China and other relevant regulations, the Borrower and the Lender have reached an agreement with respect to the matter that the Lender grants a working capital loan to the Borrower, and hereby execute this Contract by consensus, which shall be binding on both parties.
Chapter 1 Execution Provisions
Article 1 Loan Amount and Currency
Loan Amount (in words): CNY Fifteen Million.
(In Figures) CNY 15,000,000.00.
The loan amount under this Contract is: ☐ revolving borrowing limit ☒ non-revolving loan amount.
Article 2 Loan Term
The valid loan term under this Contract shall be: 24 months from November 11, 2023 to November 14, 2025.
☐ In the event that the loan amount hereunder is a revolving borrowing limit, the term of borrowing limit shall be the same as the valid loan term as agreed herein. The term of each loan shall be subject to the term recorded in the loan note.
☒ In the event that the loan amount hereunder is a non-revolving borrowing limit, the loan term shall be the same as the valid loan term as agreed herein. The specific loan term shall be subject to the term recorded in the loan note.
If the Borrower has any default circumstance listed in Article 19 of this Contract, and the Borrower agrees that the Lender may recover the loan in advance, then the Lender may announce that the date of recovering the loan in advance is the due date of the loan.
Article 3 Loan Purpose
The loan borrowed hereunder shall be used for turnover of working capital.
Without the written consent of the Lender, the Borrower may neither change the loan purpose nor use the loan for any other purposes. The Lender shall have the right to supervise the Borrower’s use of the loan.
Article 4 Loan Interest Rate, Interest Calculation and Settlement
1. Loan Interest Rate
The method as described in following Item (1) shall apply for the determination of loan interest rate and a simple interest calculation shall be applied:
(1) Fixed Interest Rate. The annual interest rate shall be 3.95%.
The loan prime rate (LPR) recently published on ☒ the date of signature hereof ☐ withdrawal date for 1 years’ loan, which is 3.45, and ☒ increased percentage points ☐ decreased percentage points, which is 50 bp (1bp = 0.01%). The annual interest rate shall be 3.95%. The interest rate shall remain unchanged during the loan term.
(2) Floating Interest Rate.
The loan interest rate shall be determined by the loan prime rate (LPR) recently published on the working day before the withdrawal date for _____ years’ loan and £increased percentage points £decreased percentage points, which is ____ bp. The increased or decreased percentage points shall remain unchanged during the term of this Contract. In case of any adjustment to the LPR, its loan interest rate determination method shall be handled according to the following Item and the Lender will not give a further notice to the Borrower:
① Annual Adjustment. From January 1 of the next year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
② Annual Adjustment. From the corresponding date of the corresponding month in the corresponding year, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
③ Quarterly Adjustment. From the corresponding date of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
④ Quarterly Adjustment. From the first day of the first month in the corresponding quarter, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑤ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein (If there is no corresponding day in the month of adjustment, the last day of such month shall be treated as the corresponding day);
⑥ Monthly Adjustment. From the corresponding date of the corresponding month, the loan interest rate shall be adjusted, on the basis of the LPR recently published, in accordance with the increased or decreased percentage points agreed herein;
⑦ Immediate Adjustment. From the date immediately following the date of the LRP recently published, the loan interest rate shall be adjusted, on the basis of the new LPR, in accordance with the increased or decreased percentage points agreed herein.
(3) The loan interest rate shall be determined by other methods: ________/________________.
If the Borrower chooses the “(2) floating interest rate” method, and when the loan prime rate (LPR) of the loan market increases, the monthly repayment amount of the Borrower will increase. If the Borrower still makes the repayment according to the repayment amount before adjustment, the monthly repayment amount will be insufficient, resulting in penalty interest and compound interest and affecting the credit record of the Borrower.
2. Interest Settlement Method
The Borrower will settle the interest in a method as described in following Item (2) :
(1) Quarterly Interest Settlement. The 20th day of the last month of each quarter shall be the interest settlement date, and the 21st day shall be the interest payment date.
(2) Monthly Interest Settlement. The 20th day of each month shall be the interest settlement date, and the 21st day shall be the interest payment date.
(3) The interest shall be settled by other methods: _____/__________________________.
In the event that the repayment date of the last installment of loan principal is not the interest payment date, such repayment date of the last installment of loan principal shall be the interest payment date on which the Borrower shall pay off all the interests payable.
3. Penalty Interest Rate
(1) In the event that the Borrower fails to repay the loan within the agreed time limit, interest shall be calculated and charged over the overdue part at the penalty interest rate for overdue loan from the overdue day, until the principal and interest are paid off;
(2) In the event that the Borrower uses the loan for any purposes other than those agreed herein, interest shall be calculated and charged over the misappropriated part at the penalty interest rate for misappropriated loan from the misappropriation date, until the principal and interest are paid off;
(3) In the event that the loan is overdue and misappropriated, interest shall be calculated and charged at the penalty interest rate for misappropriated loan;
(4) With respect to the interest and penalty interest that the Borrower fails to pay as scheduled, compound interest shall be calculated and charged at the penalty interest rate agreed in this paragraph in the interest settlement method as agreed in Paragraph 2 hereof;
(5) In case of any adjustment to the loan interest rate agreed herein, the penalty interest and compound interest shall be calculated at the adjusted interest rate from the adjustment date;
(6) Penalty Interest Rate
The penalty interest rate for overdue loan shall be 50% higher than the loan interest rate agreed in Paragraph 1 hereof; the penalty interest rate for misappropriated loan shall be 100% higher than the loan interest rate agreed in Paragraph 1 hereof.
Article 5 Loan Disbursement and Repayment Account
The Borrower shall open an account as follows with the Lender as the loan disbursement and repayment account, which shall be used for loan disbursement, payment and repayment.
Bank of deposit: Luling Rural Commercial Bank
Account Name: Jiangxi Universe Pharmaceuticals Co., Ltd.
Account Number: 17229920100001758
Article 6 Repayment
Unless otherwise agreed by the parties, the Borrower shall repay the loan hereunder in accordance with the repayment schedule as set forth in Item 1 below:
1. Repay the loan hereunder in full upon the expiration of the loan term.
2. Repay the loan hereunder in accordance with the following repayment schedule:
| Repayment Time | Repayment Amount |
| 1. | |
| 2. | |
| 3. | |
| 4. | |
| 5. | |
| 6. | |
| 7. | |
| 8. | |
| 9. | |
| Total |
3. Other Repayment Schedule: ________/____________________________.
4. Where the Borrower makes repayment in advance, it shall obtain the consent from the Lender 7 banking days in advance.
Article 7 Guarantee
The loan hereunder shall be a guaranteed (credit/ guaranteed) loan. The guarantee type shall be mortgage (guarantee/ mortgage/ pledge), and the guarantee contract shall be executed separately.
Article 8 Contract Agreements on the Borrower’s Financial Indicators:
| 1. | ||
| 2. | ||
| 3. |
Article 9 Dispute Resolution
1. After this Contract takes effect, any dispute arising from the execution or performance hereof or in connection with this Contract shall be settled by both parties through negotiation. If such negotiation fails, either party may file a lawsuit with the People’s Court having jurisdiction over the place of the Lender in accordance with the law.
2. During the dispute resolution, in the event that the dispute does not affect the performance of the remaining provisions of this Contract, such remaining provisions shall continue to be performed.
3. After negotiation between the parties, the parties may conduct notarization for the compulsory enforcement of this Contract. The Borrower agrees that this Contract shall have the compulsory enforcement effect after it is notarized. In the event that the Borrower fails to perform its obligations under this Contract, the Lender may apply to the People’s Court having jurisdiction for compulsory enforcement according to law.
Article 10 Effectiveness of the Contract
This Contract shall take effect from the date when both parties affix their signatures and seals hereto.
This Contract is made out in triplicate, with the Borrower, the Lender ,the Real Estate Registration Burear holding one counterpart each. Each counterpart shall have the same legal effect.
Article 11 Other Agreements
Chapter 2 Standard Provisions
Article 12 Interest Calculation
The interest shall be calculated from the Borrower’s actual withdrawal date and shall be calculated according to the actual withdrawal amount and use days of loan.
Interest Formula: Interest = Principal × Actual Days × Daily Interest Rate.
The daily interest rate is calculated on a base of 360 days a year. Conversion Formula: Daily Interest Rate = Annual Interest Rate / 360.
Article 13 Loan Disbursement Conditions
1. The Borrower must meet all the following conditions for loan disbursement, otherwise the Lender shall have no obligation to disburse any loan to the Borrower, unless the Lender agrees to disburse the loan in advance:
(1) The Contract and its appendixes have become effective;
(2) The Borrower has reserved to the Lender the Borrower’s documents, receipts, seals, lists of persons and specimen signatures in relation to the execution and performance of this Contract and filled in the relevant vouchers;
(3) The Borrower has, according to the Lender’s requirements, opened an account necessary for the performance of this Contract;
(4) The Borrower, within 3 banking days prior to the withdrawal, has submitted to the Lender the written withdrawal notice and the relevant supporting documents for loan purpose which is consistent with the purpose as agreed herein, and has completed the relevant withdrawal procedures;
(5) The Borrower has submitted to the Lender the resolution and letter of authorization of the board of directors or other competent authorities, which agree to the execution and performance of this Contract;
(6) In accordance with relevant regulatory provisions and management requirements of the Lender, if the loan exceeds a certain amount or meets other conditions, the Lender shall, according to the Borrower’s withdrawal application and payment authorization, pay the loan to the payment object conforming to the purpose agreed herein in a manner of authorized payment by the Lender;
(7) In addition to the credit loan, the Borrower has provided the corresponding guarantee as required by the Lender and has completed the relevant guarantee procedures, and the guarantee is legal and valid;
(8) The Borrower has not breached this Contract or any other contracts executed by and between the Borrower and the Lender;
2. In the event that the Borrower fails to make any withdrawal for 3 consecutive months from the contract execution date, the Lender shall be entitled to cancel the borrowing limit.
Article 14 Special Arrangements on Revolving Loan (Maximum Loan)
1. During the term of revolving borrowing limit, the sum of the loan principal balance of at any time shall not exceed the revolving borrowing limit; the repayment date of any withdrawal shall not exceed the term of revolving borrowing limit.
2. As agreed by both parties, the Lender shall reasonably set the amount and term of each revolving loan according to the scale and cycle of the Borrower’s production and operation.
Article 15 Loan Amount Payment
1. The authorized payment by the Lender means that the Lender pays the loan fund to the Borrower’s counter-party in a transaction conforming to the purpose agreed herein according to the Borrower’s withdrawal notice and payment authorization.
Payment of the Borrower’s loan fund for which the amount of a single payment under this Contract exceeds the specified amount shall be made in a manner of authorized payment by the Lender.
In the event of the authorized payment by the Lender, the Borrower shall make express payment authorization and provide other necessary payment information (including name of counter-party who receives payment, account number of such counter-party, and amount of payment) in the withdrawal notice, and submit to the Lender the supporting documents for loan purpose such as business contracts required for the examination. In this case, the Lender shall pay the loan fund to the counter-party of the Borrower via the Borrower’s account upon examination and approval. In the event of the Lender’s failure to perform its obligation to pay upon authorization resulting from untruthfulness, incorrectness, and incompleteness of the information of payment authorization and relevant transactions furnished by the Borrower, the Lender shall not be held liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. The Lender will make payment to the account of the Borrower’s counter-party in accordance with the Borrower’s withdrawal notice and the payment certificate as required by the Lender.
In the event that the Lender, upon examination, discovers that the supporting documents for loan purpose such as business contracts furnished by the Borrower fail to comply with the Contract or there is any other defects, the Lender shall be entitled to request the Borrower to supplement, replace, explain or re-furnish such documents, and the Lender may suspend granting or paying of such loans until the Borrower has furnished the supporting documents such as business contracts to the satisfaction of the Lender.
In the event that the account-holding bank of the counterparty returns such payments, resulting in the Lender’s failure to transfer such loans to the Borrower’s counterparty as authorized by the Borrower in a timely manner, the Lender shall not be liable for such failure whatsoever and the Borrower’s obligation to repay under the Contract shall not be affected. With respect to the funds returned by the account-holding bank of the counterparty, the Borrower shall re-furnish the payment authorization and the supporting documents for loan purpose such as business contracts required for the examination, and the Lender shall pay the loan fund to the counterparty of the Borrower via the Borrower’s account upon examination and approval.
All the expenses incurred by the payment of loan to the counterparty designated by the Borrower in a manner of authorized payment under this Contract shall be borne by the Borrower. The Borrower shall pay the above expenses to the Lender at the time of the authorized payment of each loan.
The Borrower shall not violate the above provisions to dodge the authorized payment by the Lender by way of breaking up a large amount into several small amounts.
2. Except for the cases where the authorized payment by the Lender must be adopted as stipulated in the preceding paragraph, unless otherwise agreed by both parties, payment of other loans shall be made by the Borrower itself, namely, after the Lender disburses the loans to the Borrower’s account pursuant to the withdrawal application submitted by the Borrower, the Borrower pay by itself to the its counterparty that complies with the purpose as agreed in the Contract.
In the event that the Borrower needs to change the aforesaid repayment schedule, it shall submit a written application to the Lender 10 banking days prior to the maturity date of the loan, and the changed repayment schedule is subject to the written confirmation by the Parties.
3. In the event that the Borrower needs to extend the loan term agreed herein, it shall submit a written application of extension to the Lender 30 banking days prior to the maturity date of the loan, and the Lender shall decide whether to approve the extension. In applying for the extension of a guaranteed loan, mortgage loan or pledged loan, the guarantor, mortgagor or pledgor shall also issue a written certificate of approval. the parties shall enter into a renewal agreement after the Lender approves the extension. In the event that the Borrower’s application for extension is not approved by the Lender, the Borrower shall still repay the loan in full according to the repayment term agreed herein.
4. Unless otherwise agreed by the Parties, if both the principal and the interests are overdue by the Borrower, the Lender shall be entitled to decide on the sequences for repaying the principal or the interests; under the condition of installment repayment, if several mature installments and overdue installments exist under this Contract, the Lender shall be entitled to decide the sequences of repayment; if several outstanding loan contracts exist between the Parties, the Lender shall be entitled to decide the sequences for repaying any contract.
5. The Borrower shall repay the loan principal, interests and other amounts payable in full and on time according to provisions stated herein. The Borrower shall, before the end of counter business on the repayment date and each interest settlement date, deposit in full the current interests, principal and other amounts payable to the repayment account opened with the Lender, and the Borrower shall authorize the Lender to collect the funds on the repayment date or the interest settlement date or the Borrower shall be required to cooperate in handling the relevant transfer procedures. In the event that the amount in the repayment account is insufficient to pay the full amount due from the Borrower, the Borrower shall agree that Lender is entitled to decide the sequences for repayment.
6. The Lender shall be entitled to collect the loan in advance on the basis of the capital withdrawal of the Borrower.
7. Loan Note: The loan note shall be an integral part of this Contract. In the event that there is no record in this Contract, or the loan amount, withdrawal amount, repayment amount, borrow date and maturity date of the loan, loan term, loan interest rate and loan purpose as recorded in this Contract is inconsistent with those recorded in the loan note, the loan note shall prevail.
Article 16 Guarantee
In the event that any event occurs to the Borrower or the guarantor, and causes the Lender to believe that it may affect the performing capability of the Borrower or the guarantor; or the guarantee contracts are deemed as invalid, canceled or resolved; or the performing capability of the Borrower or guarantor may be affected due to the deterioration in their financial condition or that the Borrower and the guarantor are involved in substantial lawsuit or arbitration or other reasons; or the guarantor breaches the guarantee contracts or other contracts with the Lender; or the collateral value decreases or gets lost due to the devaluation, damage, lost or sequestration of the collateral; the Lender shall be entitled to require, and the Borrower shall have the obligation to provide new guarantee, supplement or replace the guarantor to guarantee the liabilities under this Contract.
Article 17 Representations and Undertakings
1. The Borrower is a legal entity incorporated, registered and existing under the administration for industry and commerce or other competent authorities and has full capacity of civil rights and conduct to conclude and perform the Contract, and capacity of loan repayment.
2. The Borrower fully agrees to the contents and terms of this Contract, executes and performs this Contract out of true intention, has obtained all legal and valid authorizations required by the Borrower’s Articles of Association and bylaws, and will not be in violation of any agreement, contract, or other legal documents with binding force to the Borrower. The Borrower has obtained or will obtain all the required approval, consent, documentation or registration for executing and performing this Contract.
3. The Borrower is in good faith and all the documents, financial statements, certifications and other information provided by the Borrower to the Lender under this Contract are true, complete, accurate and valid, and free from false records, material omissions or misleading statements. The financial and accounting reports provided to the Lender are prepared in accordance with Chinese accounting standards, and truly, fairly and completely present the Borrower’s operating and liability condition.
4. The transaction background that the Borrower represents to the Lender is real and legal, not for any illegal purposes such as money laundering. The loan purpose and the source of repayment are clear and legal. The loan purpose and the source of repayment are clear and legal.
5. The Borrower has a good credit status, does not have material bad credit record, and does not conceal from the Lender any fact that may affect the Borrower’s and the Guarantor’s financial condition and performance capability. The Borrower does not conceal from the Lender any litigation, arbitration or claim in which it is involved.
6. The borrower has repaid other debts payable as scheduled and has not maliciously defaulted on the payment of principal and interest of the bank loan.
7. The Borrower shall withdraw and use the loan in accordance with the term and purpose agreed herein. The loan borrowed hereunder shall neither be used for the investment in fixed asset and equity and other investments, nor flow into the securities market or the futures market in any form, or be used for other purposes prohibited or restricted by relevant laws and regulations.
8. The Borrower shall deliver its financial statements (including but not limited to annual, quarterly and monthly reports) and other relevant documents to the Lender on a regularly and timely basis in accordance with the requirements of the Lender; the Borrower shall ensure that the financial indicators will comply with the Contract all the time. If the production and operation qualification/license is subject to the annual audit, such qualification/license will pass the annual examination as scheduled.
9. The Borrower shall withdraw, repay and use the loan as stipulated herein.
10. If the Borrower has executed or will execute with the guarantor under this Contract a counter-guarantee agreement or similar agreement regarding its guarantee obligations, this counter-guarantee agreement or similar agreement will not prejudice any Lender’s right under this Contract.
11. The Borrower shall accept the credit inspection and supervision conducted by the Lender, and provide sufficient assistance and cooperation; from the effective date of this Contract and prior to discharge of the principal and interests and related expenses hereunder, the Borrower agrees and authorizes the Lender to monitor the account opened with the Lender, examine and analyze the Borrower’s production and operation (including but not limited to the construction and operation of the Borrower’s projects), and make dynamic monitoring on the income cash flow and overall fund flow of the Borrower; the Borrower shall accept and actively cooperate with the examination and supervision made by the Lender on the usage of the loan funds including the loan purpose by account analysis, proof inspection and site investigation, and make summary report in a periodic manner as required by the Lender.
12. The Borrower’s merger, division, decrease of capital, equity transfer, external investment, substantial increase of debt financing, transfer of material assets and claims and other events which may have adverse effect on the solvency of the Borrower shall be subject to the written consent of the Lender.
The Borrower shall give a notice to the Lender within 7 days after it becomes or should have become aware of any of the following circumstances:
(1) Change of the Articles of Association, business scope, registered capital, legal representative of the Borrower or the guarantor;
(2) Change of management mode such as joint management in any form, cooperation with foreign enterprises, cooperation, contracting management, reorganization, reform and planned listing;
(3) Involved in material litigation or arbitration cases, sequestration, attachment or supervision of properties or collateral, or establishment of new material liabilities on the collateral;
(4) Winding up, dissolution, liquidation, stopping business for rectification, cancellation, revocation of business license, (applied for) applying for bankruptcy;
(5) Shareholders, directors and current senior managers are suspected of being involved in material cases or economic disputes; or the legal representative/person in charge and current senior executives are found to be in bad health or other material conditions that the they are unqualified for their job;
(6) Events of default by the Borrower under other contracts;
(7) Difficulty in business operation and deterioration of financial position;
(8) In the event that the Borrower is closed, suspended, merged or changes the line of production due to change, restructuring and contracting or with the approval of the competent departments, the Borrower undertakes to give a notice to the Lender in writing within one month prior to the occurrence of the above events and to discharge all debts owed to the Lender immediately. Subject to the consent of the Lender, the Borrower may transfer the debts to the receiving entity or the newly incorporated entity (The Borrower shall, in the process of debt transfer, present and submit to the Lender the documents issued by its competent authority or the contract-issuing party or relevant documents); however, the debt receiving entity must execute a new loan contract with Lender and submit a written certificate of the corresponding guarantor’s approval or implement new guarantee measures, and before the execution of the new contract, the Lender shall have the right to recover the debts from the Borrower, the Guarantor or the Borrower’s receiver at any time.
13. Liquidation of the debts owed by the Borrower to the Lender shall have priority to the loan extended by the shareholders of the Borrower, and precede the debts of the same kind owed by the Borrower to other creditors. In addition, from the effectiveness of the Contract to the time when all the principal, interests and relative fees under the Contract are paid off, the Borrower shall not return the loan from its shareholders.
14. In respect of the loan hereunder, the loan conditions such as guarantee conditions, loan rate pricing, discharge sequence provided by the Borrower for the Lender shall be no less than the current or future conditions provided for any other financial institution.
15. The Borrower shall bear the expenses incurred in connection with the execution and performance of this Contract and the expenses paid and payable by the Lender for realization of its creditor’s right hereunder, including but not limited to litigation or arbitration fees, property preservation costs, attorney fees, enforcement fees, evaluation fees, auction fees, and announcement fees.
16. Account Management
(1) The repayment account opened by the Borrower with the Lender (the account stipulated in Article 5) is a special capital withdrawal account, which is used to collect the corresponding sales revenue or the planned repayment fund. Where the corresponding sales revenue is settled in a non-cash manner, the Borrower shall ensure that it will be promptly transferred into the capital withdrawal account upon receipt.
(2) The Lender shall have the right to supervise the capital withdrawal account, including but not limited to the understanding and supervision of the fund income and expenditure of the account, and the Borrower shall provide relevant cooperation. At the request of the Lender, the Borrower shall execute a special account supervision agreement with the Lender.
17. The Borrower shall dispose the assets in a manner that will not reduce its repayment capability. The Borrower undertakes that the total amount of the Borrower’s external guarantee is equal to or less than _____ times of its net asset, and the total amount of external guarantee as well as the amount of a single guarantee may not exceed the limit as stipulated in its Articles of Association; without the consent of the Lender, the Borrower shall not provide guarantee to any third party or the loans borrowed by the Borrower from any other financial institution with the assets formed by the loans under the Contract.
Article 18 the Related-party Transaction within the Borrower
☐ 1. The Borrower is not identified by the Lender as the group client in accordance with the Guidelines on the Management of Risks of Credits Granted by Commercial Banks to Group Clients (hereinafter referred to the “Guidelines”).
☐ 2. If the Borrower is identified by the Lender as the group client in accordance with the Guidelines, it shall report to the Lender any of the related-party transaction in a timely manner.
☐ 3. The Borrower is subject to such events as major merger, acquisition or reorganization, which in the opinion of the Lender may affect the safety of the loan.
Article 19 Breach of Contract and Settlement
1. The Borrower shall constitute or be deemed to have breached the Contract and shall be liable for breach of contract under any of the following circumstances:
(1) The Borrower fails to perform the obligations of payment and liquidation to the Lender according to the stipulations of the Contract;
(2) The Borrower fails to use the loan in a purpose and way stipulated in this Contract or fails to use the loan borrowed hereunder for the purpose stipulated in the Contract; or the Borrower fails to go through the withdrawal procedures as scheduled according to the withdrawal plan, or changes the withdrawal plan without the Lender’s consent; or the Borrower is in violation of this Contract and dodges the authorized payment by the Lender by way of breaking up a large amount into several small amounts;
(3) The Borrower provides an untrue representation or violates the undertaking it made in this Contract;
(4) If any circumstance under Subparagraph 12 of Article 17 arises, and the Lender believes that may affect the financial condition and performing capability of the Borrower or guarantor, but the Borrower refuses to provide new guarantee or change a guarantor according to this Contract;
(5) The Borrower violates any stipulation under any other contract between the Borrower and the Lender; the Borrower violates any stipulation under any Credit Extension Contract between the Borrower and any other financial institution;
(6) The guarantor violates the stipulations of the guarantee contract, or any default events arise under other contract between the guarantor and the Lender;
(7) The Borrower closes down or is dissolved, withdraw or bankrupted;
(8) Where the Borrower involves in or possibly involves in material economic disputes, litigation, arbitration, or its capital is sealed up, seized or enforced for execution, or the administrative organs such as judicial organs or taxation authorities, and industrial and commercial administration file for investigation or adopt punishment measures on the Borrower according to law which has influenced or may influence the performance of the liabilities under this Contract;
(9) Where the main individual investors and key managerial personnel of the Borrower are changed abnormally, disappear or are investigated or the personal freedom thereof is limited by judicial organs according to law which has influenced or may influence the performance of the liabilities under this Contract;
(10) Where the credit circumstances of the Borrower lowers or finance indexes of the Borrower such as profitability, debt-paying ability, operating capacity and cash flow seriously deteriorate and break through the index binding of this Contract or other financial agreements;
(11) The Borrower takes advantage of the false contracts between the Borrower and the affiliated party to obtain funds or credit from the Lender through transactions without true transaction background, and the affiliated party is subject to such events as major merger, acquisition or reorganization which in the opinion of the Lender may affect the safety of the loan; or the Borrower intends to evade the creditor’s right of the Lender through related-party transactions;
(12) The Borrower causes any liability accident due to its violation of food safety, production safety, environmental protection and other relevant laws and regulations, regulatory provisions or industrial standards which has influenced or may influence the performance of the liabilities under this Contract;
(13) In the event that the loan under this Contract is granted on the basis of credit rating, the Borrower’s credit rating, profitability, asset-liability ratio, net cash flow from operating activities and other indicators do not meet the Lender’s credit loan conditions; or the Borrower, without the written consent of the Lender, establishes mortgage/pledge guarantee or provide guarantee to others with its valid operating assets, which has influenced or may influence the performance of the liabilities under this Contract;
(14) Other circumstances that may have adverse effect on the realization of the creditor’s rights of the Lender under this Contract.
2. When the aforesaid breaches arise, as the case maybe, the Borrower agrees that the Lender may take following measures respectively or simultaneously:
(1) Require the Borrower and guarantor to rectify their breach within time limit.
(2) Decrease, suspend or terminate all or part of the credit lines of the Borrower.
(3) Suspend or terminate all or part of the business application (such as withdrawal) of the Borrower under this Contract or other contracts between the Borrower and the Lender; partly or totally suspend or cancel to issue, pay and transact the unissued loans.
(4) Declare that all or part of the outstanding principal and interest of the loan and other amounts payable of the Borrower under this Contract and other contracts between the Borrower and the Lender shall become due immediately.
(5) Negotiate with the Borrower to supplement the terms of loan issuance and payment; or the Lender shall have the right to change the loan disbursement and payment conditions in accordance with the credit status of the Borrower such as lowering the minimum amount of authorized payment of the Borrower; or the Lender shall have the right to transfer back the loan fund which the Borrower has paid for default.
(6) Terminate or dissolve this Contract, partly or totally terminate or dissolve other contracts between the Borrower and the Lender.
(7) Require the Borrower to compensate the Lender for the Lender’s loss caused by the Borrower’s default.
(8) Deduct from the Borrower’s account which is opened in the Rural Commercial Bank system within the jurisdiction of Jiangxi with notice before or after the deduction, so as to discharge all or part of the Borrower’s debts to the Lender hereunder. The undue deposit in the account shall be deemed to become due in advance.
(9) Exercise security interest; and require the guarantor to take guarantee responsibility.
(10) In the event that the Borrower fails to repay the principal, interest (including penalty interest and compound interest) or other amounts payable as scheduled, the Lender may disclose the default information of the Borrower and the Guarantor and make an announcement for collection through the media or other forms.
(11) Have the right to deduct and debit the deposits and dividends within any account opened by the Borrower in the Rural Commercial Bank system within the jurisdiction of Jiangxi, and to dispose of the Borrower’s equities.
(12) Other measures stipulated by laws and regulations and deemed necessary and possible by the Lender.
Article 20 Reservation of Rights
Any failure by a party to exercise all or part of its rights hereunder or to require the other party to perform or assume all or part of obligations or responsibilities shall not constitute a waiver of such rights or release of the obligations and responsibilities of such party.
Any tolerance, grace or postponement for exercising the rights under this Contract of one Party shall not affect its rights stipulated by this Contract, laws and regulations, and shall not be deemed as a waiver of such rights.
Article 21 Confidentiality
Each party undertakes to keep confidential the trade secrets, technical information, business information and other business secrets obtained from the other party which are not available through public channels. Without the consent of the original provider of the trade secret, neither party shall disclose all or part of the trade secret to any third party, unless otherwise stipulated by laws and regulations or otherwise agreed by both parties.
In the event that either party is in violation of the aforesaid confidentiality obligation, it shall assume the corresponding liability for breach of contract and compensate for the losses caused thereby.
Article 22 Force Majeure
The term Force Majeure as specified in this Contract refers to the objective events that cannot be foreseen, overcome, or avoided and have a significant impact on one party, including but not limited to the natural disasters such as flood, earthquake, fire and storm, as well as the social events such as war and turmoil.
In the event that the Contract cannot be performed as a result of the occurrence of force majeure events, the party affected by the force majeure shall immediately notify the other party of the event in writing, and within 7 days, provide written documents certifying the details of accident and the reasons for non-performance or delay in performance hereof. Upon consensus through negotiation, both Parties may terminate or temporarily delay the performance of the Contract.
Article 23 Alteration, Amendment and Termination
This Contract can be altered and amended in written form upon consensus through negotiation of the Parties, and any alternation and amendment agreed on by the Parties shall constitute an integral part of this Contract.
This Contract may not be terminated until all the rights and obligations are fully preformed, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
The invalidity of any provision of this Contract shall not affect the legal validity of other provisions, unless otherwise stipulated in laws and regulations or agreed by the both Parties.
Article 24 Agreements on Service
1. The contact information (including mailing address, telephone number, fax number, etc.) provided by the Borrower in this Contract shall be true and valid and shall be the address for service of any notice of the Lender for the Borrower. In case of any change to the contact information, the Borrower shall immediately send/mail the change information in writing to the mailing address provided by the Lender in this Contract. Such information change shall become effective upon the Lender’s receipt of the change notice.
2. Unless otherwise expressly provided for in this Contract, the Lender shall be entitled to give notice to the Borrower in any of the following methods. The Lender shall be entitled to choose the notification method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, WeChat or any other communication system. Where the Lender simultaneously chooses several notification methods, the one by which the notice is served to the Borrower earlier shall prevail.
(1) By announcement. The notice shall be deemed to be served on the date on which the Lender publishes the announcement on its website, online banking, telephone banking or business outlets;
(2) By hand. The notice shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower refuses to sign for the receipt, the date on which the server makes a record on the proof of service on the spot;
(3) By mail (including express mail, surface mail or registered mail). The notice, when addressed to the Borrower’s mailing address last known to the Lender, shall be deemed to be served on the date on which the Borrower signs for the receipt, or if the Borrower fails to sign for the receipt, the date on which the mail is returned;
(4) By fax, mobile phone SMS, WeChat or other electronic communication methods. The notice, when sent to the Borrower’s fax number, the mobile phone number, WeChat account number or email address designated by the Borrower which is last known to the Lender, shall be deemed to be served on the date on which the notice is sent.
3. Borrower agrees that, unless the Lender receives from the Borrower a written notice concerning the change of mailing address, the Borrower’s domicile stated in this Contract is the correspondence and contact address. In the future, the delivery addresses of bank statements, collection statements, relevant legal instruments and litigation documents related to the loans under this Contract shall prevail. The Borrower promises to notify the Lender in time when the communication and contact information change, otherwise the documents delivered by the Lender according to the communication and contact information stated in this Contract will be effectively delivered, and the relevant economic and legal responsibilities arising therefrom will be borne by the Borrower and the Mortgagor. During the dispute settlement, if the court serves the judicial documents or other written documents by mail (including express mail, surface mail or registered mail) to the Borrower mailing address last known to the Lender, such documents shall be deemed to be served on the date on which the Borrower signs for receipt of the proof of service; or if Borrower fails to sign for receipt of the proof of service, the date on which the mail is returned;
The court or notary organ shall be entitled to give any notice to the Borrower by any methods of communication agreed in this Paragraph 2. The court or notary organ shall be entitled to choose the communication method as it thinks fit and shall not be held liable for any error, omission or delay in delivery by mail, fax, telephone, telex or any other communication system. Where the court or notary organ simultaneously chooses several communication methods, the one by which the notice is served on the Borrower earlier shall prevail.
Article 25 Appendix
The appendixes confirmed by both parties shall constitute an integral part of this Contract and shall have the same legal effect as this Contract.
Article 26 Other Agreements
1. The Borrower shall not transfer any rights and obligations under this Contract to the third party without written consent of the Lender.
2. The Lender has the right to transfer the creditor’s rights under this Contract to the third party, and shall notify the Borrower.
3. This Contract shall be legally binding upon both Parties and their successors and assignees without prejudice to other provisions of this Contract.
4. All the transactions under this Contract are carried out for each Party’s independent benefits. If, in accordance with relevant laws, regulations and regulatory provisions, other parties to the transaction become the related parties or affiliated persons of the Lender, no Party may seek to affect the fairness of the transaction out of this related-party relationship.
5. The headings and business names in this Contract are used only for convenient reference, which shall not be used to interpret the provisions or the rights and obligations of both Parties.
6. In accordance with relevant laws, regulations and regulatory provisions, the Lender shall have the right to provide the information related to this Contract and other relevant information of the Borrower to the credit reference system of the People’s Bank of China and other credit information database established according to law for reference and use by the institutions or individuals with proper qualification according to law. The Lender shall also have the right to refer the relevant information of the Borrower through credit reference system of the People’s Bank of China and other credit information database established according to law for the purpose of the execution and performance of this Contract.
The parties acknowledge that the Borrower and the Lender have made a full negotiation in connection with all the terms of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and provisions of the Contract. The Borrower confirms that there is no misunderstanding or doubt about all the contents and terms of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
The Borrower and the Lender have made a full negotiation in connection with all the provisions of this Contract. The Lender has requested the Borrower to give special attention to and make a comprehensive and accurate understanding of all provisions concerning the rights and obligations of the parties, and has made explanations to the relevant provisions upon the Borrower’s request. The Borrower has carefully read and fully understood all the contents and terms of the Contract. The Borrower confirms that there is no misunderstanding or ambiguity about all the contents and provisions of the Contract. Both the Borrower and the Lender have the same understanding of the contents and provisions of the Contract and have no objection to the contents and provisions of the Contract.
(The Borrower shall fill in the following by contrast)
(The remainder of this page is intentionally left blank for signatures)
| Borrower (Official Seal): |  |
| Legal Representative or Authorized Agent (Signature & Seal): Lai Gang (Signature) | 
|
November 23, 2023
| Lender (Seal): | 
|
| Legal Representative or Authorized Agent (Signature & Seal): | Fan Juan (Signature) |
November 23, 2023
| Contract Execution Place: |
Exhibit 12.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Gang Lai, certify that:
1. I have reviewed this annual report on Form 20-F of Universe Pharmaceuticals INC (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: April 29, 2025
| By: | /s/ Gang Lai | ||
| Name: | Gang Lai | ||
| Title: | Chief Executive Officer | ||
Exhibit 12.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 302 OF THE
SARBANES-OXLEY ACT OF 2002
I, Lin Yang, certify that:
1. I have reviewed this annual report on Form 20-F of Universe Pharmaceuticals INC (the “Company”);
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company and have:
| (a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| (b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| (c) | Evaluated the effectiveness of the Company’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| (d) | Disclosed in this report any change in the Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and |
5. The Company’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors and the audit committee of the Company’s board of directors (or persons performing the equivalent function):
| (a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Company’s ability to record, process, summarize and report financial information; and |
| (b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Company’s internal control over financial reporting. |
Date: April 29, 2025
| By: | /s/ Lin Yang | ||
| Name: | Lin Yang | ||
| Title: | Chief Financial Officer | ||
Exhibit 13.1
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Universe Pharmaceuticals INC (the “Company”) on Form 20-F for the year ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Gang Lai, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 29, 2025
| By: | /s/ Gang Lai | ||
| Name: | Gang Lai | ||
| Title: | Chief Executive Officer | ||
Exhibit 13.2
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO SECTION 906 OF
THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Universe Pharmaceuticals INC (the “Company”) on Form 20-F for the year ended September 30, 2024, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lin Yang, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:
| (1) | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Date: April 29, 2025
| By: | /s/ Lin Yang | ||
| Name: | Lin Yang | ||
| Title: | Chief Financial Officer | ||
Exhibit 15.1
福建省福州市台江区望龙二路1号国际金融中心（IFC）37层（350005）
电话：+86-591-87850803 传真：+86-591-87816904
37/F, IFC, No.1, Wanglong 2nd Avenue, Taijiang District, Fuzhou, Fujian 350005 P.R.China
Tel：+86-591-87850803 Fax：+86-591-87816904
www.allbrightlaw.com
April 29, 2025
| To: | Universe Pharmaceuticals INC |
| P.O. Box 31119, | |
| Grand Pavillion, Hibiscus Way, 802 West Bay Road, | |
| Grand Cayman, KY1-1205, Cayman Islands |
Dear Sir/Madam,
We hereby consent to the references to our firm’s name under the headings “Item 3 Key Information,” “Item 3 Key Information—D. Risk Factors—Risks Related to Doing Business in China,” “Item 4. Information on the Company—B. Business Overview—Regulations,” and “Item 10. Additional Information—E. Taxation—People’s Republic of China Taxation” in Universe Pharmaceuticals INC’s annual report on Form 20-F for the year ended September 30, 2024 (the “Annual Report”), which is filed with the U.S. Securities and Exchange Commission (the “SEC”) on the date hereof. We also consent to the filing of this consent letter with the SEC as an exhibit to the Annual Report.
In giving such consent, we do not thereby admit that we come within the category of persons whose consent is required under Section 7 of the Securities Act of 1933, or under the Securities Exchange Act of 1934, in each case, as amended, or the regulations promulgated thereunder.
Yours sincerely, |
|
|
/s/ Zhang Biwang |
|
| Zhang Biwang | |
| Lawyer | |
| AllBright Law Offices (Fuzhou) |
Exhibit 15.2
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation by reference in the Registration Statement on Form F-3 (File No. 333-268028) (“Registration Statement”) of our report dated April 29, 2025, relating to the consolidated financial statements of Universe Pharmaceuticals INC included in its annual report on Form 20-F for the years ended September 30, 2024, 2023, and 2022. We also consent to the reference to us under the heading “Experts” in such Registration Statement.
/s/ Enrome LLP
Singapore
April 29, 2025
