| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES Basis of Presentation and Principles
of Consolidation The accompanying unaudited condensed consolidated
financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S.
GAAP”) for interim financial information pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. The unaudited
condensed consolidated financial statements should be read in conjunction with the Company’s consolidated financial statements and
the notes thereto for the year ended September 30, 2023 included in the Form 20-F filed on January 30, 2024. Operating results for the
six months ended March 31, 2024 are not necessarily indicative of the results that may be expected for the fiscal year ending September
30, 2024. All inter-company balances and transactions are eliminated upon consolidation. 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 stockholders’
equity. Uses of estimates In preparing
the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States
of America (“US GAAP”), management makes estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the unaudited condensed financial statements and the reported amounts
of revenues and expenses during the reporting period. These estimates are based on information as of the date of the unaudited condensed
consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the allowance
for estimated uncollectible receivables, the realizability of advance to suppliers, inventory valuations, useful lives of property 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
$69,249) 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. The Company recovered allowance
for uncollectable balances of $265,530 and nil Inventories,
net Inventories
are stated at net realizable value using weighted average method. Costs include the cost of raw materials, freight, direct labor and related
production overhead. Any excess of the cost over the net realizable value of each item of inventories is recognized as a provision for
diminution in the value of inventories. Net realizable value is the estimated selling price in the normal course of business less any
costs to complete and sell products. The Company evaluates inventories on a quarterly basis for its net realizable value adjustments,
and reduces the carrying value of those inventories that are obsolete or in excess of the forecasted usage to their estimated net realizable
value based on various factors including aging, expiration dates, as applicable, taking into consideration historical and expected future
product sales. The Company recovered inventory reserve of $34,303 and $84,956 for the six months ended March 31, 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 March 31,
2024 and September 30, 2023, the Company recorded no allowance for doubtful accounts, as the Company believed that all advances to suppliers
were fully realizable. Short-term investments The Company’s
short-term investments consist of wealth management financial products purchased from a financial institution, which can be redeemed anytime.
The financial institution invests the Company’s fund in certain financial instruments including debt and money market securities
to generate investment income. The short-term investments are deemed to be trading securities and are measured subsequently at fair value
in the statement of financial position. Realized gain and change in fair value of short-term investments are included in the unaudited
condensed consolidated statements of operations and comprehensive income over the investment period. Realized (loss) gain generated from
such short-term investments amounted to $(3,094,084) and $166,931 for the six months ended March 31, 2024 and 2023, respectively. The
Company recorded $7,617,502 and nil Fair value of financial
instruments Fair value
is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy
requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used
to measure fair value are as follows:
● Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 — inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, quoted market prices for identical or similar assets in markets that are not active, inputs other than quoted prices that are observable and inputs derived from or corroborated by observable market data.
● Level 3 — inputs to the valuation methodology are unobservable. Unless otherwise
disclosed, the fair value of the Company’s financial instruments, including cash, accounts receivable, inventories, short-term investments,
advances to suppliers, prepaid expenses and other current assets, accounts payable, short-term bank loans, accrued expenses and other
current liabilities, taxes payable and due to related parties, approximate the fair value of the respective assets and liabilities as
of March 31, 2024 and September 30, 2023 based upon the short-term nature of the assets and liabilities. The Company’s investment
in equity securities is accounted for using the measurement alternative in accordance with Accounting Standards Codification (“ASC”)
321, “Investments—Equity Securities” (“ASC 321”), which also approximates its recorded value. The following
table presents information about the Company’s assets measured at fair value on a recurring basis as of March 31, 2024 and September
30, 2023 and indicates the fair value hierarchy of the valuation techniques that the Company
utilized to determine such fair value.
Fair Value Measured as of March 31, 2024
Level 1 Level 2 Level 3 Total
Assets:
Short-term investments $ - $ - $ 2,527,603 $ 2,527,603
Fair Value Measured as of September 30, 2023
Level 1 Level 2 Level 3 Total
Assets:
Short-term investments $ - $ - $ 13,219,005 $ 13,219,005 Property and equipment Property
and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization of property 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 unaudited condensed
consolidated statements of income and other comprehensive income in other income or expenses. The Company
reviews the carrying value of property 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 and equipment were recorded in operating expenses
for the six months ended March 31, 2024 and 2023. Intangible
Assets Intangible
assets consist primarily of land use rights and software. Under the PRC law, all land in the PRC is owned by the government and cannot
be sold to an individual or company. The government grants individuals and companies the right to use parcels of land for specified periods
of time. 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 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 six months ended
March 31, 2024 and 2023. 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 and equipment. Impairment
of long-lived Assets Long-lived
assets with finite lives, primarily property 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 six months ended March 31, 2024 and 2023. 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. The Company
initially recorded the investments at historical cost and subsequently records any dividends received from the net accumulated earnings
of the investee as income. As of March 31, 2024 and September 30, 2023, the Company’s investment in JX RBC Bank amounted to $692,492 (RMB5 million)
and $685,307 (RMB5 million), respectively, and was reported as long-term investment in equity investee on the unaudited condensed
consolidated balance sheets. Investment income was nil 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 March 31, 2024 and September
30, 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 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. 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 and equipment used in the research and development activities. For the six months ended March 31, 2024 and 2023,
total research and development expenses were approximately $86,503 and $2,268,335, 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 is expensed as incurred or deferred and then expensed the first time the advertising
takes place. Advertising expenses are included in selling expenses in the unaudited condensed consolidated statements of income and comprehensive
income. Advertising expenses amounted to $2,773,300 and $1,340,368 for the six months ended March 31, 2024 and 2023, 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 unaudited condensed 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 six months ended March 31, 2024 and 2023. The Company does not believe there was any uncertain
tax provision as of March 31, 2024 and September 30, 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 six months ended March 31, 2024 and 2023. As of March 31, 2024 and September 30, 2023, all of the tax returns of the Company’s
PRC subsidiaries remained open for statutory examination by PRC tax authorities. Value added tax (“VAT”) Sales revenue
represents the invoiced value of goods, net of VAT. The VAT is based on gross sales price and VAT rates range up to 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
unaudited condensed 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 six months ended March 31, 2024 and 2023, 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
unaudited condensed consolidated financial statements have been translated into the reporting currency US$. Assets and
liabilities of the Company are translated at the exchange rate at each reporting period end date. Equity is translated at historical rates.
Income and expense accounts are translated at the average rate of exchange during the reporting period. The resulting translation adjustments
are reported under other comprehensive income. Gains and losses resulting from the translations of foreign currency transactions and balances
are reflected in the results of operations. The RMB
is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into US$ at the rates used in translation. The following
table outlines the currency exchange rates that were used in creating the unaudited condensed consolidated financial statements in this
report:
March 31, March 31, September 30,
Period-end US$: RMB exchange rate 7.2203 6.8676 7.2960
Period-end US$: HK exchange rate 7.8259 7.8499 7.8308
Period average US$: RMB exchange rate 7.2064 6.9761 7.0533
Period average US$: HK exchange rate 7.8172 7.8303 7.8310 Comprehensive
Income Comprehensive
income consists of two components, net income and other comprehensive income. The foreign currency translation gain resulting from translation
of the financial statements expressed in RMB to US$ is reported in other comprehensive income in the unaudited condensed consolidated
statements of income and comprehensive income. Statement
of Cash Flows In accordance
with ASC 230, “Statement of Cash Flows”, cash flows from the Company’s operations are formulated based upon the local
currencies. As a result, amounts related to assets and liabilities reported on the statements of cash flows will not necessarily agree
with changes in the corresponding balances on the balance sheets. Employee Defined Contribution Plan The Company’s
subsidiaries in the PRC participate in a government-mandated multi-employer defined contribution plan pursuant to which pension, work-related
injury benefits, maternity insurance, medical insurance, unemployment benefit and housing fund are provided to eligible full-time employees.
The relevant labor regulations require the Company’s subsidiaries in the PRC to pay the local labor and social welfare authorities
monthly contributions based on the applicable benchmarks and rates stipulated by the local government. The contributions to the plan are
expensed as incurred. Employee social security and welfare benefits included as expenses in the accompanying statements of income and
comprehensive income amounted to $111,459 and $173,740 for the six months ended March 31, 2024 and 2023, respectively. Recent 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 December 2019, the FASB issued ASU 2019-12,
Simplifying the Accounting for Income Taxes, as part of its Simplification Initiative to reduce the cost and complexity in accounting
for income taxes. This standard removes certain exceptions related to the approach for intra period tax allocation, the methodology for
calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. It also amends
other aspects of the guidance to help simplify and promote consistent application of GAAP. The amendments in these ASUs are effective
for the Company’s fiscal years, and interim periods within those fiscal years beginning March 31, 2024. The Company does not expect
to early adopt this guidance and is in the process of evaluating the impact of adoption of this guidance on the Company’s unaudited
condensed consolidated financial statements. In October 2021, the FASB issued ASU No. 2021-08,
“Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers”
(“ASU 2021-08”). This ASU requires entities to apply Topic 606 to recognize and measure contract assets and contract liabilities
in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and
measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not
acquired in a business combination. The amendments are effective for the Company beginning after December 15, 2023, and are applied prospectively
to business combinations that occur after the effective date. The Company does not expect the adoption of ASU 2021-04 will have a material
effect on the Company’s unaudited condensed consolidated financial statements. 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, with early adoption permitted. The Company is currently in the process of evaluating
the impact this amended guidance may have on the footnotes to its unaudited condensed 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 unaudited condensed 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 unaudited condensed consolidated
financial statements upon adoption. The Company does not discuss recent standards that are not anticipated to have an impact on or are
unrelated to its unaudited condensed consolidated financial condition, results of operations, cash flows or disclosures. |
