Guangshengtang Responds to Private Placement Inquiry: No Substantial Obstacles in Traditional Chinese Medicine Formula Project Approval; Financial Investment Compliant

Fujian Guangshengtang Pharmaceutical Co., Ltd. (hereinafter referred to as “Guangshengtang”) recently issued an explanation regarding certain financial matters related to the second round of review inquiry letters from the Shenzhen Stock Exchange concerning its application for issuing shares to specific targets.

The announcement shows that there are no substantive obstacles in the approvals related to the company’s募投 project “Industrialization Project for Traditional Chinese Medicine Classic Formulas.” Financial investments comply with regulatory requirements, and Zhongding Assets-related asset impairment and inventory write-down provisions are sufficient.

Traditional Chinese Medicine Classic Formula Project: Smooth Approval Progress and Synergistic Development with the Main Business

For this募投 project, Guangshengtang plans to produce products such as Liuwei Dihuang Wan, Wujibo Fefeng Wan, Niuhuang Qingxin Wan, and others, with a total investment of RMB 105.25M and a planned use of proceeds of RMB 88.04M. The company has already obtained a drug marketing authorization holder change approval for Wujibo Fefeng Wan; it is expected that the marketing authorization holder change approval for Liuwei Dihuang Wan will be obtained in June 2026; and there are no substantive obstacles to the transfer of approval documents for Niuhuang Qingxin Wan and the change of licensing matters under the《Drug Manufacturing License (B License)》.

This project has relevance with the company’s existing TCM products in terms of production technology, indications, and customer groups. In terms of production technology, there are high similarities from traditional Chinese medicinal material pretreatment through intermediate extraction, concentration, and drying; in terms of indications, they are all for chronic disease management or treatment; and in terms of customer groups, they are sub-healthy individuals who need TCM for chronic disease management or treatment. The company states that the project is an investment in its main business through募集资金 deployment, which is beneficial for enriching the company’s TCM product pipeline and building a new profit growth engine.

The project’s economic benefit estimates show that after reaching full capacity, the internal rate of return is 23.22%, and the static payback period is 6.47 years (including the construction period). The company expects smooth product market promotion by leveraging its strategic cooperation with leading TCM enterprises, making use of their brand influence and the Guo-Yao Tang retail sales channels.

Financial Investments Meet Regulatory Requirements; It Is Proposed to Reduce Proceeds by RMB 1.7M

As of September 30, 2025, Guangshengtang’s financial investment amount is RMB 40M, accounting for 10.44% of the net assets attributable to the parent company. According to relevant regulatory requirements, based on the original total募集资金 amount of RMB 976.87M, the company plans to deduct RMB 1.7M, which is the portion of financial investments exceeding 10%, to comply with the regulatory arrangements for refinancing.

Impairment of Assets and Inventory Write-Down Provisions for Zhongding Are Sufficient

Regarding the issues of sales decline of the anti-COVID-19 drug Zhongding and the high level of inventory, the company explains that Zhongding was approved for marketing in November 2023, and only entered the official National Reimbursement Drug List in January 2025. The market development cycle is short, and sales follow the ramp-up pattern commonly seen with innovative drugs. In the intangible asset impairment test, it is expected that the sales will peak at RMB 480 million in 2029, which is considered reasonable, mainly considering product advantages, demand from long-term circulation of COVID-19, support from reimbursement policies, and market expansion plans. As of the end of September 2025, the carrying value of Zhongding’s related intangible assets is RMB 129.62M, impairment provisions of RMB 13.26M have already been recorded, and the impairment is sufficiently provided.

For inventory, the inventory newly added in 2025 is related to fulfilling the raw material drug purchase contract signed in January 2024. The company has extended the effective period of Zhongding’s raw material drugs to 24 months and plans to further extend it to 60 months, so that the products can be sold within the effective period. As of the end of September 2025, the carrying value of Zhongding’s related inventories is RMB 86.95M, with inventory write-down provisions of RMB 4.03M already recorded, and the provisions are adequate and made with prudent caution.

The Contract Dispute with Geely Pharmaceutical Has Been Resolved, No Impact on Ongoing Operations

Regarding the contract dispute with Geely Pharmaceutical over the purchase agreement for Lito-navir tablets, the company states that the company’s full prepayment for purchase was due to the fact that at that time Geely Pharmaceutical was the only compliant supplier in China, making it commercially reasonable. Geely Pharmaceutical’s refusal to deliver due to the company’s three-day overdue pickup constitutes a fundamental breach. In the arbitration ruling, Geely Pharmaceutical is required to compensate the company for RMB 10.7010 million of its payment loss and RMB of losses due to the occupation of funds, and the related rulings have been fully executed. This will not have a major adverse impact on the company’s ongoing operations.

Guangsheng Zhonglin: Financing by Minority Shareholders and Share Buyback Risk Are Controllable

The company’s controlling subsidiary Guangsheng Zhonglin has minority shareholders increasing capital at different proportions, mainly because the minority shareholders, considering their own funds and investment plans, chose to do so. The counterparties to the first and second transactions currently have no buyback or exit plans. The company and its controlling shareholder have the funding capacity to fulfill potential buyback obligations, and the buyback actions will not have a major impact on the company’s operations or the implementation of this募投 project.

Beijing Dehao Certified Public Accountants Co., Ltd. conducted verification of the above matters and believes that Guangshengtang’s explanations regarding the relevant financial matters are reasonable and comply with relevant regulations.

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