Universe Pharmaceuticals INC Reports Financial Results for The First Six Months of Fiscal Year 2024

Rhea-AI Summary

Universe Pharmaceuticals INC (Nasdaq: UPC) reported financial results for the first six months of fiscal year 2024 ended March 31, 2024. The company faced business uncertainties and a global economic slowdown, resulting in a 30.2% decrease in revenue to $12.9 million compared to $18.5 million in the same period last year. Key financial highlights include:

- Loss from operations of $1.7 million, compared to an income of $0.1 million in the previous year
- Net loss of $13.1 million, compared to a net loss of $0.7 million in the previous year
- Loss per share of $3.59, compared to $0.20 in the previous year

The company is focusing on developing online sales channels and implementing digital marketing strategies to improve brand recognition and expand its customer base. On July 15, 2024, Universe Pharmaceuticals closed a self-underwritten public offering, raising $25 million before expenses.

Positive

• Initiated development of online sales channels to complement offline sales
• Implemented digital marketing strategies to improve brand recognition
• Raised $25 million through a public offering of 20,000,000 ordinary shares

Negative

• Revenue decreased by 30.2% to $12.9 million
• Loss from operations of $1.7 million compared to income of $0.1 million in previous year
• Net loss increased to $13.1 million from $0.7 million in previous year
• Loss per share increased to $3.59 from $0.20 in previous year
• Gross margin decreased by 7.0% to 26.2%
• Realized loss on short-term investments of $3,094,084
• Change in fair value of short-term investment resulted in a loss of $7,617,502

Insights

Financial Analyst

Universe Pharmaceuticals' latest financial results reveal significant challenges. Revenue declined by 30.2% to $12.9 million, with a concerning shift from $0.1 million operating income to a $1.7 million loss. The net loss ballooned to $13.1 million, largely due to a $3.1 million realized loss and $7.6 million fair value decline in short-term investments.

Key concerns include:

• Decreased sales volumes in both TCMD (23.4%) and third-party products (29.9%)
• Gross margin compression from 33.2% to 26.2%
• Significant increase in advertising expenses ($1.4 million)

The $25 million raised in July may provide a lifeline, but the company needs to address its core operational issues and risky investment strategy to reverse the negative trend.

Market Research Analyst

Universe Pharmaceuticals' performance reflects broader market challenges in China's pharmaceutical sector. The global economic slowdown has significantly impacted consumer spending power, leading to decreased demand for both TCMD and third-party products. The company's pivot towards online sales channels and increased digital marketing efforts is a strategic move, but results are yet to materialize.

Key market factors influencing performance:

• Economic uncertainty affecting consumer healthcare spending
• Supply chain disruptions (e.g., floods in Anhui and Hubei provinces) increasing raw material costs
• Shift in consumer behavior towards e-commerce platforms

While the company's efforts to adapt are commendable, the market environment remains challenging. The effectiveness of their digital strategy and ability to navigate economic headwinds will be important for future growth.

Investment Risk Analyst

Universe Pharmaceuticals' financial results raise significant red flags for investors. The company's risk profile has deteriorated substantially, with several concerning trends:

• Operational losses indicating core business challenges
• Substantial losses from short-term investments, suggesting poor risk management
• Negative cash flow from operations ($2.4 million)
• Increased reliance on financing activities for cash

The 1,720.7% increase in loss per share to $3.59 is particularly alarming. While the recent $25 million capital raise provides short-term liquidity, it also dilutes existing shareholders. Investors should closely monitor the company's ability to stabilize operations and improve investment strategies, as current trends suggest a high-risk investment with potential for further losses.

JI’AN, Jiangxi, China, Sept. 20, 2024 (GLOBE NEWSWIRE) -- Universe Pharmaceuticals INC (the “Company,” “we,” “our” and “us”) (Nasdaq: UPC), a pharmaceutical producer and distributor in China, today announced its unaudited financial results for the first six months of fiscal year 2024 ended March 31, 2024.

Mr. Gang Lai, Chairman of the Board of Directors and CEO of Universe Pharmaceuticals INC, commented, “During the first six months of fiscal year 2024, we navigated business uncertainties and adjusted our business strategy to offset the impact of the global economic slowdown. As a result, we generated $12.9 million in revenue for the six months ended March 31, 2024, lower than the $18.5 million revenue generated in the same period of last year. We made considerable efforts to implement our growth strategies during this challenging period. To complement our offline sales channels, we started developing online sales channels, which helped us seize more opportunities and we expect online sales to drive our business growth in the fast-evolving market. Through executing our growth strategy of emphasizing digital marketing and expanding our sales on e-commerce platforms, our goal is to improve our brand recognition, deliver products to more customers, and expand our business scale. Looking forward, we intend to continue implementing our expansion strategy, through which we hope to achieve greater market penetration and customer base expansion, with the goal of creating long-term value for our shareholders.”

Financial Highlights for the Six Months Ended March 31, 2024

		For the Six Months Ended March 31,
($ millions, except per share data)		2024				2023				% Change
Revenues			12.9				18.5				-30.2	%
(Loss) income from operations			(1.7	)			0.1				-1,266.0	%
Net loss			(13.1	)			(0.7	)			1,731.3	%
Loss per share			(3.59	)			(0.20	)			1,720.7	%

• Revenues decreased by 30.2% to $12.9 million for the six months ended March 31, 2024 from $18.5 million for the six months ended March 31, 2023, primarily attributable to decreased sales volume of the Company’s traditional Chinese medicine derivatives (“TCMD”) products and third-party products by 1,863,919 and 1,712,660 units, or 23.4% and 29.9%, respectively, due to decrease in customer demand resulted from economic slowdown, as well as a 3.3% negative impact from fluctuations in foreign currency exchange rate.
• Loss from operations was $1.7 million for the six months ended March 31, 2024, compared to an income from operations of $0.1 million for the six months ended March 31, 2023, due to the decrease in revenue as discussed above.
• Net loss was $13.1 million for the six months ended March 31, 2024, compared to a net loss of $0.7 million for the six months ended March 31, 2023. Realized loss on short-term investments from wealth management financial products was $3,094,084 for the six months ended March 31, 2024, compared to short-term investment income of $166,931 for the six months ended March 31, 2023. The Company also recorded change in fair value of short-term investment of $7,617,502 for its investment holdings during the six months ended March 31, 2024. No change in fair value of short-term investment was recognized for the six months ended March 31, 2023.
• Loss per share was $3.59 for the six months ended March 31, 2024, compared to loss per share of $0.20 for the six months ended March 31, 2023.

Financial Results for the Six Months Ended March 31, 2024 Compared to the Six Months Ended March 31, 2023

Revenues

Total revenues decreased by $5,582,816, or 30.2%, to $12,884,370 for the six months ended March 31, 2024, from $18,467,186 for the six months ended March 31, 2023.

		For the Six Months Ended March 31,
		2024											2023
		Revenue				Cost of revenue				Gross margin			Revenue				Cost of revenue				Gross margin
TCMD products sales		$	6,870,591			$	5,602,807			18.5	%		$	9,374,312			$	6,617,445			29.4	%
Third-party products sales			6,013,779				3,912,232			34.9	%			9,092,874				5,721,600			37.1	%
Total		$	12,884,370			$	9,515,039			26.2	%		$	18,467,186			$	12,339,044			33.2	%

Sales of TCMD products decreased by $2,503,721, or 26.7%, to $6,870,591 for the six months ended March 31, 2024, from $9,374,312 for the six months ended March 31, 2023. The decrease in the sales of TCMD products was mainly attributable to the following: (i) a 23.4% decrease in sales volume of TCMD products by 1,863,919 units, to 6,097,325 units sold in the six months ended March 31, 2024, from 7,961,244 units sold in the six months ended March 31, 2023. Global economic slowdown has led to a decline in customers’ spending power, and customer demand decreased during the six months ended March 31, 2024; and (ii) a 3.3% negative impact from fluctuations in foreign currency exchange rate, as the average exchange rate used in converting Renminbi (“RMB”) into U.S. dollars (“USD”) changed from US$1 to RMB6.9761 in for the six months ended March 31, 2023 to US$1 to RMB7.2064 in the six months ended March 31, 2024.

Sales of third-party products decreased by $3,079,095, or 33.9%, to $6,013,779 for the six months ended March 31, 2024, from $9,092,874 for the six months ended March 31, 2023. The decrease in the sales of third-party products was mainly attributable to the following: (i) a 29.9% decrease in sales volume of third-party products by 1,712,660 units, to 4,014,841 units sold in the six months ended March 31, 2024, from 5,727,501 units sold in the six months ended March 31, 2023 due to a decline in customer demand; and (ii) a 3.3% negative impact from fluctuations in foreign currency exchange rate.

Cost of revenues and Gross profit

Cost of revenues decreased by $2,824,005, or 22.9%, to $9,515,039 for the six months ended March 31, 2024, from $12,339,044 for the six months ended March 31, 2023, due to a decrease in sales volume of the Company’s TCMD products and third-party products, partially offset by an increase in the average cost of TCMD products by $0.09, or 10.8%, from $0.83 for the six months ended March 31, 2023 to $0.92 for the six months ended March 31, 2024. 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 an increase in the prices of the traditional Chinese medicine raw materials during the six months ended March 31, 2024.

Gross profit decreased by $2,758,811 to $3,369,331 for the six months ended March 31, 2024, from $6,128,142 for the six months ended March 31, 2023. Gross margin decreased by 7.0% to 26.2% for the six months ended March 31, 2024, from 33.2% for the six months ended March 31, 2023.

Operating expenses

Selling expenses increased by $1,723,849, or 74.0%, to $4,054,357 for the six months ended March 31, 2024, from $2,330,508 for the six months ended March 31, 2023, primarily attributable to (i) an increase in advertising expenses by $1,432,932, from $1,340,368 in the six months ended March 31, 2023, to $2,773,300 in the six months ended March 31, 2024. The Company entered into advertising service agreement with Health Headline to promote its brand on the Health Headline’s website and mobile app. The Company increased publicity efforts for its products and brand, and the advertising expenses increased significantly during the six months ended March 31, 2024; and (ii) an increase in salary and employee benefit expenses by $112,104, or 32.1%, as the Company recruited 10 new employees in the marketing department to promote sales of its products.

General and administrative expenses decreased by $411,445, or 29.8%, to $968,608 for the six months ended March 31, 2024 from $1,380,053 for the six months ended March 31, 2023, primarily attributable to (i) a decrease in bad debt expense by $265,530, because the Company accrued less bad debt expenses based on its assessment of the collectability of the accounts receivable and advance to suppliers; and (ii) a decrease in office supply and utility expense by $217,681 due to cost savings.

Research and development expenses decreased by $2,181,832, or 96.2%, to $86,503 for the six months ended March 31, 2024, from $2,268,335 for the six months ended March 31, 2023, primarily attributable to (i) a decrease in development expenditure on improving production process of the Company’s Chinese medicine products in the amount of $1,505,144. The Company 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 six months ended March 31, 2023. These development activities were completed and results were integrated in production in September 2023, and no such expenses incurred during the six months ended March 31, 2024; and (ii) a decrease in the materials used in the research and development activities by $666,765 in connection with development activities on improving production process.

Other income (expenses), net

Total other expenses, net was $10,696,172 for the six months ended March 31, 2024, compared to total other income of $109,685 for the six months ended March 31, 2023. Realized loss on short-term investment from wealth management financial products was $3,094,084 for the six months ended March 31, 2024, compared to realized income on short-term investment of $166,931 for the six months ended March 31, 2023. The Company’s short-term investment consists of non-rated company bonds and shares of public companies, which represented 93.1% and 6.9% of the total investment as of March 31, 2024, respectively. The number of global corporate defaults nearly doubled in 2023 as inflation and higher interest rates squeezed some issuers’ cash flows. Furthermore, financing conditions were challenging for the lowest-rated borrowers and funding liquidity was tight. The Company incurred approximately 90% loss for two disposed bonds, and recorded change in fair value of short-term investment of $7,617,502 for its bond holdings during the six months ended March 31, 2024. No change in fair value of short-term investment was recognized for the six months ended March 31, 2023.

Provision for income taxes

Provision for income taxes was $665,148 for the six months ended March 31, 2024, representing a decrease of $309,210, or 31.7%, from $974,358 for the six months ended March 31, 2023, due to decreased taxable income. As the Company’s PRC principal subsidiaries, Jiangxi Universe Pharmaceuticals Co., Ltd. and Jiangxi Universe Pharmaceuticals Trade Co., Ltd., incurred net loss during the six months ended March 31, 2024, the Company evaluated the likelihood of the realization of deferred tax assets, determined that deferred tax assets arising from net operating loss carry-forwards in previous years might not be fully realized, and recognized $665,148 in valuation allowance for deferred tax assets during the six months ended March 31, 2024.

Net loss

Net loss was $13,101,457 for the six months ended March 31, 2024, representing a $12,386,030 decrease from a net loss of $715,427 for the six months ended March 31, 2023.

Basic and diluted loss per share were $3.59 for the six months ended March 31, 2024, compared with basic and diluted loss per share of $0.20 for the six months ended March 31, 2023.

Balance Sheet

As of March 31, 2024, the Company had cash of $8,861,590, as compared to $5,285,247 as of September 30, 2023.

Cash Flow

Net cash used in operating activities was $2,429,621 for the six months ended March 31, 2024, compared with cash provided by operating activities of $4,798,702 for the six months ended March 31, 2023.

Net cash used in investing activities was $67,656 for the six months ended March 31, 2024, compared with $646 for the six months ended March 31, 2023.

Net cash provided by financing activities was $6,067,732 for the six months ended March 31, 2024, compared with $2,080,918 for the six months ended March 31, 2023.

Subsequent Event

On July 15, 2024, the Company closed its self-underwritten public offering (“Offering”) of 20,000,000 ordinary shares, par value $0.01875 per share (the “Ordinary Shares”). 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.

About Universe Pharmaceuticals INC

Universe Pharmaceuticals INC, headquartered in Ji’an, Jiangxi, China, is a pharmaceutical producer and distributor in China. The Company specializes in the manufacturing, marketing, sales and distribution of traditional Chinese medicine derivatives products targeting the elderly with the goal of addressing their physical conditions in the aging process and to promote their general well-being. The Company also distributes and sells biomedical drugs, medical instruments, Traditional Chinese Medicine Pieces, and dietary supplements manufactured by third-party pharmaceutical companies. Currently, the Company’s products are sold in 30 provinces of China. For more information, visit the company’s website at http://www.universe-pharmacy.com/.

Forward-Looking Statements

All statements other than statements of historical fact in this announcement are forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties and are based on current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy and financial needs. Investors can identify these forward-looking statements by words or phrases such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “potential,” “continue,” “is/are likely to” or other similar expressions. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward-looking statements are reasonable, it cannot assure you that such expectations will turn out to be correct, and the Company cautions investors that actual results may differ materially from the anticipated results and encourages investors to review other factors that may affect its future results in the Company’s most recent annual report on Form 20-F and in its other filings with the U.S. Securities and Exchange Commission.

For more information, please contact:
Email:IR@universe-pharmacy.com
Phone:+86-0796-8403687

UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS
		As of
		March 31, 2024				September 30, 2023
		(Unaudited)
ASSETS
CURRENT ASSETS
Cash		$	8,861,590			$	5,285,247
Short-term investments			2,527,603				13,219,005
Accounts receivable, net			14,384,228				10,667,603
Due from related parties			-				61,678
Inventories, net			3,386,052				3,343,266
Advance to suppliers			368,960				180,643
Prepayment for acquisition			3,462,460				3,426,535
Prepaid expenses and other current assets			539,240				590,377
TOTAL CURRENT ASSETS			33,530,133				36,774,354
Property, plant and equipment, net			3,522,997				3,699,965
Prepayments made to a related party for purchase of property			2,215,974				2,192,982
Prepayments for construction in progress			9,225,725				9,092,996
Intangible assets, net			147,652				148,584
Investment in equity securities			692,492				685,307
Deferred tax assets			-				656,980
Prepaid expenses-related party, non-current			96,141				35,864
TOTAL NONCURRENT ASSETS			15,900,981				16,512,678
TOTAL ASSETS		$	49,431,114			$	53,287,032
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES
Short-term bank loans		$	4,431,949			$	5,482,456
Accounts payable			7,763,981				4,585,285
Taxes payable			172,374				434,758
Due to related parties			5,515,160				540,096
Accrued expenses and other current liabilities			2,726,078				2,711,736
TOTAL CURRENT LIABILITIES			20,609,542				13,754,331
Long-term bank loans			2,077,476				-
TOTAL LIABILITIES			22,687,018				13,754,331
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS’ EQUITY
Ordinary shares, $0.01875 par value, 166,666,666 shares authorized, 3,645,974 and 3,625,000 shares issued and outstanding as of March 31, 2024 and September 30, 2023, respectively *			68,362				67,969
Additional paid in capital			29,278,766				29,279,159
Statutory reserve			2,439,535				2,439,535
Retained earnings			(2,942,153	)			10,159,304
Accumulated other comprehensive loss			(2,100,414	)			(2,413,266	)
TOTAL SHAREHOLDERS’ EQUITY			26,744,096				39,532,701
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY		$	49,431,114			$	53,287,032

UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME (UNAUDITED)
		For the Six Months Ended March 31,
		2024				2023
REVENUE		$	12,884,370			$	18,467,186
COST OF REVENUE AND RELATED TAX			9,515,039				12,339,044
GROSS PROFIT			3,369,331				6,128,142
OPERATING EXPENSES
Selling expenses			4,054,357				2,330,508
General and administrative expenses			968,608				1,380,053
Research and development expenses			86,503				2,268,335
Total operating expenses			5,109,468				5,978,896
INCOME (LOSS) FROM OPERATIONS			(1,740,137	)			149,246
OTHER INCOME (EXPENSES)
Interest expense, net			(136,613	)			(74,569	)
Other income, net			152,027				17,323
Realized (loss) gain on short-term investments			(3,094,084	)			166,931
Change in fair value of short-term investments			(7,617,502	)			-
Total other (loss) income, net			(10,696,172	)			109,685
(LOSS) INCOME BEFORE INCOME TAX PROVISION			(12,436,309	)			258,931
PROVISION FOR INCOME TAXES			665,148				974,358
NET LOSS			(13,101,457	)			(715,427	)
OTHER COMPREHENSIVE INCOME
Foreign currency translation adjustment			312,852				1,399,775
COMPREHENSIVE (LOSS) INCOME		$	(12,788,605	)		$	684,348
Earnings per ordinary share - basic and diluted		$	(3.59	)		$	(0.20	)
Weighted average shares - basic and diluted *		$	3,645,974			$	3,625,000

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE SIX MONTHS ENDED MARCH 31, 2024 AND 2023 (UNAUDITED)
																						Accumulated
										Additional												Other
		Ordinary Share								Paid in				Statutory				Retained				Comprehensive
		Shares				Amount				Capital				Reserve				Earnings				Income				Total
Balance at September 30, 2022			3,625,000			$	67,969			$	29,279,159			$	2,439,535			$	16,322,365			$	(1,666,705	)		$	46,442,323
Net loss			-				-				-				-				(715,427	)			-				(715,427	)
Foreign currency translation adjustment			-				-				-				-				-				1,399,775				1,399,775
Balance at March 31, 2023			3,625,000			$	67,969			$	29,279,159			$	2,439,535			$	15,606,938			$	(266,930	)		$	47,126,671
																						Accumulated
										Additional												Other
		Ordinary Share								Paid in				Statutory				Retained				Comprehensive
		Shares				Amount				Capital				Reserve				Earnings				Income				Total
Balance at September 30, 2023			3,625,000			$	67,969			$	29,279,159			$	2,439,535			$	10,159,304			$	(2,413,266	)		$	39,532,701
Reverse share-split adjustment			20,974				393				(393	)			-				-				-				-
Net loss			-				-				-				-				(13,101,457	)			-				(13,101,457	)
Foreign currency translation adjustment			-				-				-				-				-				312,852				312,852
Balance at March 31, 2024			3,645,974			$	68,362			$	29,278,766			$	2,439,535			$	(2,942,153	)		$	(2,100,414	)		$	26,744,096

UNIVERSE PHARMACEUTICALS INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
		For the Six Months Ended March 31,
		2024				2023
Cash flows from operating activities:
Net loss		$	(13,101,457	)		$	(715,427	)
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			248,860				257,781
Gain from disposal of fixed assets			-				(115	)
Changes in allowance for doubtful accounts			(265,530	)			-
Changes in inventory reserve			(34,303	)			(84,956	)
Deferred income tax provision			665,148				556,867
Realized loss (gain) on short-term investments			3,094,084				(166,931	)
Change in fair value of short-term investments			7,617,502				-
Changes in operating assets and liabilities:
Accounts receivable			(3,346,205	)			(1,763,903	)
Inventories			26,553				(488,746	)
Advance to suppliers, net			(186,782	)			(187,460	)
Prepaid expenses and other current assets			57,436				(220,969	)
Prepaid expenses-related party, non-current			(60,016	)			-
Accounts payable			3,136,661				7,928,308
Taxes payable			(267,456	)			149,684
Accrued expenses and other current liabilities			(14,116	)			(465,431	)
Net cash (used in) provided by operating activities			(2,429,621	)			4,798,702
Cash flows from investing activities:
Purchases of property and equipment			(30,189	)			(646	)
Prepayments for construction in progress			(37,467	)			-
Purchase of short-term investments			(313,541	)
Sale of short-term investments			313,541
Net cash used in investing activities			(67,656	)			(646	)
Cash flows from financing activities:
Proceeds from bank loans			2,081,483				1,146,776
Repayment of bank loans			(1,110,124	)			(1,146,776	)
Proceeds from related party borrowings			5,096,373				2,080,918
Net cash provided by financing activities			6,067,732				2,080,918
Effect of changes of foreign exchange rates on cash			5,888				364,084
Net increase in cash			3,576,343				7,243,058
Cash, beginning of period			5,285,247				5,711,458
Cash, end of period		$	8,861,590			$	12,954,516
Supplemental disclosure of cash flow information
Cash paid for interest		$	148,861			$	90,044
Cash paid for income tax		$	969,914			$	575,132

FAQ

What was Universe Pharmaceuticals' (UPC) revenue for the first six months of fiscal year 2024?

Universe Pharmaceuticals (UPC) reported revenue of $12.9 million for the first six months of fiscal year 2024 ended March 31, 2024.

How much did Universe Pharmaceuticals' (UPC) net loss increase in the first half of fiscal year 2024?

Universe Pharmaceuticals' (UPC) net loss increased to $13.1 million for the first six months of fiscal year 2024, compared to a net loss of $0.7 million in the same period of the previous year.

What was the loss per share for Universe Pharmaceuticals (UPC) in the first half of fiscal year 2024?

Universe Pharmaceuticals (UPC) reported a loss per share of $3.59 for the first six months of fiscal year 2024 ended March 31, 2024.

How much did Universe Pharmaceuticals (UPC) raise in its public offering on July 15, 2024?

Universe Pharmaceuticals (UPC) raised a total of $25 million through a self-underwritten public offering of 20,000,000 ordinary shares on July 15, 2024, before deducting offering-related expenses.