# EDGAR Filing Document

**Accession Number:** 0001975641
**File Stem:** 0001213900-25-121187
**Filing Date:** 2025-12
**Character Count:** 141931
**Document Hash:** 3e9983c4d7b13e9f393db162277f3e3e
**Contains OCR:** False
**Source Format:** 

## Filing Content

## Filing Summary
**0001213900-25-121187.hdr.sgml**: 20251212

**ACCESSION NUMBER**: 0001213900-25-121187

**CONFORMED SUBMISSION TYPE**: 6-K

**PUBLIC DOCUMENT COUNT**: 72

**CONFORMED PERIOD OF REPORT**: 20250630

**FILED AS OF DATE**: 20251212

**DATE AS OF CHANGE**: 20251212

**FILER**: 

**COMPANY DATA:**
- **COMPANY CONFORMED NAME:** Zhengye Biotechnology Holding Ltd
- **CENTRAL INDEX KEY:** 0001975641
- **STANDARD INDUSTRIAL CLASSIFICATION:** PHARMACEUTICAL PREPARATIONS [2834]
- **ORGANIZATION NAME:** 03 Life Sciences
- **EIN:** 000000000
- **STATE OF INCORPORATION:** F4

**FILING VALUES:**
- **FORM TYPE:** 6-K
- **SEC ACT:** 1934 Act
- **SEC FILE NUMBER:** 001-42450
- **FILM NUMBER:** 251568210

**BUSINESS ADDRESS:**
- **ADDRESS IS A NON US LOCATION:** YES
- **STREET 1:** NO.1 LIANMENG STREET, JILIN ECONOMIC &
- **STREET 2:** TECHNICAL DEVELOPMENT ZONE
- **CITY:** JILIN
- **PROVINCE COUNTRY:** F4
- **BUSINESS PHONE:** 86-13844801919

**MAIL ADDRESS:**
- **ADDRESS IS A NON US LOCATION:** YES
- **STREET 1:** NO.1 LIANMENG STREET, JILIN ECONOMIC &
- **STREET 2:** TECHNICAL DEVELOPMENT ZONE
- **CITY:** JILIN
- **PROVINCE COUNTRY:** F4

?xml version='1.0' encoding='ASCII'?

**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

**FORM 6-K**

**REPORT OF FOREIGN PRIVATE ISSUER**

**PURSUANT TO RULE 13a-16 OR 15d-16**

**UNDER THE SECURITIES EXCHANGE ACT OF 1934**

**For the month of December 2025**

**Commission File Number: 001-42450**

**Zhengye Biotechnology Holding Limited**

**No.1 Lianmeng Road, Jilin Economic & Technical Development Zone**

**Jilin City, Jilin Province, China (Address of principal executive office)**

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;&nbsp;Form 40-F ☐

**Explanatory Note**

Zhengye Biotechnology Holding Limited, a Cayman Islands exempted company (the "Company"), is furnishing its unaudited financial statements and notes for the six months ended June 30, 2025. The financial statements and notes are attached as Exhibit 99.1 to this report. Management's Discussion and Analysis of Financial Condition and Results of Operations for the six months ended June 30, 2025 is attached as Exhibit 99.2 to this report.

**Exhibit Index**

---

| | |
|:---|:---|
| Exhibit No. | Description |
| 99.1 | [Unaudited Consolidated Financial Statements and Notes of Zhengye Biotechnology Holding Limited for the Six Months Ended June 30, 2025 and 2024](ea026916401ex99-1_zhengye.htm) |
| 99.2 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](ea026916401ex99-2_zhengye.htm) |
| 101. INS | Inline XBRL Instance Document |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101) |

---

**SIGNATURES**

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

---

| | | |
|:---|:---|:---|
|  | **Zhengye Biotechnology Holding Limited** | **Zhengye Biotechnology Holding Limited** |
| Date: December 12, 2025 | By: | */s/ Songlin Song* |
|  | Name: | Songlin Song |
|  | Title: | Chief Executive Officer |

---

## Exhibit 99.1

?xml version='1.0' encoding='ASCII'?

**Exhibit 99.1**

**ZHENGYE BIOTECHNOLOGY HOLDING LIMITED UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (Amounts in thousands of RMB and US$, except for number of shares)**

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31,** <br> **2024** | **June 30,** <br> **2025** | **June 30,** <br> **2025** |
|  | **RMB** | **RMB** | **US$** |
| **ASSETS** | | | |
| **Current assets:** | | | |
| Cash | 18604 | 45607 | 6366 |
| Restricted cash | 2 | 2 | - |
| Short-term investments | 1433 | 2021 | 282 |
| Notes receivable, net | 25592 | 25251 | 3525 |
| Accounts receivable, net | 59563 | 36938 | 5157 |
| Advance to suppliers | 10788 | 12360 | 1725 |
| Inventories, net | 58220 | 53550 | 7475 |
| Prepayments and other current assets, net | 2626 | 25718 | 3591 |
| Other receivable - a related party | 738 | - | - |
| **Total current assets** | **177566** | **201447** | **28121** |
| **Non-current assets:** |  |  |  |
| Property, plant and equipment, net | 255164 | 246701 | 34438 |
| Land use rights, net | 7930 | 7802 | 1089 |
| Intangible assets, net | 14850 | 15368 | 2145 |
| Long-term prepayments | 18698 | 16979 | 2370 |
| Deferred initial public offering expenses | 8048 | - | - |
| Net deferred tax assets | 10991 | 16331 | 2280 |
| **Total non-current assets** | **315681** | **303181** | **42322** |
| **Total assets** | **493247** | **504628** | **70443** |
| **LIABILITIES AND SHAREHOLDERS' EQUITY** |  |  |  |
| **Current liabilities:** |  |  |  |
| Short-term loans | 74443 | 80863 | 11288 |
| Current maturities of long-term loans | 7190 | 200 | 28 |
| Accounts payable | 42960 | 42801 | 5975 |
| Contract liabilities | 3485 | 5001 | 698 |
| Taxes payable | 2066 | 2180 | 304 |
| Amount due to related parties | 146 | - | - |
| Accrued expenses and other liabilities | 5617 | 3790 | 529 |
| **Total current liabilities** | **135907** | **134835** | **18822** |
| **Non-current liabilities:** |  |  |  |
| Long-term loans | 4800 | 4700 | 656 |
| **Total non-current liabilities** | **4800** | **4700** | **656** |
| **Total liabilities** | **140707** | **139535** | **19478** |
| **Commitments and contingencies** |  |  |  |
| **Shareholders' equity:** |  |  |  |
| Ordinary shares (US$0.000025 par value; 2,000,000,000 shares authorized; 45,666,376 and 47,391,376 shares issued and outstanding as of December 31, 2024 and June 30, 2025, respectively) | 8 | 8 | 1 |
| Additional paid-in capital | 203150 | 240752 | 33608 |
| Statutory reserves | 32647 | 32647 | 4557 |
| Retained earnings | 48151 | 26483 | 3697 |
| Accumulated other comprehensive income | 3 | (966) | (135) |
| Total Zhengye Biotechnology Holding Limited's shareholders' equity | **283959** | **298924** | **41728** |
| Noncontrolling interests | 68581 | 66169 | 9237 |
| **Total equity** | **352540** | **365093** | **50965** |
| **Total liabilities and equity** | **493247** | **504628** | **70443** |

---

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

**ZHENGYE BIOTECHNOLOGY HOLDING LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (Amounts in thousands of RMB and US$, except for number of shares and per share data)**

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,** | **For the six months ended June 30,** | **For the six months ended June 30,** |
|  | **2024** | **2025** | **2025** |
|  | **RMB** | **RMB** | **USD** |
| **Net revenues** | 94949 | 62328 | 8701 |
| Cost of revenues | (41725) | (42944) | (5994) |
| **Gross profit** | **53224** | **19384** | **2707** |
| Sales and marketing expenses | (19307) | (23243) | (3245) |
| General and administrative expenses | (14604) | (16770) | (2339) |
| Research and development expenses | (5444) | (8969) | (1252) |
| Reversal for credit losses | 1043 | 719 | 100 |
| **Total operating expenses** | **(38312)** | **(48263)** | **(6736)** |
| **Operating income (loss)** | 14912 | (28879) | (4029) |
| **Other income (expenses):** |  |  |  |
| Interest income | 213 | 72 | 10 |
| Interest expense | (2052) | (1752) | (245) |
| Unrealized gains on short-term investments | 100 | 588 | 82 |
| Unrealized foreign exchange loss | - | (1421) | (198) |
| Government subsidy | 140 | 502 | 70 |
| Other expenses | (30) | - | - |
| Total other expenses, net | (1629) | (2011) | (281) |
| **Income (loss) before income taxes** | **13283** | **(30890)** | **(4310)** |
| Income tax benefits (expenses) | (2558) | 5340 | 745 |
| **Net income (loss)** | **10725** | **(25550)** | **(3565)** |
| Net loss (income) attributable to noncontrolling interests | (1714) | 3882 | 542 |
| **Net income (loss) attributable to the Zhengye Biotechnology Holding Limited's shareholders** | **9011** | **(21668)** | **(3023)** |
| **Comprehensive income (loss)** |  |  |  |
| Net income (loss) | 10725 | (25550) | (3565) |
| **Other comprehensive income (loss)** |  |  |  |
| Foreign currency translation adjustment | 3 | (969) | (135) |
| **Total comprehensive income (loss)** | **10728** | **(26519)** | **(3700)** |
| Less: total comprehensive loss (income) attributable to non-controlling interest | (1714) | 3882 | 542 |
| **Total comprehensive income (loss) attributable to the Zhengye Biotechnology Holding Limited's shareholders** | **9014** | **(22637)** | **(3158)** |
| **Earnings (loss) per share:** |  |  |  |
| Ordinary shares – basic and diluted | 0.20 | (0.46) | (0.06) |
| **Weighted average shares outstanding used in calculating basic and diluted earnings per share:** |  |  |  |
| Ordinary shares – basic and diluted | 45666376 | 47316793 | 47316793 |

---

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

**ZHENGYE BIOTECHNOLOGY HOLDING LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (Amounts in thousands of RMB and US$, except for number of shares)**

---

| | | | | | | | | | |
|:---|:---|:---|:---|:---|:---|:---|:---|:---|:---|
|  | **Ordinary shares** | **Ordinary shares** | | | | | | | |
|  | **Shares** | **Amount** | **Additional<br> paid-in**<br>**capital** | **Statutory**<br>**reserve** | **Retained**<br>**earnings** | **Accumulated <br> Other <br> Comprehensive<br> Income**<br>**（** **Deficit）** | **Total <br> Zhengye <br> Biotechnology <br> Holding <br> Limited's <br> shareholders'**<br>**equity** | **Non- controlling**<br>**interests** | **Total**<br>**Equity** |
| **Balance, December 31, 2023 (RMB)** | **45666376** | **8** | **203150** | **31311** | **38381** | - | **272850** | **66422** | **339272** |
| Net income |  | - | - | - | 9011 | - | 9011 | 1714 | 10725 |
| Dividend |  | - | - | - | (205) | - | (205) | - | (205) |
| Foreign currency translation adjustments | - | - | - | - | - | 3 | 3 | - | 3 |
| **Balance, June 30, 2024 (RMB)** | **45666376** | **8** | **203150** | **31311** | **47187** | **3** | **281659** | **68136** | **349795** |
| **Balance, December 31, 2024 (RMB)** | **45666376** | **8** | **203150** | **32647** | **48151** | **3** | **283959** | **68581** | **352540** |
| Issuance of shares in initial public offering | 1725000 | - | 37602 | - |  | - | 37602 | - | 37602 |
| Shareholders contribution |  | - | - | - | - | - | - | 1470 | 1470 |
| Net loss |  | - | - | - | (21668) | - | (21668) | (3882) | (25550) |
| Foreign currency translation adjustments | - | - | - | - | - | (969) | (969) | - | (969) |
| **Balance, June 30, 2025 (RMB)** | **47391376** | **8** | **240752** | **32647** | **26483** | **(966)** | **298924** | **66169** | **365093** |
| **Balance, June 30, 2025 (US$)** | **47391376** | **1** | **33608** | **4557** | **3697** | **(135)** | **41728** | **9237** | **50965** |

---

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

**ZHENGYE BIOTECHNOLOGY HOLDING LIMITED UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Amounts in thousands of RMB and US$, except for number of shares)**

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,** | **For the six months ended June 30,** | **For the six months ended June 30,** |
|  | **2024** | **2025** | **2025** |
|  | **RMB** | **RMB** | **US$** |
| **CASH FLOWS FROM OPERATING ACTIVITIES** |  |  |  |
| Net income (loss) | 10725 | (25550) | (3565) |
| **Adjustments to reconcile net income to net cash provided by operating activities:** |  |  |  |
| Depreciation and amortization | 11275 | 12251 | 1710 |
| Reversal for credit losses | (1043) | (719) | (100) |
| Impairment for inventory | 2195 | 4115 | 574 |
| Deferred tax expenses (benefits) | 1242 | (5340) | (745) |
| Unrealized gains on short-term investments | (100) | (588) | (82) |
| Unrealized foreign exchange loss | - | 1421 | 198 |
| **Changes in operating assets and liabilities:** |  |  |  |
| Notes receivable | 5566 | (99) | (14) |
| Accounts receivable | 3694 | 23336 | 3258 |
| Advance to suppliers | (5590) | (1572) | (219) |
| Inventories | (9086) | 554 | 77 |
| Prepayments and other current assets | (942) | (23379) | (3264) |
| Other receivable - a related party | (45) | 738 | 103 |
| Accounts payable | (2533) | (1513) | (211) |
| Contract liabilities | (917) | 1516 | 211 |
| Taxes payable | 1560 | 115 | 16 |
| Accrued expense and other liabilities | (1312) | 746 | 104 |
| **Net cash provided by (used in) operating activities** | 14689 | (13968) | (1949) |
| **CASH FLOWS FROM INVESTING ACTIVITIES** |  |  |  |
| Loans to a related party | - | (7000) | (977) |
| Collection of lending to a related party | - | 7000 | 977 |
| Purchase of property, plant and equipment | (1759) | (255) | (36) |
| Prepayment for purchase of intangible assets | (14071) | (409) | (57) |
| **Net cash used in investing activities** | (15830) | (664) | (93) |
| **CASH FLOWS FROM FINANCING ACTIVITIES** |  |  |  |
| Proceeds from loans | 46910 | 41910 | 5850 |
| Repayment of loans | (49370) | (44000) | (6142) |
| Repayment of a related party | - | (146) | (20) |
| Dividend payment to shareholders | (15858) | - | - |
| Deferred initial public offering expenses | (537) | - | - |
| Proceeds from initial public offering | - | 43081 | 6014 |
| Shareholder contribution | - | 1470 | 205 |
| **Net cash provided by (used in) financing activities** | (18855) | 42315 | 5907 |
| Effect of exchange rate changes on cash | 2 | (680) | (96) |
| Net increase (decrease) in cash and restricted cash | (19994) | 27003 | 3769 |
| Cash and restricted cash at beginning of year | 27186 | 18606 | 2597 |
| **Cash and restricted cash at end of year** | 7192 | 45609 | 6366 |
| **SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:** |  |  |  |
| Cash paid for: |  |  |  |
| Interests | 2052 | 1700 | 237 |
| Income taxes | 290 | - | - |
| **NON-CASH INVESTING AND FINANCING ACTIVITIES:** |  |  |  |
| Liabilities assumed in connection with purchase of property, plant and equipment | 62 | 1521 | 212 |
| Reclassification of deferred initial public offering cost into additional paid-in capital | - | 8663 | 1209 |

---

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

**ZHENGYE BIOTECHNOLOGY HOLDING LIMITED NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Amounts in thousands of RMB and US$, except for number of shares and per share data)**

**1. ORGANIZATION**

**Nature of operations**

Zhengye Biotechnology Holding Limited (the "Company") was incorporated in the Cayman Islands in March 2023 under the Cayman Islands Companies Act as an exempted company with limited liability. The Company through its consolidated subsidiaries principally focuses on the research, development, manufacture and sales of veterinary vaccines, with an emphasis on vaccines for livestock in the People's Republic of China (the "PRC" or "China").

**Reorganization**

In preparation for its initial public offering ("IPO") in the United States, the following transactions were undertaken to reorganize the legal structure of Operating Entities. The Company was incorporated in connection with a reorganization of Jilin Zhengye Biological Products Co., Ltd. ("Jilin Zhengye"). On April 3, 2023, the Company incorporated a wholly-owned subsidiary, VVAX Skyline Holdings Limited ("VVAX Skyline"), in the British Virgin Islands. On April 18, 2023, Peg Biotechnology (HK) Holding Limited ("Peg Biotechnology") was incorporated in Hong Kong as a company with limited liability and as a wholly owned subsidiary of VVAX Skyline. On May 22, 2023, Peg Biotechnology incorporated a wholly-owned subsidiary, Hainan Senhan Biotechnology Co., Ltd. ("Hainan Senhan") in the PRC. On May 30, 2023, VVAX Skyline acquired 100% of the equity interests in Windsor Holdings Co., Ltd. ("Windsor Holdings") from its original shareholders. Windsor Holdings was incorporated in the British Virgin Islands.

Prior to the reorganization described below, Jilin Zhengye was controlled by several individual, corporate and institutional shareholders. A reorganization of the Company's legal structure ("Reorganization") was completed on June 21, 2023. The Reorganization involved the transfer of 58.689% and 25.1524% interests of Jilin Zhengye from its former shareholders to Hainan Senhan and Windsor Holdings, respectively. As the result of the Reorganization, Jilin Zhengye became a subsidiary of the Company.

Upon the completion of the Reorganization, the Company became the ultimate holding company of all other entities mentioned above. The Company is effectively controlled by the same group of controlling shareholders before and after the Reorganization; therefore, the Reorganization is considered as a recapitalization of these entities under common control. The consolidation of the Company and its subsidiaries was accounted for at historical cost and prepared on the basis as if the aforementioned transactions had become effective as of the beginning of the first period presented in the accompanying consolidated financial statements. Results of operations for the period presented comprise those of the previous separate entries combined from the beginning of the period to the end of the period, eliminating the effects of intra-entity transactions.

As of the date of this report, the details of the Company's principal subsidiaries are as follows:

---

| | | | | |
|:---|:---|:---|:---|:---|
| **Entity** | **Date of <br> incorporation/ <br> acquisition** | **Place of <br> incorporation** | **Percentage of <br> direct or indirect <br> ownership by the <br> Company** | **Principal activities** |
| <u>Subsidiaries:</u> |  |  |  |  |
| VVAX Skyline Holdings Limited ("VVAX Skyline") | April 3, 2023 | British Virgin Islands | 100% owned by the Company | Investment holding |
| Windsor Holdings Co., Ltd. ("Windsor Holdings") | May 30, 2023 | British Virgin Islands | 100% owned by VVAX Skyline | Investment holding |
| Peg Biotechnology (HK) Holding Limited ("Peg Biotechnology") | April 18, 2023 | Hong Kong | 100% owned by VVAX Skyline | Investment holding |
| Hainan Senhan Biotechnology Co., Ltd. ("Hainan Senhan") | May 22, 2023 | PRC | 100% owned by Peg Biotechnology | Investment holding |
| Jilin Zhengye Biological Products Co., Ltd. ("Jilin Zhengye") | May 18, 2004 | PRC | 58.689% owned by Hainan Senhan and 25.1524% owned by Windsor Holdings | Research, development, manufacture and sales of veterinary vaccines |
| Beijing Zhongnong Zhengye Biotechnology Co., Ltd. ("Beijing Zhengye") | April 16, 2025 | PRC | 51.00% owned by Jilin Zhengye | Sales of veterinary vaccines |

---

**2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES**

**Basis of presentation**

The accompanying unaudited condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") and applicable rules and regulations of the U.S. Securities and Exchange Commission regarding financial reporting that are consistent with those used in the preparation of the Company's audited consolidated financial statements for the years ended December 31, 2023 and 2024. Accordingly, these unaudited condensed consolidated financial statements do not include all of the information and footnotes required by U.S. GAAP for annual financial statements.

In the opinion of the Company's management, the accompanying unaudited condensed consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position, operating results and cash flows of the Company for each of the periods presented. The results of operations for the six months ended June 30, 2025 are not necessarily indicative of results to be expected for any other interim period or for the year ending December 31, 2025. The condensed consolidated balance sheet as of December 31, 2024 was derived from the audited consolidated financial statements at that date but does not include all of the disclosures required by U.S. GAAP for annual financial statements. These unaudited condensed consolidated financial statements should be read in conjunction with the Company's consolidated financial statements for the years ended December 31, 2023 and 2024.

**Principles of consolidation**

The unaudited condensed consolidated financial statements include the financial statements of the Company and its subsidiaries. All significant intercompany transactions and balances have been eliminated in consolidation.

**Use of estimates**

The preparation of the unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, related disclosures of contingent assets and liabilities at the balance sheet date, and the reported revenue and expenses during the reported period in the unaudited condensed consolidated financial statements and accompanying notes. Significant accounting estimates reflected in the Company's unaudited condensed consolidated financial statements mainly include, but are not limited to, allowance for credit losses, depreciable lives of property, plant and equipment and amortization lives of intangible asset, inventory valuation for excess and obsolete inventories, lower of cost and net realizable value of inventories, the valuation of derivative instruments, and the valuation allowance for deferred tax assets.

Management bases the estimates on historical experience and on various other assumptions as discussed elsewhere in the unaudited condensed consolidated financial statements that are believed to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities. On an ongoing basis, management evaluates its estimates based on information that is currently available. Changes in circumstances, facts and experience may cause the Company to revise its estimates. Changes in estimates are recorded in the period in which they become known. Actual results could materially differ from these estimates.

**Foreign currency**

The Company's reporting currency is the Renminbi ("RMB"). The functional currency of the Company and its subsidiaries which are incorporated in British Virgin Islands ("BVI") and Hong Kong ("HK") are United States dollars ("US$"). The functional currencies of the other subsidiaries are their respective local currencies. The determination of the respective functional currency is based on the criteria set out by ASC 830, *Foreign Currency Matters*, ("ASC 830").

Transactions denominated in currencies other than in the functional currency are translated into the functional currency using the exchange rates prevailing at the transaction dates. Monetary assets and liabilities denominated in foreign currencies are translated into functional currency using the applicable exchange rates at the balance sheet date. Non-monetary items that are measured in terms of historical cost in foreign currency are re-measured using the exchange rates at the dates of the initial transactions. Exchange gains or losses arising from foreign currency transactions are included in the consolidated statements of operations and comprehensive income (loss).

The financial statements of the Company's entities of which the functional currency is not RMB are translated from their respective functional currency into RMB. Assets and liabilities denominated in foreign currencies are translated into RMB at the exchange rates at the balance sheet date. Equity accounts other than earnings generated in current period are translated into RMB at the appropriate historical rates. Income and expense items are translated into RMB using the periodic average exchange rates. The resulting foreign currency translation adjustments are recorded in other comprehensive income in the consolidated statements of comprehensive income, and the accumulated foreign currency translation adjustments are presented as a component of accumulated other comprehensive income in the consolidated statements of shareholders' equity if any.

**Convenience translation**

Translations of balances in the consolidated balance sheets, consolidated statements of comprehensive income and consolidated statements of cash flows from RMB into US$ as of and for the six months ended June 30, 2025 are solely for the convenience of the reader and were calculated at the rate of US$1.00 to RMB7.1636, the exchange rate set forth in the H.10 statistical release of the Federal Reserve Board on June 30, 2025. No representation is made that the RMB amounts represent or could have been, or could be, converted, realized, or settled into US$ at that rate on June 30, 2025, or at any other rate.

**Cash**

Cash consists of cash on hand and cash in bank, which are highly liquid and have original maturities of three months or less and are unrestricted as to withdrawal or use. The Company maintains cash with various financial institutions primarily in mainland China. The Company has not experienced any losses in bank accounts.

**Restricted cash**

Restricted cash primarily comprises a certificate of deposit (CD) subject to contractual penalties for early withdrawal prior to maturity.

**Short-term investments**

All highly liquid investments with maturities of greater than three months, but less than twelve months, are classified as short-term investments. Short-term investments primarily consist of (i) investment in marketable securities and (ii) derivative assets arisen from non-designated foreign exchange swap contracts and interest rate swap contracts. The Company classifies the investment in marketable securities as trading securities given the securities are purchased for the purpose of selling them in the near term. Changes in fair values of marketable securities and changes in fair values of derivate assets arisen from non-designated foreign exchange swap contracts and interest rate swap contracts are included in unrealized gains on short-term investments in the consolidated statements of operations and comprehensive income (loss).

**Accounts receivable and allowance for credit losses**

Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses.

The Company's policy for estimating credit losses also applies to notes receivable and other receivables. To estimate expected credit losses, the Company has identified the relevant risk characteristics of its customers and the related receivables. The Company considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Company's customer collection trends. The allowance for credit losses and corresponding receivables are written off when they are determined to be uncollectible.

**Deferred IPO expenses**

Incremental direct costs incurred by the Company and its subsidiaries attributable to its IPO of ordinary shares in the U.S. have been deferred and recorded in deferred offering expenses and upon the closing of the IPO. Deferred offering expenses of RMB8,663 (US$1,209) were reclassified to shareholders' equity as a reduction from the proceeds of the offering. There are no deferred offering costs as of June 30, 2025.

**Prepayments and other assets, net**

Prepayments and other assets consisted of security deposit, prepaid advertising and promotion expenses, prepaid financial consulting expenses, technology transfer license fees, and others. Prepayments and other assets are reviewed periodically to determine whether its carrying value has become impaired.

**Impairment of long-lived assets other than goodwill**

Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Impairment charge recognized for the six months ended June 30, 2024 and 2025 was nil.

**Fair value of financial instruments**

Fair value is defined as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required or permitted to be either recorded or disclosed at fair value, the Company considers the principal or most advantageous market in which it would transact, and it also considers assumptions that market participants would use when pricing the asset or liability.

Accounting guidance establishes a fair value hierarchy that requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement.

ASC 820 establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:

---

| | |
|:---|:---|
| Level 1 — | Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets. |
| Level 2 — | Other inputs that are directly or indirectly observable in the marketplace. |
| Level 3 — | Unobservable inputs which are supported by little or no market activity. |

---

Financial assets and liabilities of the Company primarily consist of cash, restricted cash, short-term investments, notes receivable, accounts receivable, other receivable - a related party, other receivables, accounts payable, short-term loans, dividends payable, amount due to related parties, accrued expenses, and other liabilities excluding payroll and welfare payables. As of December 31, 2024 and June 30, 2025, except for short-term investments, the carrying values of these financial assets and liabilities approximate their fair values due to the short-term nature. The Company reports short-term investments at fair value at each balance sheet date and changes in fair value are reflected in the consolidated statements of operations and comprehensive income (loss). The Company determined that the carrying value of the long-term loans approximated their fair value by comparing the stated loan interest rate to the rate charged by similar financial institutions.

 ****

***Assets and liabilities measured or disclosed at fair value on a recurring basis***

The following tables represent the fair value hierarchy of the Company's financial assets measured at fair value on a recurring basis as of December 31, 2024 and June 30, 2025:

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** | **As of December 31, 2024** |
|  | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** |
|  | **Quoted price<br> in active<br> markets for<br> identical<br> assets<br> Level 1** | **Significant<br> other<br> observable<br> inputs<br> Level 2** | **Significant<br> unobservable<br> inputs<br> Level 3** | **Total** |
|  | **RMB** | **RMB** | **RMB** | **RMB** |
| **Short-term investments:** |  |  |  |  |
| Investment in marketable equity security *(i)* | 1334 | - |  | 1334 |
| Derivative assets |  |  |  |  |
| *Foreign currency swap contracts (ii)* | - | 95 |  | 95 |
| *Interest rate swap contracts (ii)* | - | 4 |  | 4 |
|  | 1334 | 99 |  | 1433 |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
|  | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** | **As of June 30, 2025** |
|  | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** | **Fair Value Measurement at the Reporting Date using** |
|  | **Quoted price<br> in active<br> markets for<br> identical<br> assets<br> Level 1** | **Significant<br> other<br> observable<br> inputs<br> Level 2** | **Significant<br> unobservable<br> inputs<br> Level 3** | **Total** |
|  | **RMB** | **RMB** | **RMB** | **RMB** |
| **Short-term investments:** |  |  |  |  |
| Investment in marketable equity security *(i)* | 1247 | - |  | 1247 |
| Derivative assets |  |  |  |  |
| *Foreign currency swap contracts (ii)* | - | 933 |  | 933 |
| *Interest rate swap contracts (ii)* | - | (159) |  | (159) |
|  | 1247 | 774 |  | 2021 |

---

(i) Jilin Zhengye had investment in common shares of Jiangxi Zhengbang Technology Co., Ltd. ("Zhengbang"), which is a public company listed on Shanghai Stock Exchange. The investment in Zhengbang with readily determinable fair value is measured and recorded at fair value using the market approach based on the quoted prices in active markets at the reporting date.

(ii) Jilin Zhengye entered into foreign currency swap contracts and cross-currency interest rate swap contracts on November 28, 2024 with a commercial bank to (i) exchange its funds denominated in RMB for Japanese Yen ("JPY") at a fixed exchange rate of 0.047840 with the notional amount of RMB20,222; and (ii) exchange the monthly floating rate interest payment denominated in JPY (see Note 6) for a fixed rate of 3.15% interest payment denominated in RMB. The foreign currency swap contracts and cross currency interest rate swap contracts will be terminated on November 24, 2025 and November 25, 2025, respectively. Jilin Zhengye determined the foreign currency swap contracts and cross currency interest rate swap contracts as non-designated derivative instruments, which are remeasured to fair value at each reporting date and the fair value of foreign currency swap contracts is based on market quotes for foreign currencies and interest rate swaps are based on market interest curves. As observable inputs are available for these derivatives, they have been classified in Level 2. Changes in the fair value of foreign currency swap derivative and interest rate swap derivative are recognized in the unaudited condensed consolidated financial statements of operations and comprehensive income (loss) as unrealized gains on short-term investments.

The fair values of the foreign currency swap contracts and cross currency interest rate swap contracts are the estimated amount that the Company would pay to sell or transfer the swap at the reporting date, taking into account current interest rates and the current credit worthiness of the swap counterparties, in addition to foreign exchange rates for the cross-currency swap agreement. The estimated amount is the present value of future cash flows, adjusted for credit risk. The Company transacts all of these derivative instruments through investment-grade rated financial institutions at the time of the transaction. It is possible that the amount recorded as a derivative asset or liability could vary by a material amount in the near term if there is volatility in the credit markets or if credit risk were to change significantly.

The fair value of the Company's foreign currency forward contracts and cross-currency interest rate swap agreement at the end of each period is most significantly affected by the interest rate implied by the benchmark interest yield curve, including its relative steepness and the forward foreign exchange rates, respectively. Interest rates and foreign exchange rates have experienced significant volatility in recent years in both the short and long term. While the fair value of our swap agreements is typically more sensitive to changes in short-term rates, significant changes in the long-term benchmark interest, foreign exchange rates, and the credit risk of the counterparties or the Company also materially impact the fair values of our swap agreements.

During the six months ended June 30, 2024 and 2025, there were no transfers between levels of the fair value hierarchy.

**Revenue recognition**

The Company adopted Accounting Standards Codification ("ASC") 606, *Revenue from Contracts with Customer*. To determine revenue recognition for contracts with customers, the Company performs the following five steps:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

The Company manufactures and sells veterinary vaccines, with an emphasis on vaccines for livestock, to customers.

The Company enters into contract with their customers to provide veterinary vaccines, mainly vaccines for livestock. All of the Company's contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Company recognizes revenue when it transfers its goods 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 products to its customers on a gross basis, because 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. The Company's revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.

The Company offers their distributors with sales rebate. According to the items in the contract, the Company pays certain sales rebate, in the form of products with equivalent value, to distributor once the distributor purchases stipulated amount products from the Company. Sales rebate is considered as variable consideration. The Company estimates annual expected revenue of each individual distributor with reference to their historical results. The sales rebate reduces revenues recognized. At the end of each reporting period, the Company updates the estimated revenue to represent faithfully the circumstances present at the end of the reporting period.

Apart from the sales rebate, the Company's products are sold with no right of return and the Company does not provide other credits or sales incentives to customers. Revenue is reported net of value added tax ("VAT") collected on behalf of tax authorities in respect of product sales.

<u>Disaggregation of Revenue</u>

The Company disaggregates its revenue from contracts by product category and distribution channel. See Note 11 for information regarding revenue disaggregation.

<u>Contract assets and liabilities</u>

The Company did not have contract assets as of December 31, 2024 and June 30, 2025, respectively.

The Company's contract liabilities primarily relate to unsatisfied performance obligations, such as sales rebate and payment received from customers before the Company's products are delivered. Contract liabilities amounted to RMB3,885 and RMB3,485 (US$486) at the beginning of the year 2024 and 2025, respectively. Revenue included in the beginning balance of contract liabilities and recognized in the six months ended June 30, 2024 and 2025 amounted to RMB2,671 and RMB2,305 (US$322), respectively.

**Cost of revenues**

Costs of revenues consist primarily of materials costs, labor costs, shipping and handling expense, inspection costs, depreciation and amortization expenses and related costs, which are directly attributable to production. Write-down of inventories is also recorded in cost of sales, if any.

Shipping and handling costs incurred to transport goods to customers are expensed in the periods incurred and are included in cost of revenues. The Company accounts for shipping and handling expenses as fulfillment costs because shipping and handling activities occur before the customers obtains control of the goods. Shipping and handling expenses amounted to RMB3,096 and RMB2,060 (US$288) for the six months ended June 30, 2024 and 2025, respectively.

**Sales and marketing expenses**

Sales and marketing expenses consist primarily of travelling expenses, marketing conference expenses, advertising expenses and salaries and other compensation-related expenses to sales and marketing personnel. The Company expenses all advertising costs as incurred. Advertising costs amounted to RMB623 and RMB523 (US$73) for the six months ended June 30, 2024 and 2025, respectively.

**Research and development expenses**

Research and development costs are expensed as incurred. These costs primarily consist of production and procurement expense related to research and development activities, technical expenses, payroll and related expenses for personnel engaged in research and development activities, depreciation and amortization of fixed assets which are used in research and development activities.

**General and administrative expenses**

General and administrative expenses consist primarily of salaries, bonuses and benefits for employees involved in general corporate functions and those not specifically dedicated to research and development activities, depreciation and amortization of fixed assets which are not used in research and development activities, legal and other professional services fees, rental and other general corporate related expenses.

**Government subsidy**

Government subsidy represent cash subsidies received from the PRC government. Cash subsidies that have no defined rules and regulations to govern the criteria necessary for companies to enjoy the benefits are recognized when received. Such subsidies are generally provided as incentives from the local government to encourage the expansion of local business.

**Derivative instruments** 

Derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date, regardless of the purpose or intent for holding the derivative. The resulting derivative assets or liabilities are shown as a single line and are not net off against one another on the face of the balance sheet. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract qualifies for hedge accounting and has been designated as a hedging instrument. For derivative instruments that are not designated or that do not qualify as hedging instruments under ASC 815 – Derivatives and Hedging, the assets have been recognized as "derivative assets" included in the short-term investments and the liability has been recognized as "derivative liabilities" on the balance sheet and changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Company's non-designated foreign currency swap contracts and interest rate swap contracts are recorded in unrealized gains on short-term investments in the Company's unaudited condensed consolidated statements of operations and comprehensive income (loss) but do not impact our cash flows.

**Value-added taxes**

Revenue is recognized net of VAT. VAT is based on gross sales price and the VAT rate applicable to the Company is 3% for the six months ended June 30, 2024 and 2025. Entities that are VAT general taxpayers are allowed to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT is recorded as VAT payable if output VAT is larger than input VAT and is recorded as VAT recoverable if input VAT is larger than output VAT. All of the VAT returns filed by the Company's subsidiaries in China, have been and remain subject to examination by the tax authorities.

**Income taxes**

Current income taxes are recorded in accordance with the regulations of the relevant tax jurisdiction. The Company accounts for income taxes under the asset and liability method in accordance with ASC 740, *Income Tax*, ("ASC 740"). Under this method, deferred tax assets and liabilities are recognized for the tax consequences attributable to differences between carrying amounts of existing assets and liabilities in the financial statements and their respective tax basis, and operating loss carry-forwards. 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 taxes of a change in tax rates is recognized in the unaudited condensed consolidated statements of operations and comprehensive income (loss) in the period of change. Valuation allowances are established when necessary to reduce the amount of deferred tax assets if it is considered more likely than not that amount of the deferred tax assets will not be realized.

An uncertain tax position is recognized as a benefit only if it is "more likely than not" that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. 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. No penalties and interest incurred related to underpayment of income tax are classified as income tax expenses in the period incurred.

**Related party transactions**

Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operational decisions. Parties are also considered to be related if they are subject to common control or common significant influence. Related parties may be individuals or corporate entities. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties.

Transactions involving related parties cannot be presumed to be carried out on an arm's-length basis, as the requisite conditions of competitive, free-market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm's-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.

**Noncontrolling interests**

A noncontrolling interest is recognized to reflect the portion of a subsidiary's equity which is not attributable, directly or indirectly, to the Company. Among them, 15.2439% of the noncontrolling interests of Jilin Zhengye is held by Jilin Economic and Technological Development Zone Economic and Technological Development General Corporation, 0.9146% of the noncontrolling interests of Jilin Zhengye is held by Jilin Jinqiao Investment Co. Ltd., and 0.0001% of the noncontrolling interests of Jilin Zhengye is held by Yufeng Liu. Additionally, Beijing Zhongnong Zhengye Biotechnology Co., Ltd. ("Beijing Zhengye") is a subsidiary of Jilin Zhengye, in which Jilin Zhengye holds a 51% equity interests, with the remaining 49% noncontrolling interests held by Youjia Technology Consulting Services (Tianjin) Co., Ltd. Consolidated net income on the unaudited condensed consolidated statements of operations and comprehensive income (loss) includes the net income attributable to noncontrolling interests when applicable. The cumulative results of operations attributable to noncontrolling interests are also recorded as noncontrolling interests in the Company's unaudited condensed consolidated balance sheets.

**Earnings per share**

The Company computes earnings per share ("EPS") in accordance with ASC 260, "Earnings per Share." ASC 260 requires companies to present basic and diluted EPS. Basic EPS is measured as net income attributable to Zhengye Biotechnology Holding Limited, divided by the weighted average ordinary share outstanding for the period. Diluted EPS presents the dilutive effect on a per-share basis of the 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.

**Comprehensive income**

The Company applies ASC 220, *Comprehensive Income* ("ASC 220"), with respect to reporting and presentation of comprehensive income and its components in a full set of financial statements. Comprehensive income is defined to include all changes in equity of the Company during a period arising from transactions and other event and circumstances except those resulting from investments by shareholders and distributions to shareholders. For the six months ended June 30, 2024 and 2025, the Company's comprehensive income includes net income and foreign currency translation adjustment.

**Statutory reserves**

Pursuant to the laws applicable to the PRC, PRC entities must make appropriations from after-tax profit to the non-distributable "statutory surplus reserve fund." Subject to certain cumulative limits, the "statutory surplus reserve fund" requires annual appropriations of 10% of after-tax profit until the aggregated appropriations reach 50% of the registered capital (as determined under accounting principles generally accepted in the PRC ("PRC GAAP") at each year-end). For foreign-invested enterprises and joint ventures in the PRC, annual appropriations should be made to the "reserve fund." For foreign-invested enterprises, the annual appropriation for the "reserve fund" cannot be less than 10% of after-tax profits until the aggregated appropriations reach 50% of the registered capital (as determined under PRC GAAP at each year-end). If the Company has accumulated loss from prior periods, the Company is able to use the current period net income after tax to offset the accumulated loss.

**Commitments and Contingencies**

In the normal course of business, the Company is subject to contingencies, including legal proceedings and claims arising out of the business that relate to a wide range of matters, such as government investigations and tax matters. The Company recognizes a liability for such contingency if it determines it is probable that a loss has occurred and a reasonable estimate of the loss can be made. The Company may consider many factors in making these assessments including historical performance and the specific facts and circumstances of each matter.

**Leases**

The Company adopts Accounting Standards Update ("ASU") 2016-02, Lease (FASB ASC Topic 842) to account its lease. ASC 842 requires that lessees recognize right-of-use ("ROU") assets and lease liabilities calculated based on the present value of lease payments for all lease agreements with terms that are greater than twelve months. ASC 842 distinguishes leases as either a finance lease or an operating lease on the unaudited condensed consolidated balance sheets that affects how the leases are measured and presented in the statement of operations and statement of cash flows.

Right-of-use ("ROU") assets represent the Company's right to use underlying assets for the lease term and lease liabilities represent the Company's obligation to make lease payments arising from the lease. At inception of a contract, the Company assesses whether a contract is, or contains, a lease. A contract is or contains a lease if it conveys the right to control the use of an identified asset for a period of time in exchange of a consideration. To assess whether a contract is or contains a lease, the Company assess whether the contract involves the use of an identified asset, whether it has the right to obtain substantially all the economic benefits from the use of the asset and whether it has the right to control the use of the asset.

The right-of-use of asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred and less any lease incentive received. The right-of-use assets and related lease liabilities are recognized at the lease commencement date. The Company recognizes operating lease expenses on a straight-line basis over the lease term.

Lease liability is initially measured at the present value of the outstanding lease payments at the commencement date, discounted using the Company's incremental borrowing rate. Lease payments included in the measurement of the lease liability comprise fixed lease payments, variable lease payments that depend on an index or a rate, amounts expected to be payable under a residual value guarantee and any exercise price under a purchase option that the Company is reasonably certain to exercise.

Lease liability is measured at amortized cost using the effective interest rate method. It is re-measured when there is a change in future lease payments, if there is a change in the estimate of the amount expected to be payable under a residual value guarantee, or if there is any change in the Company assessment of option purchases, contract extensions or termination options.

**Segment reporting**

ASC 280, *Segment Reporting*, ("ASC 280"), establishes standards for companies to report in their financial statements information about operating segments, products, services, geographic areas, and major customers.

Based on the criteria established by ASC 280, our chief operating decision maker ("CODM") has been identified as our Chief Executive Officer, who reviews unaudited condensed consolidated results when making decisions about allocating resources and assessing performance of the company. As a whole and hence, we have only one reportable segment. We do not distinguish between markets or segments for the purpose of internal reporting. As our long-lived assets are substantially located in the PRC, no geographical segments are presented. For the operating results of segment provided to and reviewed by CODM, please refer to the unaudited condensed consolidated statements of operations and comprehensive income (loss).

**Uncertainty and risks**

 

*<u>Political, social and economic risks</u>*

The Company has substantial operations in China through its PRC subsidiaries. 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 Company's business, financial condition and results of operations may also be negatively impacted by risks related to regional wars, geopolitical tensions, natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could potentially and significantly disrupt the Company's operations.

 

*<u>Interest rate risk</u>*

The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps to manage its interest rate exposure on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates and has not used any derivative financial instruments to manage the interest risk exposure during the period/year presented.

**Concentration risks**

 

*<u>Concentration of credit risk</u>*

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash in bank, accounts receivable, and other receivables. The Company places its cash with financial institutions with high credit ratings and quality.

The Company conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Company establishes an allowance for expected credit losses primarily based upon the factors surrounding the credit risk of specific customers.

 

 

*<u>Concentration of customers and suppliers</u>*

As of December 31, 2024, one major client accounted for 49.0% of the Company's total accounts receivable. The client is a listed company and a leading pig farming company in China. The Company's outstanding accounts receivable from its largest client, which accounted for 49.0% of the Company's total accounts receivable as of December 31, 2024, has been fully collected in 2025.

As of June 30, 2025, two clients accounted for 25.1% and 12.5% of the Company's total accounts receivable, respectively. The clients are both listed companies and leading pig farming companies in China.

For the six months ended June 30, 2024, two clients accounted for 43.2% and 10.1% of the Company's total revenues, respectively. For the six months ended June 30, 2025, one client accounted for 20.0% of the Company's total revenues.

As of December 31, 2024, one vendor accounted for 13.7% of the Company's total accounts payable. As of June 30, 2025, no vendor accounted above 10.0% of the Company's total accounts payable.

For the six months ended June 30, 2024, one vendor accounted for 11.8% of the Company's total purchases. For the six months ended June 30, 2025, three vendors accounted for 12.9%, 11.6%, and 10.2% of the Company's total purchases, respectively.

**Recent accounting pronouncements**

The Company is an emerging growth company ("EGC") as defined by the Jumpstart Our Business Startups Act ("JOBS Act"). The JOBS Act provides that an EGC can take advantage of extended transition periods for complying with new or revised accounting standards. This allows an EGC to delay adoption of certain accounting standards until those standards would otherwise apply to private companies.

In December 2023, the FASB issued ASU 2023-09, which is an update to Topic 740, Income Taxes. The amendments in this update related to the rate reconciliation and income taxes paid disclosures improve the transparency of income tax disclosures by requiring (1) consistent categories and greater disaggregation of information in the rate reconciliation, and (2) income taxes paid disaggregated by jurisdiction. The amendments allow investors to better assess, in their capital allocation decisions, how an entity's worldwide operations and related tax risks and tax planning and operational opportunities affect its income tax rate and prospects for future cash flows. The other amendments in this update improve the effectiveness and comparability of disclosures by (1) adding disclosures of pretax income (or loss) and income tax expense (or benefit) to be consistent with U.S. Securities and Exchange Commission Regulation S-X 210.4-08(h), Rules of General Application—General Notes to Financial Statements: Income Tax Expense, and (2) removing disclosures that are no longer considered cost beneficial or relevant. For public business entities, the amendments in this update are effective for annual periods beginning after December 15, 2024. The adoption of this ASU did not have significant impact on the Company's financial statements.

On March 21, 2024, the FASB issued Accounting Standards Update No. 2024-01 ("ASU 2024-01"), which clarifies how an entity determines whether a profits interest or similar award is (1) within the scope of ASC 718, or (2) not a share-based payment arrangement and therefore within the scope of other guidance. The guidance in ASU 2024-01 applies to all entities that issue profits interest awards as compensation to employees or nonemployees in exchange for goods or services. ASU 2024-01 is effective for public business entities for annual periods beginning after December 15, 2024, including interim periods within those periods. The adoption of this ASU did not have significant impact on the Company's financial statements.

In November 2024, the FASB issued Accounting Standards Update 2024-03, *Income Statement*—*Reporting Comprehensive Income*—*Expense Disaggregation Disclosures (Subtopic 220-40)* ("ASU 2024-03"). The objective of ASU 2024-03 is to improve disclosures about a public entity's expenses, primarily through additional disaggregation of income statement expenses. In January 2025, the FASB further clarified the effective date of ASU 2024-03 with the issuance of Accounting Standards Update 2025-01, *Income Statement* — *Reporting Comprehensive Income* — *Expense Disaggregation Disclosures (Subtopic 220-40)* ("ASU 2025-01"). ASU 2024-03 is effective for annual periods beginning after December 15, 2026, and interim periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted and may be applied either on a prospective or retrospective basis. The Company is currently evaluating the impact ASU 2024-03 will have on its financial statement disclosures.

In May 2025, the FASB issued ASU 2025-03, Business Combinations (Topic 805) and Consolidation (Topic 810): Determining the Accounting Acquirer in the Acquisition of a Variable Interest Entity. ASU 2025-03 clarifies the guidance to determine the accounting acquirer in a business combination that is affected primarily by exchanging equity interests, when the legal acquiree is a variable interest entity that meets the definition of a business. ASU 2025-03 requires entities to consider the same factors in ASC 805, Business Combinations, required for determining which entity is the accounting acquirer in other acquisition transactions. ASU 2025-03 is effective for the Company's annual reporting periods beginning after December 15, 2026, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-03 is required to be applied on a prospective basis to any acquisition transaction that occurs after the initial application date. The Company is currently evaluating the impact ASU 2025-03 will have on its financial statement disclosures.

In July 2025, the FASB issued Accounting Standards Update 2025-05, Measurement of Credit Losses for Accounts Receivable and Contract Assets. ASU 2025-05 amends ASC 326, Financial Instruments—Credit Losses, and introduces a practical expedient available for all entities and an accounting policy election available for all entities, other than public business entities, that elect the practical expedient. These changes apply to the estimation of expected credit losses for current accounts receivable and current contract assets arising from transactions accounted for under ASC 606, Revenue Recognition. Under the practical expedient, entities may assume that current conditions as of the balance sheet date remain unchanged for the remaining life of the asset when developing reasonable and supportable forecasts. This simplifies the estimation process for short-term financial assets. ASU 2025-05 is effective for the Company's annual reporting periods beginning after December 15, 2025, and interim reporting periods within those annual reporting periods, with early adoption permitted. ASU 2025-05 should be applied on a prospective basis. The Company is currently evaluating the impact ASU 2025-05 will have on its financial statement disclosures.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company's balance sheets, statements of income and statements of cash flows.

**Reclassification**

Certain prior year amounts have been reclassified to conform to the current year presentation. These reclassifications had no effect on the reported revenues, net income and cash flows.

**3. SHORT-TERM INVESTMENTS**

Short term investments consisted of the following:

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| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31, <br> 2024** | **June 30, 2025** | **June 30, 2025** |
|  | **RMB** | **RMB** | **US$** |
| Investment in marketable securities in Zhengbang (i) | 1334 | 1247 | 174 |
| Derivate assets (ii) | 99 | 774 | 108 |
|  | 1433 | 2021 | 282 |

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(i) For the six months ended June 30, 2024 and 2025, Jilin Zhengye did not sell its investment in marketable securities of Zhengbang and recorded net unrealized gain of RMB100 and loss of RMB87 (US$12), respectively, in the unaudited condensed consolidated statements of operations and comprehensive income (loss).

(ii) Jilin Zhengye entered into foreign currency swap contracts and cross currency interest rate swap contracts on November 28, 2024 with a commercial bank (see Note 2 and Note 6). Jilin Zhengye determined the foreign currency forward contracts and cross currency interest rate swap contracts as non-designated derivative instruments, which are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date. For the six months ended June 30, 2025, Jilin Zhengye recorded loss on fair value changes of RMB163 (US$23) from cross currency interest rate swap derivative instrument and recorded gain on fair value changes of RMB838 (US$117) from foreign currency swap derivative instrument.

**4. ACCOUNTS RECEIVABLE, NET**

Accounts receivable and the allowance for credit losses consisted of the following:

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| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31, <br> 2024** | **June 30, 2025** | **June 30, 2025** |
|  | **RMB** | **RMB** | **US$** |
| Accounts receivable | 76437 | 53101 | 7413 |
| Less: allowance for credit losses | (16874) | (16163) | (2256) |
| Accounts receivable, net | 59563 | 36938 | 5157 |

---

An analysis of the allowance for credit losses was as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31,<br> 2024** | **June 30, 2025** | **June 30, 2025** |
|  | **RMB** | **RMB** | **US$** |
| Balance at beginning of the year | (18616) | (16874) | (2356) |
| Reversal | 1742 | 711 | 100 |
| Balance at the end of the year | (16874) | (16163) | (2256) |

---

**5. PREPAYMENTS AND OTHER ASSETS, NET**

Prepayments and other assets consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31,** <br> **2024** | **June 30,** <br> **2025** | **June 30,** <br> **2025** |
|  | **RMB** | **RMB** | **US$** |
| Security deposit | 2660 | 2188 | 305 |
| Prepaid advertising and promotion expenses | - | 9313 | 1300 |
| Prepaid financial consulting expenses | - | 14327 | 2000 |
| Technology transfer license fee | 18100 | 16500 | 2303 |
| Others | 1485 | 544 | 77 |
| **Prepayments and other assets** | 22245 | 42872 | 5985 |
| Less: other receivable- a related party | (738) | - | - |
| Less: long-term prepayments | (18698) | (16979) | (2370) |
| Less: allowance for credit losses | (183) | (175) | (24) |
| **Prepayments and other current assets, net** | 2626 | 25718 | 3591 |

---

**6. LOANS**

Outstanding balances of loans consist of the following:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
| | **Balance** | **Balance** | | | |
| <br>**As of June 30, 2025** | **RMB** | **USD** | <br>**Maturity Date** | **Interest**<br>**Rate** | <br>**Collateral/Guarantee** |
| ***Short-term loan*** | | |  | |  |
| Industrial Bank Jilin Branch <sup>(1)</sup> | 5000 | 698 | August 1, 2025 | Fixed rate<br> 4.30% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(2)</sup> | 8000 | 1117 | December 10, 2025 | Fixed rate<br> 4.30% | Collateral: buildings and land use right |
| Industrial Bank Hong Kong Branch <sup>(3)</sup> | 20963 | 2926 | November 25, 2025 | Fixed rate<br> 3.15% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(4)</sup> | 21900 | 3056 | March 23, 2026 | Fixed rate<br> 4.20% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(5)</sup> | 5000 | 698 | March 30, 2026 | Fixed rate<br> 4.20% | Collateral: buildings and land use right |
| China Minsheng Bank Jilin Branch <sup>(6)</sup> | 3000 | 419 | September 9, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(7)</sup> | 1990 | 278 | September 18, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(8)</sup> | 3000 | 419 | February 6, 2026 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(9)</sup> | 2010 | 281 | February 21, 2026 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| Bank of Jilin <sup>(10)</sup> | 10000 | 1396 | March 24, 2026 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| **Total** | **80863** | **11288** |  |  |  |
| ***Long-term loan-current portion*** |  |  |  |  |  |
| Industrial Bank Jilin Branch <sup>(11)</sup> | 200 | 28 | November 5, 2027 | Fixed rate<br> 4.00% | Collateral: buildings and land use right |
| **Total** | **200** | **28** |  |  |  |
| ***Long-term loan*** |  |  |  |  |  |
| Industrial Bank Jilin Branch <sup>(11)</sup> | 4700 | 656 | November 5, 2027 | Fixed rate<br> 4.00% | Collateral: buildings and land use right |
| **Total** | **4700** | **656** |  |  |  |

---

---

| | | | | |
|:---|:---|:---|:---|:---|
| | **Balance** | | | |
| <br>**As of December 31, 2024** | **RMB** | <br>**Maturity Date** | **Interest**<br>**Rate** | <br>**Collateral/Guarantee** |
| ***Short-term loan*** |  |  |  |  |
| Industrial Bank Jilin Branch <sup>(12)</sup> | 5000 | March 25, 2025 | Fixed rate<br> 4.35% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(13)</sup> | 21900 | March 25, 2025 | Fixed rate<br> 4.35% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(14)</sup> | 5000 | May 12, 2025 | Fixed rate<br> 4.30% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(1)</sup> | 5000 | August 1, 2025 | Fixed rate<br> 4.30% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(2)</sup> | 8000 | December 10, 2025 | Fixed rate<br> 4.30% | Collateral: buildings and land use right |
| Industrial Bank Hong Kong Branch <sup>(3)</sup> | 19543 | November 25, 2025 | Fixed rate<br> 3.15% | Collateral: buildings and land use right |
| China Minsheng Bank Jilin Branch <sup>(15)</sup> | 3000 | January 8, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(16)</sup> | 2010 | February 5, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(6)</sup> | 3000 | September 9, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| China Minsheng Bank Jilin Branch <sup>(7)</sup> | 1990 | September 18, 2025 | Fixed rate<br> 3.85% | Guarantee: Jilin Zhengye Group Co., Ltd. |
| **Total** | 74443 |  |  |  |
| ***Long-term loan-current portion*** |  |  |  |  |
| Industrial Bank Jilin Branch <sup>(17)</sup> | 6990 | April 10, 2025 | Fixed rate<br> 4.90% | Collateral: buildings and land use right |
| Industrial Bank Jilin Branch <sup>(11)</sup> | 200 | November 5, 2027 | Fixed rate<br> 4.00% | Collateral: buildings and land use right |
| **Total** | 7190 |  |  |  |
| ***Long-term loan*** |  |  |  |  |
| Industrial Bank Jilin Branch <sup>(11)</sup> | 4800 | November 5, 2027 | Fixed rate<br> 4.00% | Collateral: buildings and land use right |
| **Total** | **4800** |  |  |  |

---

(1) On August 7, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB5,000 from August 7, 2024 to August 1, 2025. The loan bears a fixed annual interest rate of 4.30%. As of June 30, 2025, the remaining balance was RMB5,000 (US$698).

(2) On December 10, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB8,000 from December 11, 2024 to December 10, 2025. The loan bears a fixed annual interest rate of 4.30%. As of June 30, 2025, the remaining balance was RMB8,000 (US$1,117).

(3) On November 29, 2024, Jilin Zhengye obtained a working capital loan of JPY422.7 million (approximately RMB20.2 million) from Industrial Bank Hong Kong Branch ("the JPY Loan"), with a floating interest rate of Tokyo Overnight Average rate plus 0.65% payable on monthly basis. The maturity date of the JPY Loan is November 25, 2025.

(4) On March 25, 2025, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB21,900 from March 25, 2025 to March 23, 2026. The loan bears a fixed annual interest rate of 4.20%. As of June 30, 2025, the remaining balance was RMB21,900 (US$3,056).

(5) On March 31, 2025, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB5,000 from March 31, 2025 to March 30, 2026. The loan bears a fixed annual interest rate of 4.20%. As of June 30, 2025, the remaining balance was RMB5,000 (US$698).

(6) On September 9, 2024, Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB3,000 from September 9, 2024 to September 9, 2025. The loan bears a fixed annual interest rate of 3.85%. As of June 30, 2025, the remaining balance was RMB3,000 (US$419).

(7) On September 18, 2024, Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB1,990 from September 18, 2024 to September 18, 2025. The loan bears a fixed annual interest rate of 3.85%. As of June 30, 2025, the remaining balance was RMB1,990 (US$278).

(8) On February 6, 2025, Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB3,000 from February 6, 2025 to February 6, 2026. The loan bears a fixed annual interest rate of 3.85%. As of June 30, 2025, the remaining balance was RMB3,000 (US$419).

(9) On February 21, 2025, Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB2,010 from February 21, 2025 to February 21, 2026. The loan bears a fixed annual interest rate of 3.85%. As of June 30, 2025, the remaining balance was RMB2,010 (US$281).

(10) On March 25, 2025, Jilin Zhengye entered into a bank loan agreement with Bank of Jilin to borrow RMB10,000 from March 28, 2025 to March 24, 2026. The loan bears a fixed annual interest rate of 3.85%. As of June 30, 2025, the remaining balance was RMB10,000 (US$1,396).

(11) On November 8, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB5,000 from November 8, 2024 to November 5, 2027. The loan bears a fixed annual interest rate of 4.00%. Jilin Zhengye repaid RMB100 of the loan in accordance with the agreed repayment plan on March 21, 2025. As of June 30, 2025, the remaining balance was RMB4,900 (US$684).

(12) On March 28, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB5,000 from March 28, 2024 to March 25, 2025. The loan bears a fixed annual interest rate of 4.35%. Jilin Zhengye fully repaid the loan on March 25, 2025.

(13) On March 28, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB21,900 from March 28, 2024 to March 25, 2025. The loan bears a fixed annual interest rate of 4.35%. Jilin Zhengye fully repaid the loan on March 25, 2025.

(14) On May 13, 2024, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB5,000 from May 13, 2024 to May 12, 2025. The loan bears a fixed annual interest rate of 4.30%. Jilin Zhengye fully repaid the loan on April 1, 2025.

(15) On January 8, 202 4 , Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB3,000 from January 8, 2024 to January 8, 2025. The loan bears a fixed annual interest rate of 3.85%. Jilin Zhengye fully repaid the loan on January 8, 2025.

(16) On February 5, 2024, Jilin Zhengye entered into a bank loan agreement with China Minsheng Bank Jilin Branch to borrow RMB2,010 from February 5, 2024 to February 5, 2025. The loan bears a fixed annual interest rate of 3.85%. Jilin Zhengye fully repaid the loan on January 8, 2025.

(17) On April 8, 2022, Jilin Zhengye entered into a bank loan agreement with Industrial Bank Jilin Branch to borrow RMB9,990 from April 11, 2022 to April 10, 2025. The loan bears a fixed annual interest rate of 4.90%. Jilin Zhengye fully repaid the loan on April 1, 2025.

In connection with borrowing of the JPY loan, the Company entered into foreign exchange swap contracts and cross-currency interest rate swap contracts with Industrial Bank with a termination date on November 24, 2025 and November 25, 2025, respectively, to run concurrently with the JPY Loan. The interest rate payable by the Company under the cross-currency interest rate swap contracts is a fixed interest rate of 3.15% denominated in RMB and the Company is required to transfer the principal amount of the JPY loan at fixed exchange rate of 0.047840 (or RMB20.2 million) upon maturity in exchange for JPY422.7 million under the foreign exchange swap contracts (see Note 2 and Note 3).

The weighted average interest rate was 4.35% and 3.96% for the six months ended June 30, 2024 and 2025, respectively. Interest expense for the six months ended June 30, 2024 and 2025, amounted to RMB2,052 and RMB1,752 (US$245), respectively.

China Minsheng Bank Jilin Branch provided a working capital credit facility to the Company with a term from January 26, 2025 to January 25, 2026. Bank of Jilin provided a working capital credit facility to the Company with a term from March 25, 2025 to March 24, 2026. As of June 30, 2025, the Company's unused working capital credit facility was nil.

As of June 30, 2025, the Company's future long-term loan obligations according to the terms of the loan agreement are as follows:

---

| | | |
|:---|:---|:---|
|  | **RMB** | **US$** |
| The six months ended December 31, 2025 | 100 | 14 |
| The twelve months ended |  |  |
| 2026 | 200 | 28 |
| 2027 | 4600 | 642 |
|  | 4900 | 684 |

---

**7. ACCRUED EXPENSES AND OTHER LIABILITIES**

Accrued expenses and other liabilities consisted of the following:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31,** <br> **2024** | **June 30,** <br> **2025** | **June 30,** <br> **2025** |
|  | **RMB** | **RMB** | **US$** |
| Reimbursement payables | 1240 | 995 | 139 |
| Deferred income | 200 | 1000 | 140 |
| Social welfare payables | 346 | 312 | 44 |
| Deposit | 99 | 99 | 14 |
| Maintenance fee payables | 455 | 455 | 64 |
| Accrued IPO expenses | 2721 | - | - |
| Consulting and professional service | - | 505 | 70 |
| Others | 556 | 424 | 58 |
|  | 5617 | 3790 | 529 |

---

**8. TAXATION**

***Enterprise income tax ("EIT")***

 

***Cayman Islands***

The Company is incorporated in the Cayman Islands and conducts its primary business operations through the subsidiaries in the PRC. Under the current laws of the Cayman Islands, the Company is not subject to tax on income or capital gain arising in Cayman Islands.

 ****

***British Virgin Islands ("BVI")***

The Company's subsidiaries incorporated in the BVI are not subject to tax on income or capital gain, in addition, payments of dividend by these subsidiaries to their shareholders are not subject to withholding tax in the BVI.

 ****

***Hong Kong***

The Company's subsidiary incorporated in Hong Kong is subject to a two-tiered profits tax rates regime, in which the first HK$2 million of assessable profits will be taxed at the rate of 8.25%, and assessable profits above HK$2 million will be taxed at the rate of 16.5%.

 ****

***PRC***

The Company's PRC subsidiaries are governed by the income tax laws of the PRC and the income tax provision in respect to operations in the PRC is calculated at the applicable tax rates on the taxable income for the periods based on existing legislation, interpretations and practices in respect thereof. Under the Enterprise Income Tax Laws of the PRC (the "EIT Laws"), domestic enterprises and Foreign Investment Enterprises (the "FIE") 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 case-by-case basis. According to the relevant PRC tax policies, once an enterprise meets certain requirements and is identified as a small-scale minimal profit enterprise, the portion of its taxable income not more than RMB3 million is subject to a reduced effective rate of 5%. EIT grants preferential tax treatment to certain 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 the HNTE status every three years. Jilin Zhengye obtained the HNTE tax status in 2019 and renewed it in 2022, which reduced its statutory income tax rate to 15% for the six months ended June 30, 2024 and 2025. Both Hainan Senhan and Beijing Zhengye meet the criteria for small low-profit enterprises and reduced its statutory income tax rate to 5% for the six months ended June 30, 2024 and 2025.

Income tax expenses comprised of:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,** | **For the six months ended June 30,** | **For the six months ended June 30,** |
|  | **2024** | **2025** | **2025** |
|  | **RMB** | **RMB** | **US$** |
| Current | 1316 | - | - |
| Deferred | 1242 | (5340) | (745) |
|  | 2558 | (5340) | (745) |

---

The reconciliation of tax computed by applying the statutory income tax rate of 25% for the six months ended June 30, 2024 and 2025 applicable to the PRC operations to income tax expense were as follows:

---

| | | |
|:---|:---|:---|
|  | **For the six months ended** <br> **June 30,** | **For the six months ended** <br> **June 30,** |
|  | **2024** | **2025** |
| Statutory income tax rate | 25.0% | 25% |
| Effect of income tax exemptions and reliefs | (6.6)% | (10.8)% |
| Additional deduction for development and research expense | (8.3)% | 3.8% |
| Effect of non-deductible expense | 9.2% | (0.7)% |
| Income tax expense | 19.3% | 17.3% |

---

The component of deferred tax assets are as follows:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31, <br> 2024** | **June 30, <br> 2025** | **June 30, <br> 2025** |
|  | **RMB** | **RMB** | **US$** |
| Deferred tax assets |  |  |  |
| &nbsp;&nbsp;&nbsp;Impairment of long-lived assets | 7611 | 8228 | 1149 |
| &nbsp;&nbsp;&nbsp;Allowance for credit losses | 2558 | 2451 | 342 |
| &nbsp;&nbsp;&nbsp;Net operation loss | 728 | 5554 | 775 |
| &nbsp;&nbsp;&nbsp;Others | 226 | 105 | 15 |
| Total deferred tax assets | 11123 | 16338 | 2281 |
| Net off against deferred tax liabilities | (132) | (7) | (1) |
| Total net deferred tax assets | 10991 | 16331 | 2280 |

---

The component of deferred tax assets liabilities:

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31, <br> 2024** | **June 30, <br> 2025** | **June 30, <br> 2025** |
|  | **RMB** | **RMB** | **US$** |
| Deferred tax liabilities |  |  |  |
| &nbsp;&nbsp;&nbsp;Fair value change gain | 132 | 7 | 1 |
| &nbsp;&nbsp;&nbsp;Net off against deferred tax assets | (132) | (7) | (1) |
| Net deferred tax liabilities | - | - | - |

---

Realization of the net deferred tax assets is dependent on factors including future reversals of existing taxable temporary differences and adequate future taxable income. The Company and its subsidiaries evaluate the potential realization of deferred tax assets on an entity-by-entity basis.

**9. SHAREHOLDER'S EQUITY**

The Company was incorporated in the Cayman Islands in March 2023 under the Cayman Islands Companies Act as an exempted company with limited liability. The Company authorized 500,000,000 shares with US$0.0001 par value. In 2023, the Company issued 11,416,594 shares with US$0.0001 par value to five institutional shareholders. On March 20, 2024, VVAX Holdings Limited transferred 399,581 ordinary shares of US$0.0001 each to Visuccess Holding Limited for a consideration of US$39.96, leaving VVAX Holdings Limited with 171,249 ordinary shares of US$0.0001 each.

On June 6, 2024, the Company formally executed a forward stock split of its ordinary shares at a ratio of one pre-split ordinary share to 4 post-split ordinary shares. After the stock split, the authorized number of ordinary shares became 2,000,000,000, from 500,000,000 pre-split shares. The par value changed from $0.0001 to $0.000025 accordingly. 45,666,376 ordinary shares were issued and outstanding as of December 31, 2023 and 2024. The number of shares and per share data are presented herein have been retroactively adjusted to give effect to the stock split.

**Initial public offering**

On January 8, 2025, the Company closed its IPO of 1,500,000 ordinary shares, par value $0.000025 per share. The ordinary shares were priced at $4.00 per share and approved for listing on The Nasdaq Capital Market and commenced trading under the ticker symbol "ZYBT" on January 7, 2025. Additionally, the Company had granted the underwriter an option, exercisable within 45 days from the closing date of the IPO, to purchase up to an additional 225,000 ordinary shares at the public offering price, less underwriting discounts, to cover the over-allotment. On January 14, 2025, the underwriters exercised their option in full to purchase an additional 225,000 ordinary shares at a public offering price of $4.00 per ordinary share to cover over-allotments. Gross proceeds of the IPO, including the exercise of the over-allotment, totaled $6.9 million, before deducting underwriting discounts and other related expenses. The net proceeds of this offering were approximately $6.0 million. 47,391,376 ordinary shares were issued and outstanding as of June 30, 2025.

***Dividends***

For the six months ended June 30, 2024 and 2025, the Company declared cash dividends of RMB205 and nil, respectively. For the six months ended June 30, 2024 and 2025, the Company paid dividends in cash of RMB15,858 and nil, respectively.

**10. RESTRICTED NET ASSETS**

As a result of the PRC laws and regulations and the requirement that distributions by PRC entities can only be paid out of distributable profits computed in accordance with PRC GAAP, the PRC entities are restricted from transferring a portion of their net assets to the Company. Amounts restricted include paid-in capital, additional paid-in capital, and the statutory reserves of the Company's PRC subsidiaries.

---

| | | | |
|:---|:---|:---|:---|
|  | **As of** | **As of** | **As of** |
|  | **December 31,** <br> **2024** | **June 30,** <br> **2025** | **June 30,** <br> **2025** |
|  | **RMB** | **RMB** | **US$** |
| Additional paid-in-capital | 203150 | 240752 | 33608 |
| Statutory reserve | 32647 | 32647 | 4557 |
|  | 235797 | 273399 | 38165 |

---

**11. SEGMENT INFORMATION**

The following table summarizes the revenues generated from different product category for the six months ended June 30, 2024 and 2025:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,** | **For the six months ended June 30,** | **For the six months ended June 30,** |
|  | **2024** | **2025** | **2025** |
|  | **RMB** | **RMB** | **US$** |
| Swine vaccines | 79923 | 46706 | 6520 |
| Poultry vaccines | 7256 | 7015 | 979 |
| Other vaccines | 7770 | 8607 | 1202 |
|  | 94949 | 62328 | 8701 |

---

The following table summarizes the revenues generated from different distribution channels for the six months ended June 30, 2024 and 2025:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,** | **For the six months ended June 30,** | **For the six months ended June 30,** |
|  | **2024** | **2025** | **2025** |
|  | **RMB** | **RMB** | **US$** |
| Direct sales channel | 62003 | 30101 | 4202 |
| Distribution network | 29409 | 31334 | 4374 |
| Government tender and procurement | 3537 | 893 | 125 |
|  | 94949 | 62328 | 8701 |

---

**12. RELATED PARTY TRANSACTIONS**

For the year ended December 31, 2024, the Company obtained a working capital loan from Jiahe Developments Limited, which is controlled Mr. Zhenfa Han, the principal shareholder, director, and chairman of the board of the directors of the Company, in the amount of RMB146 (US$20). As of December 31, 2024, the amount due to Jiahe Developments Limited was RMB146 (US$20), which was fully repaid on January 27, 2025.

For the six months ended June 30, 2024 and 2025, the operating entity purchased goods from Jilin Huazheng Agriculture and Animal Husbandry Development Co., Ltd. ("Jilin Huazheng"), which is controlled by Mr. Zhenfa Han, the principal shareholder, director, and chairman of the board of the Company, in the amount of RMB119 and RMB124 (US$17), respectively.

For the six months ended June 30, 2025, the operating entity provided a working capital loan to Jinlin Huazheng, in the amount of RMB7,000 (US$977), which was fully repaid on June 30, 2025.

For the six months ended June 30, 2025, the operating entity purchased venue and catering services from Beijing Hanzhenyuan International Hotel Co., Ltd. ("Beijing Hanzhenyuan"), which is controlled by a shareholder of the Company, in the amount of RMB746 (US$104).

**13. COMMITMENTS AND CONTINGENCIES**

***Commitments***

The Company had no significant capital expenditure commitment as of December 31, 2024 and June 30, 2025.

***Contingencies***

The Company may be involved in various legal proceedings, claims, and other disputes arising from the commercial operations, projects, employees, and other matters which, in general, are subject to uncertainties and in which the outcomes are not predictable. The Company determines whether an estimated loss from a contingency should be accrued by assessing whether a loss is deemed probable and can be reasonably estimated. Although the Company can give no assurances about the resolution of pending claims, litigation or other disputes, and the effect such outcomes may have on the Company, the Company believes that any ultimate liability resulting from the outcome of such proceedings, to the extent not otherwise provided or covered by insurance, will not have a material adverse effect on the Company's unaudited condensed consolidated financial position or results of operations or liquidity.

***Contractual obligations***

The Company had outstanding bank loans of RMB85,763 (US$11,972) as of June 30, 2025.

The following table sets forth our contractual obligations and commercial commitments as of June 30, 2025

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **Payment Due by Period (in thousands)** | **Payment Due by Period (in thousands)** | **Payment Due by Period (in thousands)** | **Payment Due by Period (in thousands)** | **Payment Due by Period (in thousands)** |
|  | **Total** | **Less than 1 Year** | **1 – 3 Years** | **3 – 5 Years** | **More than 5 Years** |
| Bank loans | 85763 | 81063 | 4700 |  |  |

---

**14. SUBSEQUENT EVENTS**

The Company has assessed all events from June 30, 2025 up through December 12, 2025 that these unaudited condensed consolidated financial statements are available to be issued, unless as disclosed below, there are not any material subsequent events that require disclosure in these unaudited condensed consolidated financial statements.

On July 31, 2025, Jilin Zhengye entered into a loan agreement with Industrial Bank Jilin Branch, pursuant to which Jilin Zhengye obtained a loan in the amount of RMB5,000 (US$698) with a term from August 1, 2025 to July 31, 2028, at a fixed interest rate of 4.20%.

On September 8, 2025, Jilin Zhengye entered into a loan agreement with China Minsheng Bank Jilin Branch, pursuant to which Jilin Zhengye obtained a loan in the amount of RMB4,990 (US$697) with a term from September 8, 2025 to September 8, 2026, at a fixed interest rate of 3.85%.

On October 20, 2025, Jilin Zhengye entered into a loan agreement with Industrial Bank Hong Kong Branch, pursuant to which Jinlin Zhengye obtained a foreign currency loan equivalent to RMB10,568 (US$1,475) with a term from November 7, 2025 to November 6, 2026, at a fixed interest rate of 2.89%.

On December 10, 2025, Jilin Zhengye entered into a loan agreement with Industrial Bank Jilin Branch, pursuant to which Jilin Zhengye obtained a loan in the amount of RMB8,000 (US$1,117) with a term from December 10, 2025 to December 9, 2026, at a fixed interest rate of 4.10%.

On August 1, 2025, Jilin Zhengye repaid RMB5,000 (US$698) to Industrial Bank Jilin Branch with a fixed interest rate of 4.30%.

On August 28, 2025, Jilin Zhengye repaid RMB3,000 (US$419) to China Minsheng Bank Jilin Branch with a fixed interest rate of 3.85%.

On August 28, 2025, Jilin Zhengye repaid RMB1,990 (US$278) to China Minsheng Bank Jilin Branch with a fixed interest rate of 3.85%.

On September 21, 2025, Jilin Zhengye repaid RMB100 (US$14) to Industrial Bank Jilin Branch with a fixed interest rate of 4.00%.

On November 24, 2025, Jilin Zhengye repaid RMB20,222 (US$2,823) to Industrial Bank Hong Kong Branch with a fixed interest rate of 3.15%.

On December 10, 2025, Jilin Zhengye repaid RMB8,000 (US$1,117) to Industrial Bank Jilin Branch with a fixed interest rate of 4.30%.

## Exhibit 99.2

**Exhibit 99.2**

**MANAGEMENT'S DISCUSSION AND ANALYSIS OF<br> FINANCIAL CONDITION AND RESULTS OF OPERATIONS**

 

*You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes. This discussion contains forward-looking statements that involve risks and uncertainties. Our actual results and the timing of selected events could differ materially from those anticipated in these forward-looking statements as a result of various factors.*

**OVERVIEW**

We, through the operating entity, focus on the research, development, manufacturing, and sales of veterinary vaccines, with an emphasis on vaccines for livestock. For over 20 years, the operating entity has been committed to enhancing the health of animals. The operating entity markets a diverse range of vaccines, including vaccines for swine, cattle, goats, sheep, poultry, and dogs. The operating entity's products are available in 29 provincial regions across China and are exported overseas to Vietnam, Pakistan, and Egypt.

**FACTORS AFFECTING RESULTS OF OPERATIONS**

Our results of operations and financial condition are affected by the general factors driving veterinary vaccine market. We have benefited from China's overall economic growth, increased number of large-scale farms, and national policies of animal epidemic detection and prevention, which has been attracting breeders' attention and promoting compulsory immunization to raise breeders' full awareness of the risk of animal epidemics and the necessity of immunization.

While our business is influenced by these general factors, we believe our results of operations are also directly affected by certain company specific factors, including the following major factors:

 ****

***The operating entity's ability to develop high-demand products and expand its business beyond vaccines for livestock by entering into the household animals vaccines industry.***

The operating entity intends to develop high-demand products, for example, Live Vaccine for Mycoplasma Bovis (Strain HB150), jointly developed by the operating entity, Huazhong Agricultural University, and other institutions, which was approved by the Ministry of Agriculture and Rural Affairs as a Category I New Veterinary Drug on February 25, 2025. Another example of high-demand product is Pentavalent Inactivated Vaccine for poultry diseases including Newcastle Disease, Infectious Bronchitis, Avian Influenza (H9), Infectious Bursal Disease, and Avian Adenovirus (Group I, Serotype 4). It was jointly developed by the operating entity, Pulike Biological Engineering, Inc., and other institutions, and was approved by the Ministry of Agriculture and Rural Affairs as a Category I New Veterinary Drug on March 24, 2025. In addition to developing high demand products, the operating entity also intends to expand its business by developing and manufacturing vaccines for companion animals. On September 25, 2025, the operating entity obtained clinical trial approval for its independently developed Inactivated Trivalent Vaccine for Feline Rhinotracheitis, Calicivirus Infection, and Panleukopenia (FM strain + CY strain). In October 2025, the operating entity submitted the quality-standard confirmation letter for the Inactivated Trivalent Feline Panleukopenia, Infectious Rhinoconjunctivitis, and Infectious Rhinotracheitis Vaccine (VP2 protein + CC3 strain + CP2 strain). In December 2025, the operating entity submitted the supplementary materials for new veterinary drug registration for the Inactivated Bivalent Canine Distemper–Canine Parvovirus Vaccine.

 ****

***The operating entity's ability to expand its sales and distribution network.***

The operating entity intends to expand its sales and distribution network to enter new geographic markets, gain more market share in existing markets and access a broader range of customers. It will continue leveraging its local resources to quickly enter new markets, while also minimizing requirements for capital outlay.

 ****

 ****

***The operating entity's ability to continue to upgrade its technological capabilities***

The operating entity believes that its success greatly depends on its ability to attract, incentivize and retain talented professionals. With a view to maintaining and improving its competitive advantage in the market, it plans to implement a series of initiatives to attract additional and retain mid- to high-level personnel, including formulating a market-oriented employee compensation structure and implementing a standardized multilevel performance review mechanism.

 ****

***The operating entity's ability to maintain its product quality***

Relevant PRC laws and regulations were formulated to strengthen the administration of rules pertaining to product quality, as well as to clarify the rules on product liability, consumer protection and maintaining social and economic order. Products offered for sale in China must meet the relevant quality and safety standards. Violations of national or industrial standards for health, safety and any other related violations may result in civil liabilities and penalties, such as compensation for damages, fines, suspension, or shutdown of business, as well as confiscation of products illegally produced for sale and the sales proceeds of such products.

The operating entity strictly follows the requirements of the Good Manufacturing Practice documents of the Ministry of Agriculture and Rural Affairs, adhering to the business philosophy of "creating products with technology, shaping future with quality." In terms of production process, strict quality control is carried out from raw material entry to product delivery, and quality improvement is achieved through refined management. In terms of personnel, regular training is provided to personnel from departments related to procurement, production, inspection, logistics, and other production processes, designed to ensure the stability of the operating entity's product quality.

**KEY COMPONENTS OF RESULTS OF OPERATIONS**

**Net Revenues**

We derived revenues from (i) swine vaccines, (ii) poultry vaccines and (iii) other vaccines. The following table sets forth a breakdown of our revenues both in absolute amounts and as a percentage of our total revenues for the six months ended June 30, 2024 and 2025.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** |
|  | **2024** | **2024** | **2025** | **2025** | **2025** |
|  | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** |
| **Revenues** | **RMB** | **%** | **RMB** | **US$** | **%** |
| Swine vaccines | 79923 | 84.2 | 46706 | 6520 | 74.9 |
| Poultry vaccines | 7256 | 7.6 | 7015 | 979 | 11.3 |
| Other vaccines | 7770 | 8.2 | 8607 | 1202 | 13.8 |
| **Total** | **94949** | **100** | **62328** | **8701** | **100** |

---

As our revenues are generated from different distribution channels, the following table sets forth a breakdown of our revenues from different distribution channels for the six months ended June 30, 2024 and 2025:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** |
|  | **2024** | **2024** | **2025** | **2025** | **2025** |
|  | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** |
| **Revenues** | **RMB** | **%** | **RMB** | **US$** | **%** |
| Direct sales channel | 62003 | 65.3 | 30101 | 4202 | 48.3 |
| Distribution network | 29409 | 31.0 | 31334 | 4374 | 50.3 |
| Government tender and procurement | 3537 | 3.7 | 893 | 125 | 1.4 |
| **Total** | **94949** | **100** | **62328** | **8701** | **100** |

---

**Cost of Revenues**

Costs of revenues consist primarily of inventory cost and shipping and handling cost of providing these services or goods. The following table sets forth a breakdown of our cost of revenues by nature both in absolute amounts and as a percentage of our total cost of revenues for the six months ended June 30, 2024 and 2025:

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** |
|  | **2024** | **2024** | **2025** | **2025** | **2025** |
|  | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** |
| **Cost of revenues:** | **RMB** | **%** | **RMB** | **US$** | **%** |
| Swine vaccines | 30225 | 72.4 | 25260 | 3526 | 58.8 |
| Poultry vaccines | 5586 | 13.4 | 7283 | 1017 | 17.0 |
| Other vaccines | 5914 | 14.2 | 10401 | 1451 | 24.2 |
| **Total** | **41725** | **100** | **42944** | **5994** | **100** |

---

**Operating Expenses**

Our operating expenses consist of sales and marketing expenses, research and development expenses, general and administrative expenses, and allowance for credit losses.

 ****

***Sales and marketing expenses***

Sales and marketing expenses consist primarily of advertising expenses, salaries and other compensation-related expenses to sales and marketing personnel and warranty expenses. We expense all advertising costs as incurred and classify these costs under sales and marketing expenses.

 ****

***Research and development expenses***

Research and development costs are expensed as incurred. These costs primarily consist of payroll and related expenses for personnel engaged in research and development activities.

 ****

***General and administrative expenses***

General and administrative expenses consist primarily of salaries, bonuses and benefits for employees involved in general corporate functions and those not specifically dedicated to research and development activities, depreciation and amortization of fixed assets which are not used in research and development activities, legal and other professional services fees, rental and other general corporate related expenses.

 ****

***Allowance for credit losses***

The Company considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Company's customer collection trends. The allowance for credit losses and corresponding receivables were written off when they are determined to be uncollectible.

---

| | | | | | |
|:---|:---|:---|:---|:---|:---|
|  | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** | **For the six months ended June 30, (Unaudited)** |
|  | **2024** | **2024** | **2025** | **2025** | **2025** |
|  | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** |
|  | **RMB** | **%** | **RMB** | **US$** | **%** |
| Sales and marketing expenses | 19307 | 50.4 | 23243 | 3245 | 48.2 |
| General and administrative expenses | 14604 | 38.1 | 16770 | 2339 | 34.7 |
| Research and development expenses | 5444 | 14.2 | 8969 | 1252 | 18.6 |
| Reversal for credit losses | (1043) | (2.7) | (719) | (100) | (1.5) |
| **Total** | **38312** | **100** | **48263** | **6736** | **100** |

---

**TAXATION**

**Cayman Islands**

Under current laws of the Cayman Islands, the Company is not subject to tax on income or capital gains. Additionally, upon payments of dividends by the Company to their shareholders, no withholding tax will be imposed.

**British Virgin Islands**

Our subsidiaries incorporated in the British Virgin Islands are not subject to tax on income or capital gain. In addition, payments of dividend by these subsidiaries to their shareholders are not subject to withholding tax in the British Virgin Islands.

**Hong Kong**

Our subsidiary in Hong Kong is subject to a two-tiered profits tax rate regime. The first HKD$2 million of assessable profits earned by a company is subject to be taxed at a profits tax rate of 8.25%, while the remaining profits will continue to be taxed at the profits tax rate of 16.5%. Under the Hong Kong tax law, our subsidiary in Hong Kong is exempted from income tax on its foreign derived income and there are no withholding taxes in Hong Kong on remittance of dividends.

**China**

Effective from January 1, 2008, the PRC's statutory Enterprise Income Tax ("EIT") rate is 25%. If our holding company in the Cayman Islands or any of our subsidiaries outside of China were deemed to be a "resident enterprise" under the PRC Enterprise Income Tax Law, it would be subject to enterprise income tax on its worldwide income at a rate of 25%. See "Risk Factors — Risks Relating to Doing Business in the PRC — Under the PRC Enterprise Income Tax Law, we may be classified as a PRC "resident enterprise" for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment."

**RESULTS OF OPERATIONS**

The following table sets forth a summary of our unaudited condensed consolidated results of operations for the years indicated, both in absolute amounts and as a percentage of our total revenues. This information should be read together with our unaudited condensed consolidated financial statements and related notes included elsewhere in this prospectus. The operating results in any period are not necessarily indicative of the results that may be expected for any future period.

Translations of balances in the unaudited condensed consolidated balance sheets, unaudited condensed consolidated statements of income and comprehensive income, and unaudited condensed consolidated statements of cash flows from RMB into US$ as of and for the six months ended June 30, 2025, are solely for the convenience of the readers, and they were calculated at the rate of US$1.00 to RMB7.1636.

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** |
|  | **2024** | **2025** | **2025** |
|  | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** | **(in thousands, except for percentages)** |
|  | **RMB** | **RMB** | **US$** |
| **Net revenues** | 94949 | 62328 | 8701 |
| Cost of revenues | (41725) | (42944) | (5994) |
| **Gross profit** | 53224 | 19384 | 2707 |
| Sales and marketing expenses | (19307) | (23243) | (3245) |
| General and administrative expenses | (14604) | (16770) | (2339) |
| Research and development expenses | (5444) | (8969) | (1252) |
| Reversal for credit losses | 1043 | 719 | 100 |
| **Total operating expenses** | (38312) | (48263) | (6736) |
| **Operating income** | 14912 | (28879) | (4029) |
| **Other income (expenses):** |  |  |  |
| Interest income | 213 | 72 | 10 |
| Interest expense | (2052) | (1752) | (245) |
| Unrealized gains on short-term investments | 100 | 588 | 82 |
| Unrealized foreign exchange loss |  | (1421) | (198) |
| Government subsidy | 140 | 502 | 70 |
| Other expenses | (30) | - | - |
| **Total other expenses, net** | (1629) | (2011) | (281) |
| **Income before income taxes** | 13283 | (30890) | (4310) |
| Income tax benefits (expenses) | (2558) | 5340 | 745 |
| **Net income (loss)** | 10725 | (25550) | (3565) |

---

 ****

 ****

***Net revenues***

Our revenue decreased by RMB32.6 million or 34.4% from RMB94.9 million for the six months ended June 30, 2024 to RMB62.3 million (US$8.7 million) for the six months ended June 30, 2025, primarily due to a downward trend in the hog market in 2025, characterized by low price fluctuations, which resulted in reduced demand for swine vaccines.

Our revenue from sales to the operating entity's largest customer dropped from RMB41.0 million for the six months ended June 30, 2024 by RMB28.5 million to RMB12.5 million (US$1.7million) for the six months ended June 30, 2025, due to the customer's less demand for swine vaccines.

 

*Revenue from sales of swine vaccines.* Our revenue from sales of swine vaccines dropped from RMB79.9 million for the six months ended June 30, 2024 to RMB46.7 million (US$6.5 million) for the six months ended June 30, 2025. This decline was primarily driven by a downward trend in the hog market in 2025, characterized by low-price fluctuations. Additionally, government macro-control policies aimed at reducing the inventory of productive sows to alleviate periodic oversupply contributed to the reduced demand for swine vaccines.

 

*Revenue from sales of poultry vaccines.* Our revenue from sales of poultry vaccines dropped from RMB7.3 million for the six months ended June 30, 2024 to RMB7.0 million (US$1.0 million) for the six months ended June 30, 2025, primarily due to normal market fluctuations.

 

*Revenue from sales of other vaccines.* Our revenue from sales of other vaccines increased from RMB7.8 million for the six months ended June 30, 2024 to RMB8.6 million (US$1.2 million) for the six months ended June 30, 2025. The increase in sales of other vaccines was caused by the increased sales of the vaccines for sheep.

***Cost of revenues***

Our cost of revenues increased by 2.9% from RMB41.7 million for the six months ended June 30, 2024 to RMB42.9 million (US$6.0 million) for the six months ended June 30, 2025.

 ****

***Gross profit***

As a result of the foregoing, our gross profit decreased from RMB53.2 million for the six months ended June 30, 2024 to RMB19.4 million (US$2.7 million) for the six months ended June 30, 2025. Our gross profit margin decreased from 56.1% to 31.1%, mainly due to the lower sales price and unchanged fixed cost.

 ****

***Operating expenses***

Our total operating expenses increased from RMB38.3 million for the six months ended June 30, 2024 to RMB48.3 million (US$6.7 million) for the six months ended June 30, 2025, reflecting the increase in our general and administrative expenses, sales and marketing expenses, research and development expenses and decreases in our reversal for credit losses.

Sales and marketing expenses. Our sales and marketing expenses increased from RMB19.3 million for the six months ended June 30, 2024 to RMB23.2 million (US$3.2 million) for the six months ended June 30, 2025. The increase in sales and marketing expenses mainly resulted from an increase in payroll for sales staffs, marketing promotion expenses, and entertainment.

General and administrative expenses. Our general and administrative expenses increased from RMB14.6 million for the six months ended June 30, 2024 to RMB16.8 million (US$2.3 million) for the six months ended June 30, 2025. The increase in administrative expenses was attributed to the increase in employee compensation and depreciation and amortization.

Research and development expenses. Our research and development expenses increased from RMB5.4 million for the six months ended June 30, 2024 to RMB9.0 million (US$1.3 million) for the six months ended June 30, 2025. The increase in research and development expenses mainly resulted from an increase in development material expenses.

The following table sets forth a summary of our total spending for each research and development project subsidized by the Government of Jilin Province, the PRC, for the six months ended June 30, 2024 and 2025.

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** |
|  | **2024** | **2025** | **2025** |
| **Total Project Expenses** | **RMB** | **RMB** | **US$** |
| The Key Technique Study for the Development of the Live Gene-deletion-attenuated Vaccine against Ovine and Caprine Ecthyma (Orf) | 643300 | 516404 | 72087 |
| The Virus Study, Laboratory Sample Preparation and Efficacy Evaluation of Inactivated Bovine Akabane Disease Vaccine | 545315 | 892366 | 124569 |
| The Development of Animal Microecological Vaccine for the Biological Control of African Swine Fever | 45805 |  |  |
| The Development and Application of Fluorescent ERA Rapid Thermostatic Diagnostic Technology for Key Viral Diarrhea Diseases in Pigs | 533719 | 95976 | 13398 |
| Total | 1768139 | 1504746 | 210054 |

---

The investment in research and development project costs is not comparable, and different projects are at different stages and their inputs are different.

Our reversal of credit loss amounted to RMB1.0 million and RMB0.7 million (US$0.1 million) for the six months ended June 30, 2024 and 2025, respectively.

 ****

***Operating loss (income)***

Our operating loss was RMB28.9 million (US$4.0 million) for the six months ended June 30, 2025. Our operating income was RMB14.9 million for the six months ended June 30, 2024.

 ****

***Net loss (income)***

As a result of the foregoing, net loss was RMB25.6 million (US$3.6 million) for the six months ended June 30, 2025. The net income was RMB10.7 million for the six months ended June 30, 2024.

**LIQUIDITY AND CAPITAL RESOURCES**

The following table sets forth a summary of our cash flows for the periods presented:

---

| | | | |
|:---|:---|:---|:---|
|  | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** | **For the six months ended June 30,<br> (Unaudited)** |
|  | **2024** | **2025** | **2025** |
|  | **(in thousands)** | **(in thousands)** | **(in thousands)** |
|  | **RMB** | **RMB** | **US$** |
| Net cash provided by (used in) operating activities | 14689 | (13968) | (1949) |
| Net cash used in investing activities | (15830) | (664) | (93) |
| Net cash (used in) provided by financing activities | (18855) | 42315 | 5907 |
| Effect of exchange rate changes on cash and restricted cash | 2 | (680) | (96) |
| Net increase (decrease) in cash and restricted cash | (19994) | 27003 | 3769 |
| Cash and restricted cash at beginning of period | 27186 | 18606 | 2597 |
| Cash and restricted cash at end of period | **7192** | **45609** | **6366** |

---

As of the date of this report, we have financed our operating and investing activities primarily through cash generated from operating and financing activities. As of June 30, 2025 and 2024, our cash was RMB45.6 million (US$6.4 million) and RMB7.2 million, respectively. Our cash primarily consists of bank deposits.

As of June 30, 2025 and December 31, 2024, our restricted cash was RMB1,500 (US$209) and RMB1,500, respectively. Restricted cash mainly consists of bank time deposits, which are defined as time deposits with original maturities longer than three months but less than one year, or long-term bank deposits with maturity dates within one year.

We believe that our current cash and expected cash provided by operating and financing activities will be sufficient to meet our current and anticipated working capital requirements and capital expenditures for the next twelve months. We may, however, need additional cash resources in the future if we experience changes in business conditions or other developments. We may also need additional cash resources in the future if we identify and wish to pursue opportunities for investment, acquisition, capital expenditure or similar actions.

All of our revenues have been, and we expect that they are likely to continue to be, in the form of Renminbi. Under existing PRC foreign exchange regulations, payments of current account items, including profit distributions, interest payments and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior SAFE approval as long as certain routine procedural requirements are fulfilled. Therefore, our PRC subsidiaries are allowed to pay dividends in foreign currencies to us without prior SAFE approval by following certain routine procedural requirements. However, current PRC regulations permit our PRC subsidiaries to pay dividends to us only out of their accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations.

Our PRC subsidiaries are required to set aside at least 10% of their after-tax profits after making up previous years' accumulated losses each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their registered capital. These reserves are not distributable as cash dividends.

As a Cayman Islands exempted company and offshore holding company, we are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions, subject to the approval, filings, or registration of government authorities and limits on the amount of capital contributions and loans.

 ****

***Operating Activities***

Net cash generated from operating activities was RMB14.0 million (US$1.9 million) in the six months ended June 30, 2025. The difference between our net cash provided by operating activities and our net loss of RMB25.6 million (US$3.6 million) was due to the combined effects of adjustments for non-cash items and changes in working capital. Adjustments for non-cash items primarily included (i) depreciation and amortization of RMB12.3 million (US$1.7 million), as compared to RMB11.3 million in the six months ended June 30, 2024, for we had more property, plant and equipment and intangible assets in the six months ended June 30, 2025 than the six months ended June 30, 2024, (ii) a reversion of allowance for credit losses of RMB0.7 million (US$0.1 million), as compared to RMB1.0 million in the six months ended June 30, 2024, because we have collected cash from the client's bank debts and commercial notes, and (iii) the impairment for inventory was RMB4.1 million (US$0.6 million), compared to an impairment of RMB2.2 million in the six months ended June 30, 2024. Changes in working capital mainly resulted from (i) an increase in notes receivable of RMB0.1 million (US$0.01million), as compared to a decrease of RMB5.6 million in the six months ended June 30, 2024, for we cashed our banker's acceptance bill collected in the six months ended June 30, 2024, (ii) a decrease in accounts receivable of RMB23.3 million (US$3.3 million), as compared to decrease of RMB3.7 million in the six months ended June 30, 2024, for we cashed our accounts receivable collected in the six months ended June 30, 2025 and 2024, and (iii) an increase in advance to suppliers of RMB1.6 million (US$0.2 million), as compared to an increase of RMB5.6 million in the six months ended June 30, 2024, because we had made advance payments in the six months ended June 30, 2024 for purchases due in the six months ended June 30, 2025, (iv) an increase in prepayments and other current assets of RMB23.4 million (US$3.3 million), as compared to an increase of RMB1.0 million in the six months ended June 30, 2024, for we cashed our prepayments and other current assets payment in the six months ended June 30, 2025, and (v) a decrease in accounts payable of RMB1.5 million (US$0.2 million), as compared to a decrease of RMB2.5 million in the six months ended June 30, 2024, because we accounts payable for our materials which was due in the six months ended June 30, 2025.

Net cash generated from operating activities was RMB14.7 million in the six months ended June 30, 2024. The difference between our net cash provided by operating activities and our net income of RMB10.7 million was due to the combined effects of adjustments for non-cash items and changes in working capital. Adjustments for non-cash items primarily included (i) depreciation and amortization of RMB11.3 million, as compared to RMB11.9 million in the six months ended June 30, 2023, for we had less property, plant and equipment in the six months ended June 30, 2024 than in the six months ended June 30, 2023, (ii) a reversion of allowance for credit losses of RMB1.0 million, as compared to RMB1.4 million in the six months ended June 30, 2023, because we have collected cash from the client's bank debts and commercial notes which were recognized as allowance for credit losses in the six months ended June 30, 2023, and (iii) the impairment write-off for inventory was RMB5.6 million, compared to an impairment of RMB4.7 million in the six months ended June 30, 2023. Changes in working capital mainly resulted from (i) a decrease in notes receivable of RMB5.6 million, as compared to RMB0.2 million in the six months ended June 30, 2023, for we cashed our banker's acceptance bill collected in the six months ended June 30, 2023, (ii) a decrease in accounts receivable of RMB3.7 million, as compared to RMB12.0 million in the six months ended June 30, 2023, for we cashed our accounts receivable collected in 2023, and (iii) a decrease in accounts payable of RMB2.5 million, as compared to RMB30.5 million in the six months ended June 30, 2023, because we have already paid accounts payable for our projects, equipment and materials which was due in the six months ended June 30, 2023.

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***Investing Activities***

Net cash used in investing activities was RMB0.7 million (US$0.1 million) in the six months ended June 30, 2025, which represented payments for loans to a related party of RMB7.0 million (US$1.0 million), collection of lending to a related party of RMB7.0 million (US$1.0 million), purchases of property and equipment of RMB0.3 million (US$0.04 million) and purchases of intangible assets of RMB0.4 million (US$0.06 million).

Net cash used in investing activities was RMB15.8 million in the six months ended June 30, 2024, which represented payments for purchase of property and equipment of RMB1.8 million and purchases of intangible assets of RMB14.1 million.

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***Financing Activities***

Net cash provided by financing activities was RMB42.3 million (US$5.9 million) in the six months ended June 30, 2025, which represented proceeds from loans of RMB41.9 million (US$5.9 million), repayment of loans of RMB44.0 million (US$6.1 million), proceeds from initial public offering RMB43.1 million (US$6.0 million), and receipt of shareholder's capital contribution of RMB1.5 million (US$0.2 million).

Net cash used in financing activities was RMB18.9 million in the six months ended June 30, 2024, which represented proceeds from loans of RMB46.9 million, repayment of loans of RMB49.4 million and dividend payment to shareholders of RMB15.9 million.

**MATERIAL CASH REQUIREMENTS**

Our material cash requirements as of June 30, 2025 and any subsequent interim period primarily include our capital expenditures, operating lease commitments, loan repayment, and working capital requirements.

Our capital expenditures are primarily incurred for purchases of intangible assets, property, plant and equipment, purchases of short-term investments, and prepayment for purchase of intangible assets. We made capital expenditures of RMB0.7 million (US$0.1 million) and RMB15.8 million in the six months ended June 30, 2025 and 2024, respectively. The increase of capital expenditures was mainly because of the increase in patents and investment in office building projects in 2024. Our capital expenditures have been primarily funded by cash generated from the operating entity's operations. We expect to continue to make capital expenditures to support the expected growth of our business. We also expect that cash generated from the operating entity's operation activities and financing activities will meet our capital expenditure needs in the foreseeable future.

**QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK**

**Foreign exchange risk**

Since July 21, 2005, RMB is allowed to fluctuate within a narrow and managed band against a basket of certain foreign currencies. It is difficult to predict how market forces or the PRC or U.S. government policy may impact the exchange rate between RMB and the U.S. dollar in the future. To the extent that we need to convert the U.S. dollar into RMB for capital expenditures and working capital and other business purposes, appreciation of RMB against U.S. dollar would have an adverse effect on the RMB amount we would receive from the conversion. Conversely, if we decide to convert RMB into the U.S. dollar for the purpose of making payments for dividends on ordinary shares, strategic acquisitions or investments or other business purposes, appreciation of the U.S. dollar against RMB would have a negative effect on the U.S. dollar amount available to us. In addition, a significant depreciation of RMB against the U.S. dollar may significantly reduce the U.S. dollar equivalent of our earnings or losses.

**Political, social and economic risks**

The Company has substantial operations in China through its PRC subsidiary, Jilin Zhengye. 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 of our unaudited condensed consolidated financial statements, this may not be indicative of future results.

The Company's business, financial condition and results of operations may also be negatively impacted by risks related to regional wars, geopolitical tensions, natural disasters, extreme weather conditions, health epidemics and other catastrophic incidents, which could potentially and significantly disrupt the Company's operations.

**Interest rate risk**

The Company is exposed to interest rate risk on its interest-bearing assets and liabilities. As part of its asset and liability risk management, the Company reviews and takes appropriate steps to manage its interest rate exposure on its interest-bearing assets and liabilities. The Company has not been exposed to material risks due to changes in market interest rates and has not used any derivative financial instruments to manage the interest risk exposure during the period/year presented.

**Concentration of credit risk**

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of cash in bank and accounts receivable. The Company places its cash with financial institutions with high credit ratings and quality.

The Company conducts credit evaluations of customers, and generally does not require collateral or other security from its customers. The Company establishes an allowance for expected credit losses primarily based upon the factors surrounding the credit risk of specific customers.

**Concentration of customers and suppliers**

As of December 31, 2024, one major client accounted for 49.0% of the Company's total accounts receivable. The client is a listed company and a leading pig farming company in China. The Company's outstanding accounts receivable from its largest client, which accounted for 49.0% of the Company's total accounts receivable as of December 31, 2024, has been fully collected in 2025.

As of June 30, 2025, two clients accounted for 25.1% and 12.5% of the Company's total accounts receivable, respectively. The clients are both listed companies and leading pig farming companies in China.

For the six months ended June 30, 2024, two clients accounted for 43.2% and 10.1% of the Company's total revenues, respectively. For the six months ended June 30, 2025, one client accounted for 20.0% of the Company's total revenues.

As of December 31, 2024, one vendor accounted for 13.7% of the Company's total accounts payable. As of June 30, 2025, no vendor accounted above 10.0% of the Company's total accounts payable.

For the six months ended June 30, 2024, one vendor accounted for 11.8% of the Company's total purchases. For the six months ended June 30, 2025, three vendors accounted for 12.9%, 11.6%, and 10.2% of the Company's total purchases, respectively.

**CRITICAL ACCOUNTING POLICIES, JUDGMENTS AND ESTIMATES**

An accounting policy is considered critical if it requires an accounting estimate to be made based on assumptions about matters that are uncertain and requires significant judgment at the time such estimate is made, and if different accounting estimates that reasonably could have been used, or changes in the accounting estimates that are reasonably likely to occur periodically, could materially impact the unaudited condensed consolidated financial statements.

We prepare our unaudited condensed consolidated financial statements in accordance with U.S. GAAP. Significant accounting policies we follow in the preparation of the accompanying unaudited condensed consolidated financial statements are summarized below.

**Revenue recognition**

The Company adopted Accounting Standards Codification ("ASC") 606, *Revenue from Contracts with Customer*. To determine revenue recognition for contracts with customers, the Company performs the following five steps:

Step 1: Identify the contract with the customer

Step 2: Identify the performance obligations in the contract

Step 3: Determine the transaction price

Step 4: Allocate the transaction price to the performance obligations in the contract

Step 5: Recognize revenue when the company satisfies a performance obligation

The Company manufactures and sells veterinary vaccines, with an emphasis on vaccines for livestock, to customers.

The Company enters into contract with their customers to provide veterinary vaccines, mainly vaccines for livestock. All of the Company's contracts have single performance obligation as the promise is to transfer the goods to customers, and there are no other separately identifiable promises in the contracts. The Company recognizes revenue when it transfers its goods 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 products to its customers on a gross basis, because 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. The Company's revenue is recognized at a point in time when the control has been transferred, usually when the customer accepts the goods.

The Company offers their distributors with sales rebate. According to the items in the contract, the Company pays certain sales rebate, in the form of products with equivalent value, to distributor once the distributor purchases stipulated amount products from the Company. Sales rebate is considered as variable consideration. The Company estimates annual expected revenue of each individual distributor with reference to their historical results. The sales rebate reduces revenues recognized. At the end of each reporting period, the Company updates the estimated revenue to represent faithfully the circumstances present at the end of the reporting period.

Apart from the sales rebate, the Company's products are sold with no right of return and the Company does not provide other credits or sales incentives to customers. Revenue is reported net of value added tax ("VAT"), collected on behalf of tax authorities in respect of product sales.

**Accounts receivable and allowance for credit losses**

Accounts receivable are stated at the historical carrying amount net of allowance for expected credit losses.

The Company's policy for estimating credit losses also applies to notes receivable and other receivables. To estimate expected credit losses, the Company has identified the relevant risk characteristics of its customers and the related receivables. The Company considers the past collection experience, current economic conditions, future economic conditions (external data and macroeconomic factors) and changes in the Company's customer collection trends. The allowance for credit losses and corresponding receivables are written off when they are determined to be uncollectible.

**Inventories, net**

Inventories are stated at the lower of cost or net realizable value. Net realizable value is the estimated selling price in the normal course of business less any costs to complete and sell products. Cost of inventory are determined using the weighted average method. The Company records inventory reserves for obsolete and slow-moving inventory.

Inventory reserves are based on inventory obsolescence trends, historical experience and application of the specific identification method.

**Impairment of long-lived assets other than goodwill**

Long-lived assets are evaluated for impairment whenever events or changes in circumstances (such as a significant adverse change to market conditions that will impact the future use of the assets) indicate that the carrying amount may not be fully recoverable or that the useful life is shorter than the Company had originally estimated. When these events occur, the Company evaluates the impairment by comparing carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value of the assets. Impairment charges recognized for the six months ended June 30, 2024 and 2025 were nil and nil, respectively.

**Derivative instruments**

Derivative instruments are initially recorded at fair value as either assets or liabilities in the accompanying balance sheet and subsequently remeasured to fair value at each reporting date, regardless of the purpose or intent for holding the derivative. The resulting derivative assets or liabilities are shown as a single line and are not net off against one another on the face of the balance sheet. The method of recognizing the resulting gain or loss is dependent on whether the derivative contract qualifies for hedge accounting and has been designated as a hedging instrument. For derivative instruments that are not designated or that do not qualify as hedging instruments under ASC 815 – Derivatives and Hedging, the assets have been recognized as "derivative assets" included in the short-term investments and the liability has been recognized as "derivative liabilities" on the balance sheet and changes in the fair value of the derivative financial instruments are recognized in earnings. Gains and losses from the Company's non-designated foreign currency swap contracts and interest rate swap contracts are recorded in other income in the Company's consolidated statements of income and comprehensive income but do not impact our cash flows.

**Valuation allowance for deferred tax assets**

Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the financial statements. Net operating loss carry forwards and credits are applied using enacted statutory tax rates applicable to future years. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more-likely-than-not that a portion of or all of the deferred tax assets will not be realized. Deferred tax assets are recognized to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilized, which can require the use of accounting estimation and the exercise of judgement. The impact of an uncertain income tax position is recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant tax authority. An uncertain income tax position will not be recognized if it has less than a 50% likelihood of being sustained. Interest and penalties on income taxes will be classified as a component of the provisions for income taxes. Significant judgment is required in determining the valuation allowance. In assessing the need for a valuation allowance, we consider all sources of taxable income, including projected future taxable income, reversing taxable temporary differences, and ongoing tax planning strategies. If it is determined that we are able to realize deferred tax assets in excess of the net carrying value or to the extent we are unable to realize a deferred tax asset, we would adjust the valuation allowance in the period in which such a determination is made, with a corresponding increase or decrease to earnings.

**RECENT ACCOUNTING PRONOUNCEMENTS**

For detailed discussion on recent accounting pronouncements, see Note 2 to our Unaudited Condensed Consolidated Financial Statements.