SEC Form 20-F/A filed by Happiness Development Group Limited (Amendment)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM
OR
For the fiscal year ended
OR
For the transition period from to
OR
Date of event requiring this shell company report
Commission file number:
(Exact name of Registrant as specified in its charter)
N/A
(Translation of the Registrant’s name into English)
(Jurisdiction of incorporation or organization)
Fujian Province, People’s Republic
of
(Address of principal executive offices)
Telephone:
Fujian Province, People’s Republic
of
(Name, Telephone, E-mail and/or Facsimile number and Address of Company Contact Person)
* Securities registered or to be registered pursuant to Section 12(b) of the Act:
| Title of Each Class | Trading Symbol | Name of Each Exchange On Which Registered | ||
Securities registered or to be registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:
None
(Title of Class)
The number of outstanding shares of each of the
issuer’s classes of capital or common stock as of March 31, 2023 were
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company |
If an emerging growth company that prepares
its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition
period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange
Act.
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant
has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial
reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or
issued its audit report.
If securities are registered pursuant to Section
12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction
of an error to previously issued financial statements.
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
| ☒ | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check
mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
EXPLANATORY NOTE
This Amendment No. 1 to Form 20-F (“Amendment No. 1”) amends our Annual Report on Form 20-F for the fiscal year ended March 31, 2023 (the “Form 20-F”), which was originally filed with the U.S. Securities and Exchange Commission on July 27, 2023 (the “Original Filing Date”). This Amendment No. 1 is being (i) to update the Consent of Independent Registered Public Accounting Firm by TPS Thayer LLC, which is the previous certifying accountants of the Company, attached as exhibit 23.1 in Item 19 of the Form 20-F; (ii) to add the Consent of Independent Registered Public Accounting Firm by Briggs & Veselka Co., which is the previous certifying accountants of the Company, attached as exhibit 23.3 in Item 19 of the Form 20-F; (iii) to add the Report of Independent Registered Public Accounting Firm by Briggs & Veselka Co on page F-4 of Item 18 on Form 20-F. There are no other changes to the Form 20-F. Other than the newly added audit report by Briggs & Veselka Co., consolidated financial statements and notes to the consolidated financial statements remain the same as the previously filed Form 20-F.
In accordance with Rule 12b-15 of the Securities Exchange Act of 1934, as amended, this Amendment No. 1 includes new certifications required by Sections 302 and 906 of the Sarbanes-Oxley Act of 2002, as amended, dated as of the filing date of this Amendment No. 1.
Except for the changes expressly described above, this Amendment No. 1 continues to present information as at the Original Filing Date and does not amend, supplement or update any information contained in the Form 20-F to give effect to any subsequent events. The filing of this Amendment No. 1, and the inclusion of newly updated auditor’s consent, should not be understood to mean that any other statements or disclosure contained in the Form 20-F are true and complete as of any date subsequent to the Original Filing Date, except as expressly noted above. Accordingly, this Amendment No. 1 should be read in conjunction with the Form 20-F.
ITEM 18. FINANCIAL STATEMENTS
See the Index to Consolidated Financial Statements accompanying this report beginning page F-1.
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED March 31, 2023, 2022 and 2021
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Paranovus Entertainment Technology Ltd.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Paranovus Entertainment Technology Ltd. and its subsidiaries (collectively, the “Company”) as of March 31, 2023, and the related consolidated statements of operation and other comprehensive (loss)/ income, changes in shareholders’ equity, and cash flow for the year ended March 31, 2023, and the related notes (collectively referred to as the “financial statements”). In our opinion, the principles generally accepted in the United States of America (U.S. GAAP).
Substantial doubt about the Company’s ability to continue as a going concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss of US$72,187,116 during the financial year ended March 31, 2023 and, as of that date, the Company’s current liabilities exceeded its current assets by US$11,167,107. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to this matter are also discussed in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the f consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/ Enrome LLP
We have served as the Company’s auditor since 2023
Singapore
July 27, 2023
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Happiness Development Group Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Happiness Development Group Limited and its subsidiaries (collectively, the “Company”) as of March 31, 2022, and the related consolidated statements of operation and other comprehensive (loss)/ income, changes in shareholders’ equity, and cash flow for the year ended March 31, 2022, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2022, and the consolidated results of its operations and its consolidated cash flow for the year ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.
/s/
We have served as the Company’s auditor since 2022
August 15, 2022
F-3
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Happiness Biotech Group Limited
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheet of Happiness Biotech Group Limited and its Subsidiaries (collectively, the “Company”) as of March 31, 2021, and the related consolidated statements of income and comprehensive income, changes in shareholders’ equity, and cash flows for each of the two years in the period ended March 31, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audit, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Briggs & Veselka Co.
Briggs & Veselka Co.
Houston, Texas
August 2, 2021
We have served as the Company’s auditor since 2018.
F-4
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD
CONSOLIDATED BALANCE SHEETS
(IN U.S. DOLLARS)
| As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, | ||||||||
| Notes receivable | ||||||||
| Inventories | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Goodwill | ||||||||
| Deferred tax assets | ||||||||
| Prepaid assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| Current liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Income tax payable | ||||||||
| Short-term bank borrowings | ||||||||
| Total current liabilities | ||||||||
| Deferred tax liability | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES (NOTE 17) | ||||||||
| SHAREHOLDERS’ EQUITY | ||||||||
| Preferred shares, $ | ||||||||
| Class A Ordinary shares, $ | ||||||||
| Class B Ordinary shares, $ | ||||||||
| Additional paid-in capital | ||||||||
| Statutory surplus reserve | ||||||||
| Retained earnings (accumulated losses) | ( | ) | ||||||
| Accumulated other comprehensive income (loss) | ( | ) | ||||||
| Total Paranovus Entertainment Technology Ltd.’s shareholders’ equity | ||||||||
| Non-controlling interests | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-5
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD
CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE (LOSS)/ INCOME
(IN U.S. DOLLARS)
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Revenues | $ | $ | $ | |||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ||||||
| Gross profit | ||||||||||||
| Operating expenses: | ||||||||||||
| Selling and marketing | ||||||||||||
| General and administrative | ||||||||||||
| Research and development | ||||||||||||
| Goodwill impairment | ||||||||||||
| Total operating expenses | ||||||||||||
| Operating (loss) income | ( | ) | ( | ) | ||||||||
| Other income (expenses): | ||||||||||||
| Interest income | ||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ||||||
| Other income, net | ( | ) | ||||||||||
| Total other income, net | ( | ) | ||||||||||
| (Loss) Income before income taxes | ( | ) | ( | ) | ||||||||
| Income tax benefit (provision) | ( | ) | ( | ) | ||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | |||||
| Net loss attributable to non-controlling interests | ||||||||||||
| Net (loss) income attributable to Paranovus Entertainment Technology Ltd | ( | ) | ( | ) | ||||||||
| Other comprehensive income (loss): | ||||||||||||
| Foreign currency translation adjustments | ( | ) | ||||||||||
| Comprehensive (loss) income | $ | ( | ) | $ | ( | ) | $ | |||||
| Less: comprehensive (loss) income attributable to non-controlling interests | ( | ) | ( | ) | ||||||||
| Comprehensive (loss) income attributable to Paranovus Entertainment Technology Ltd | $ | ( | ) | $ | ( | ) | $ | |||||
| Basic and diluted earnings per ordinary share | ||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ||||||
| Weighted average number of ordinary shares outstanding | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS’ EQUITY
(IN U.S. DOLLARS)
Class A Ordinary shares | Class A Ordinary shares amount |
Class B Ordinary shares | Class B Ordinary shares amount | Additional paid-in capital | Statutory surplus reserve | Retained earnings | Accumulated other comprehensive income (loss) | Total
Paranovus Entertainment Technology Ltd shareholders’ equity | Non-controlling interests | Total equity | ||||||||||||||||||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | |||||||||||||||||||||||||||||||||
| Ordinary shares issued for cash | - | |||||||||||||||||||||||||||||||||||||||||||
| Ordinary shares issued for services | - | |||||||||||||||||||||||||||||||||||||||||||
| Statutory reserves | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Contribution from non-controlling shareholders | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Dividend | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | ||||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | $ | $ | ( | ) | $ | $ | $ | ||||||||||||||||||||||||||||||||||
| Ordinary shares issued for cash | ||||||||||||||||||||||||||||||||||||||||||||
| Ordinary shares issued for services | ||||||||||||||||||||||||||||||||||||||||||||
| Business acquisition (Note 14) | ||||||||||||||||||||||||||||||||||||||||||||
| Convention of Class A Ordinary shares into Class B Ordinary shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | $ | $ | $ | $ | $ | ( | ) | $ | |||||||||||||||||||||||||||||||||
| Ordinary shares issued for cash | ||||||||||||||||||||||||||||||||||||||||||||
| Share consolidation | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Business acquisition (Note 15) | ||||||||||||||||||||||||||||||||||||||||||||
| Convention of Class A Ordinary shares into Class B Ordinary shares | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||||
| Net (loss) | - | - | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Foreign currency translation adjustments | - | - | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||
| Balance at March 31, 2023 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-7
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Cash Flows from Operating Activities: | ||||||||||||
| Net (loss) income | $ | ( | ) | $ | ( | ) | $ | |||||
| Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities: | ||||||||||||
| Depreciation and amortization | ||||||||||||
| Allowance for doubtful accounts | ||||||||||||
| Goodwill impairment | ||||||||||||
| Loss on disposal of roperty, plant and equipment | ||||||||||||
| (Gain) Loss on disposal of subsidiaries | ( | ) | ||||||||||
| Deferred taxes | ( | ) | ||||||||||
| Share-based compensation | ||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||
| Accounts receivable | ( | ) | ||||||||||
| Notes receivable | ( | ) | ||||||||||
| Inventories | ||||||||||||
| Prepaid expenses and other current assets | ( | ) | ||||||||||
| Prepaid assets | ( | ) | ||||||||||
| Accounts payable | ( | ) | ||||||||||
| Other payables and accrued liabilities | ( | ) | ||||||||||
| Due to related parties | ( | ) | ||||||||||
| Income taxes payable | ( | ) | ( | ) | ||||||||
| Net cash (used in) provided by operating activities | ( | ) | ( | ) | ||||||||
| Cash Flows from Investing Activities: | ||||||||||||
| Purchases of property, plant and equipment | ( | ) | ( | ) | ( | ) | ||||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||||||
| Business acquisitions of Hekangyuan | ( | ) | ||||||||||
| Business acquisitions of Baodeng | - | ( | ) | |||||||||
| Deposits return from Shennong | ||||||||||||
| Purchase of DAJI | ( | ) | ||||||||||
| Deposits paid for business acquisitions | ( | ) | ||||||||||
| Proceeds from disposal of subsidiaries | ||||||||||||
| Proceeds from disposal of roperty, plant and equipment | ||||||||||||
| Net cash provided by/ (used in) investing activities | ( | ) | ( | ) | ||||||||
| Cash Flows from Financing Activities: | ||||||||||||
| Ordinary shares issued for cash | ||||||||||||
| Cash contribution from non-controlling shareholders | ||||||||||||
| Dividend payment | ( | ) | ||||||||||
| Proceeds from short-term loans | ||||||||||||
| Repayments of short-term loans | ( | ) | ( | ) | ( | ) | ||||||
| Net cash provided by financing activities | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | ||||||||||||
| Net (decrease) increase in cash and cash equivalents | ( | ) | ( | ) | ||||||||
| Cash and cash equivalents at the beginning of year | ||||||||||||
| Cash and cash equivalents at the end of year | $ | $ | $ | |||||||||
| Supplemental disclosures of cash flows information: | ||||||||||||
| Cash paid for income taxes | $ | $ | $ | |||||||||
| Cash paid for interest expense | $ | $ | $ | |||||||||
| Supplemental schedule of non-cash investing and financing activities | ||||||||||||
| Ordinary shares issued for acquisitions | $ | $ | $ | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-8
PARANOVUS ENTERTAINMENT TECHNOLOGY LIMITED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Paranovus Entertainment Technology Limited
(“Paranovus Cayman”) is a holding company. It was incorporated on February 13, 2018 under the laws of the Cayman Islands
and previously named Happiness Biotech Group Limited. On November 5, 2021, the Company changed its name to Happiness Development Group
Limited under the special resolution dated October 21, 2021. On March 13, 2023 the Company changed its name to Paranovus Entertainment
Technology Limited under the special resolution dated March 13, 2023.The Company has no substantive operations other than holding all
of the outstanding share capital of Happiness Biology Technology Group Limited (“Happiness Hong Kong”) and Paranovus Entertainment
Technology Limited (“Paranovus NewYork”). Happiness Hong Kong is a holding company of all of the equity or ownership of Happiness
(Fuzhou) E-commerce Co., Ltd (“Happiness Fuzhou”). Paranovus NewYork is a holding company of
Happiness Fuzhou is a holding company of all of the equity or ownership of Fujian Happiness Biotech Co., Limited (“Fujian Happiness”), Fuzhou Happiness Enterprise Management Consulting Co., Ltd. (“Fujian Consulting”), Happy Buy (Fujian) Network Technology Co., Ltd. (“Happy Buy”), and Taochejun (Fujian) Automobile Sales Co., Ltd. (“Fujian Taochejun”).
Reorganization
A Reorganization of the legal structure was
completed in August 2018. The Reorganization involved the incorporation of PARANOVUS ENTERTAINMENT TECHNOLOGY LIMITED, a Cayman Islands
holding company; Happiness Biology Technology Group Limited, a holding company established in Hong Kong, PRC; Happiness (Fuzhou) E-commerce
Co., Ltd, a holding company established in Fujian, PRC; and the transfer of
Prior to the reorganization, Mr. Wang Xuezhu,
Chief Executive Officer owns
Since the Company is effectively controlled by the same Controlling Shareholder before and after the reorganization, it is considered under common control. Therefore, the above-mentioned transactions were accounted for as a recapitalization. The reorganization has been 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 financial statements of the Company.
On March 4, 2019, the Company subdivided its
F-9
Initial Public Offering
On October 25, 2019, the Company announced
the closing of its initial public offering of
| Name of Entity | Date of Incorporation | Place of Incorporation | Registered Capital | % of Ownership | Principal Activities | |||||
| Happiness (Fuzhou) E-commerce Co., Ltd (“ Happiness Fuzhou”) | ||||||||||
| Fujian Happiness Biotech Co., Ltd (“Fujian Happiness”) | ||||||||||
| Fujian Happiness comes Medical Equipment Manufacturing Co., Ltd. | ||||||||||
| Shunchang Happiness comes Health Products Co., Ltd. | ||||||||||
| Fujian Shennongjiagu Development Co., Ltd.(“Shennong”) | ||||||||||
| Fuzhou Hekangyuan Trading Co., Ltd. (“Hekangyuan”) | ||||||||||
| Fuzhou Happiness Enterprise Management Consulting Co., Ltd. | ||||||||||
| Happy Buy (Fujian) Network Technology Co., Ltd. (“Happy Buy”) | ||||||||||
| Fujian Happy Studio Network Technology Co. LTD | ||||||||||
| Hangzhou C’est la vie Interactive Technology Co., Ltd. (“Hangzhou C’est la vie”) (b) | ||||||||||
| Fujian Lever Media Co., Ltd. (“Fujian Lever”) (b) | ||||||||||
| Shunchang Baolong Electronic Commerce Co., Ltd. (b) | ||||||||||
| Shunchang Shihong Electronic Commerce Co., Ltd. (b) | ||||||||||
| Happiness Youdao (Hangzhou) Electronic Commerce Co., Ltd. (b) |
F-10
| Putian City Hanjiang District Luochen Network Technology Co., Ltd. (“Putian Luochen”) (a) | ||||||||||
| Putian City Hanjiang District Qiyao Trading Co., Ltd. (a) | ||||||||||
| Putian City Hanjiang District Zhiran Trading Co., Ltd. (a) | ||||||||||
| Fujian Seravi Electronic Commerce Co., Ltd. (“Fujian Seravi”) (b) | ||||||||||
| Shunchang Qida Electronic Commerce Co., Ltd. (a) | ||||||||||
| Shunchang Penghong Electronic Commerce Co., Ltd. (a) | ||||||||||
| Fujian Daji Media Co., Ltd. (“Daji”) (c) | ||||||||||
| Happy Buy (Nanping) Automobile Sales Co., Ltd. (d) | ||||||||||
| Happy Optimal (Fujian) Network Technology Co., Ltd. (“Happy Optimal”) (c) | ||||||||||
| Shunchang Haiwushuo Brand Management Co., Ltd. (“Shunchang Haiwushuo”) | ||||||||||
| Shunchang Salt Sweet Network Technology Co., Ltd. (a) | ||||||||||
| Haiwushuo (Hangzhou) Media Technology Co., Ltd. (a) | ||||||||||
| Shunchang County Partners Supply Chain Management Co., Ltd. (b) | ||||||||||
| Shunchang Youxi e-commerce Co., Ltd. (b) | ||||||||||
| Haiwushuo (Fujian) Food Co., Ltd. (a) | ||||||||||
| Happy Unicorn (Hangzhou) Network Technology Co., Ltd. (“Happy Unicorn”) (c) | ||||||||||
| Ganzhou Youjia New Energy Automobile Sales Co., Ltd. (a) | ||||||||||
| Happy car source (Ningbo) Automobile Service Co., Ltd. (a) |
F-11
| Wuhan Xingfu Youxuan Automobile Sales Co., Ltd. (a) | ||||||||||
| Taochejun (Hangzhou) New Energy Technology Co., Ltd. (“Hangzhou Taochejun”) | ||||||||||
| Zhejiang Yiche Chuxing Technology Co., Ltd. (a) | ||||||||||
| Happy Travel Technology (Fujian) Co., Ltd. (e) | ||||||||||
| Sichuan Taochejun New Energy Technology Co., Ltd. | ||||||||||
| Taochejun (Xi’an) Car Rental Co., Ltd. (a) | ||||||||||
| Taochejun (Fuzhou) Automotive Technology Co., Ltd. (g) | ||||||||||
| Fuzhou Taochejun Culture Media Co., Ltd. (f) | ||||||||||
| Taochejun (Hainan) New Energy Technology Co., Ltd. | ||||||||||
| Hunan Xingfu Vehicle Source Technology Co., Ltd. (a) | ||||||||||
| Happy Automobile Service (Nanping) Co., Ltd. (e) | ||||||||||
| Hangzhou Happiness Youche Automobile Partnership (Limited partnership) (a) | ||||||||||
| Taochejun (Fujian) automobiles Co., ltd |
| (a) | |
| (b) | |
| (c) | |
| (d) | |
| (e) | |
| (f) | |
| (g) |
Going Concern
The accompanying consolidated financial statements
have been prepared assuming that the Company will continue as a going concern. The Company incurred a net loss of US$
F-12
Notwithstanding the above, the Company's continues to have a reasonable expectation that adequate resources to continue in operation through disposing the assets with losses and improving the remaining operation with positive cash contributions for at least the next 12 months and that the going concern basis of operation these finance statement remains appropriate based on the following factors:
To sustain its ability to support the Company's operating activities, the Company considered supplementing its sources of funding through the following:
| ● | Cash and cash equivalents generated from operations: | |
| ● | The banking facilities from their bankers for their working capital requirements for the next twelve months will be available as and when required; | |
| ● | Funding from the existing financial institutions with existing available credit lines; | |
| ● | Obtaining funds through future private placements or public offerings. |
NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and have been consistently applied. The accompanying consolidated financial statements include the financial statements of Paranovus Cayman and its subsidiaries (collectively, the “Company”). All inter-company balances and transactions have been eliminated upon consolidation.
Non-controlling interests
For the Company’s non-wholly owned subsidiaries, a non-controlling interest is recognized to reflect the portion of equity that is not attributable, directly or indirectly, to the Company. Non-controlling interests are classified as a separate line item in the equity section of the Company’s consolidated balance sheets and have been separately disclosed in the Company’s consolidated statements of comprehensive (loss)/income to distinguish the interests from that of the Company. Cash flows related to transactions with non-controlling interests are presented under financing activities in the consolidated statements of cash flows.
Use of Estimates
In preparing the consolidated financial statements in conformity with US GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates are based on information as of the date of the consolidated financial statements. Significant estimates required to be made by management include, but are not limited to, the valuation of accounts receivable and related allowance for doubtful accounts, useful lives of property and equipment and intangible assets, the recoverability of long-lived assets, inventory reserve, allowance for credit losses, goodwill impairment, income taxes related to realization of deferred tax assets and uncertain tax position, provisions necessary for contingent liabilities and purchase price allocation in connection with the business combination. The current economic environment has increased the degrees of uncertainty inherent in those estimates and assumptions, actual results could differ from those estimates.
Business combination
Business combinations are recorded using the acquisition method of accounting. The assets acquired, the liabilities assumed, and any non-controlling interests of the acquiree at the acquisition date, if any, are measured at their fair values as of the acquisition date. Goodwill is recognized and measured as the excess of the total consideration transferred plus the fair value of any non-controlling interest of the acquiree and fair value of previously held equity interest in the acquiree, if any, at the acquisition date over the fair values of the identifiable net assets acquired. Common forms of the consideration made in acquisitions include cash and common equity instruments. Consideration transferred in a business acquisition is measured at the fair value as of the date of acquisition. Acquisition-related expenses and restructuring costs are expensed as incurred.
Accounting Standards Codification (“ASC”)
805 establishes a measurement period to provide the Company with a reasonable amount of time to obtain the information necessary to identify
and measure various items in a business combination and cannot extend beyond
F-13
Cash and Cash Equivalents
The Company considers all highly liquid investment instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. The Company maintains all bank accounts in the PRC. Cash balances in bank accounts in PRC are not insured by the Federal Deposit Insurance Corporation or other programs.
Accounts Receivable
Accounts receivable are recognized and carried at original invoiced amount less an estimated allowance for uncollectible accounts. The Company determines the adequacy of reserves for doubtful accounts based on individual account analysis and historical collection trends. The Company establishes a provision for doubtful receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. Based on management of customers’ credit and ongoing relationship, management makes conclusions whether any balances outstanding at the end of the period will be deemed uncollectible on an individual basis and on aging analysis basis. The provision is recorded against accounts receivables balances, with a corresponding charge recorded in the consolidated statements of operation and other comprehensive (loss)/ income. Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood of collection is not probable.
Inventories
Inventories are stated at the lower of cost or net realizable value. Cost of inventories is determined using the weighted-average method. In addition to cost of raw materials, work in progress and finished goods include direct labor costs and overheads. The Company periodically assesses the recoverability of all inventories to determine whether adjustments are required to record inventories at the lower of cost or market value. Inventories that the Company determines to be obsolete or in excess of forecasted usage are reduced to its estimated realizable value based on assumptions about future demand and market conditions. If actual demand is lower than the forecasted demand, additional inventory write-downs may be required.
Prepaid expenses and other current assets
Prepaid expenses and other current assets mainly represents cash prepaid to the suppliers, the technical providers and the investment receivables from the investors.
Prepaid expenses and other current assets primarily consist of advances to vendors for purchasing goods, advances to the technical provides that have not been received or provided. Prepaid expenses and other current assets are classified as current or non-current based on the terms of the respective agreements. These advances are unsecured and are reviewed periodically to determine whether their carrying value has become impaired. The Company considers the assets to be impaired if the collectability of the advance becomes doubtful. The Company uses the aging method to estimate the allowance for uncollectible balances. The allowance is also based on management’s best estimate of specific losses on individual exposures, as well as a provision on historical trends of collections and utilizations. Actual amounts received or utilized may differ from management’s estimate of credit worthiness and the economic environment.
F-14
Goodwill
Goodwill represents the excess of the purchase price over the fair value of the identifiable assets and liabilities acquired in a business combination.
Goodwill is not depreciated or amortized but is tested for impairment on an annual basis as of March 31, and in between annual tests when an event occurs or circumstances change that could indicate that the asset might be impaired. In accordance with the FASB ASC 350 guidance on “Testing of Goodwill for Impairment”, a company first has the option to assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If the company decides, as a result of its qualitative assessment, that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is mandatory. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of each reporting unit with its carrying amount, including goodwill. If the carrying amount of each reporting unit exceeds its fair value, an impairment loss equal to the difference between the fair value of the reporting unit and the carrying amount will be recorded. Application of a goodwill impairment test requires significant management judgment, including the identification of reporting units, assigning assets and liabilities to reporting units, assigning goodwill to reporting units, and determining the fair value of each reporting unit. The judgment in estimating the fair value of reporting units includes estimating future cash flows, determining appropriate discount rates and making other assumptions. Changes in these estimates and assumptions could materially affect the determination of fair value for each reporting unit.
As of March 31, 2023, goodwill resulting from business acquisitions have been allocated into three reporting units, including Shennong, Hekangyuan and 2Lab3. The Company evaluates if goodwill impairment may be indicated on quarterly basis and performs the annual goodwill impairment assessment as of March 31. As of March 31, 2023, the Company qualitatively assessed relevant events and circumstances, including macroeconomics conditions, industry and market considerations, its overall financial performance, and concluded by weighing all these factors in their entirety that it was more likely than not the fair value of the Company’s reporting unit was lower than its respective carrying value.
Property, Plant and Equipment
| Useful Lives | ||
| Buildings | ||
| Machinery | ||
| Furniture, fixture and electronic equipment | ||
| Vehicles |
Expenditures for maintenance and repairs, which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and betterment which substantially extend the useful life of assets are capitalized. The cost and related accumulated depreciation of assets retired or sold are removed from the respective accounts, and any gain or loss is recognized in the consolidated statements of income and other comprehensive income in other income or expenses.
F-15
Intangible Assets
Intangible assets with definite lives are initially recorded at cost. Amortization of definite-lived intangible assets is computed using the straight-line method over the estimated average useful lives. Intangible assets with indefinite lives should not be amortized but should be tested for impairment at least annually or when event occurs or circumstances that could indicate that the asset might be impaired.
| Useful life | ||
| Land use right | ||
| Licensed software | ||
| Trademark | ||
| Customer relationship | ||
| Proprietary technology |
Impairment of Long-lived Assets other than goodwill
The Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the estimated cash flows from the use of the asset and its eventual disposition are below the asset’s carrying value, then the asset is deemed to be impaired and written down to its fair value. There were no impairments of these assets as of March 31, 2023 and 2022.
Short-term bank borrowings
Short-term bank borrowings represent the amounts due to various banks that are due within one year.
Short-term bank borrowings are presented as current liabilities unless the Company has an unconditional right to defer settlement for at least 12 months after the financial year end date, in which case they are presented as non-current liabilities.
Short-term bank borrowings are initially recognized at fair value (net of transaction costs) and subsequently carried at amortized cost. Any difference between the proceeds (net of transaction costs) and the redemption value is recognized in profit or loss over the period of the borrowings using effective interest method.
Short-term bank borrowings costs are recognized in profit or loss using the effective interest method.
Fair Value of Financial Instruments
The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 820, Fair Value Measurement and Disclosures, requires certain disclosures regarding the fair value of financial instruments. Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. A three-level fair value hierarchy prioritizes the inputs used to measure fair value. The hierarchy requires entities to maximize the use of observable inputs and minimize the use of unobservable inputs. The three levels of inputs used to measure fair value are as follows:
| ● | Level 1 - Quoted prices in active markets for identical assets and liabilities. |
| ● | Level 2 - Quoted prices in active markets for similar assets and liabilities, or other inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
| ● | Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets and liabilities. This includes certain pricing models, discounted cash flow methodologies and similar techniques that use significant unobservable inputs. |
The Company considers the recorded value of its financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other receivable, accounts payable, short-term borrowings, accounts payable, income tax assets and liabilities and income taxes payable and to approximate the fair value of the respective assets and liabilities at March 31, 2023 and 2022 based upon the short-term nature of the assets and liabilities.
F-16
Warrants
The Company accounts for the warrants pursuant to share exchange agreements in accordance with the guidance contained in ASC 815, under which the warrants do not meet the criteria for equity classification and must be recorded as liabilities. All such warrant agreements contain fixed strike prices and number of shares that may be issued at the fixed strike price, and do not contain exercise contingencies that adjust the strike price or number of shares issuable upon settlement of the warrants. All such warrant agreements are exercisable at the option of the holder and settled in shares of the Company. The warrants are qualified as equity-linked instrument embedded in a host instrument whereby do not meet definition of derivative, therefore it’s not required to separate the embedded component from its host.
The Company treats a modification of the terms or conditions of an equity award in accordance with ASC Topic 718-20-35-3, by treating the modification as an exchange of the original award for a new award. In substance, the entity repurchases the original instrument by issuing a new instrument of equal or greater value, incurring additional compensation cost for any incremental value. Incremental compensation cost is measured as the excess, if any, of the fair value of the modified award determined in accordance with the provisions of ASC Topic 718-20-35-3 over the fair value of the original award immediately before its terms are modified, measured based on the share price and other pertinent factors at that date. There is no modification of the terms or conditions of the warrant issued by the Company.
Deconsolidation
The Company accounts for the deconsolidation of a subsidiary by recognizing a gain or loss in net income/loss attributable to the parent, measured as the difference between:
| a. | The aggregate of all of the following: |
1. The fair value of any consideration received;
2. The fair value of any retained noncontrolling investment in the former subsidiary at the date the subsidiary is deconsolidated;
3. The carrying amount of any noncontrolling interest in the former subsidiary (including any accumulated other comprehensive income attributable to the noncontrolling interest) at the date the subsidiary is deconsolidated.
| b. | The carrying amount of the former subsidiary’s assets and liabilities. |
If the deconsolidation transactions were transacted with related parties under common control, the Group should not recognize gain on sales of the subsidiaries and losses should be recognized by the Company only when an impairment in value is indicated.
The Company has continued to operate the online
store business through the other subsidiaries. Since the deconsolidated subsidiaries’ operating revenue was less than
F-17
Revenue Recognition
The Company generates its revenue mainly from sales of healthcare products, automobiles, online store sales and internet information and advertising services.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Revenue is the transaction price the Company expects to be entitled to in exchange for the promised services in a contract in the ordinary course of the Company’s activities and is recorded net of value-added tax (“VAT”). To achieve that core principle, the Company applies the following steps:
Step 1: Identify the contract (s) with a 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 (or as) the entity satisfies a performance obligation
Company generates revenues from providing transportation services and warehouse storage and management services. No practical expedients were used when adoption ASC 606. Revenue recognition policies for each type of revenue stream are as follow:
Healthcare products
The Company sells nutraceutical and dietary supplements to third-party distributors and experience stores. Experience stores are owned by third parties, which are located in tourist sites where the sales consultants gave in-depth presentation of the origin, tradition and history of the Company’s products. Tourists are guided to enjoy a presentation of traditional Chinese herb culture offered by the distributors in the experience store and be presented with the Company’s healthcare products. The Company is a principal for the healthcare product sales as i) the Company produce or obtain control of the specified goods before transferring to the customers; ii) the Company has the right to determine the sales price; iii) the Company bears the risk of inventories and collection of consideration. For all sales, the Company requires a signed contract and sales order, which specifies pricing, quantity and product specifications. Under ASC 606, the Company recognizes revenue upon the satisfaction of its performance obligation, which is to transfer the control of the promised products to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those products, excluding amounts collected on behalf of third parties (e.g., value-added taxes). The transfer of control of the products is satisfied at a point in time, which is the delivery of the products to distributors’ or the experience stores’ premises and evidenced by signed acknowledgment. The selling price, which is specified in the signed sales orders, is fixed. The Company has unconditional right to receive full payment of the sales price, upon the delivery of the products to distributors or experience stores and the signing of their acknowledgment. Distributors and experience stores are required to pay under the customary payment terms, which is generally less than six months. According to the sales agreement, the healthcare product sold cannot be returned after the acknowledgement.
F-18
Automobile
The Company sold automobiles in fiscal year 2022. For all sales, the Company requires a signed contract and sales order, which specifies pricing, quantity and product specifications. The Company is a principal for the automobiles sales as i) the Company produce or obtain control of the specified goods before transferring to the customers; ii) the Company has the right to determine the sales price; iii) the Company bears the risk of inventories and collection of consideration. Under ASC 606, the Company recognizes revenue upon the satisfaction of its performance obligation, which is to transfer the control of the promised products to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those products, excluding amounts collected on behalf of third parties (e.g., value-added taxes). The transfer of control of the products is satisfied at a point in time, which is the delivery of the products to customers’ premises and evidenced by signed customer acknowledgment. According to the contract, the automobile sold cannot be returned after the customer acknowledgement. The selling price, which is specified in the signed sales orders, is fixed. The Company has unconditional right to receive full payment of the sales price, upon the delivery of the products to customers and the signing of the customer acknowledgment, which is within 3 months after sales.
Online store
The Company sells various goods through its online store business in fiscal year 2022. For all sales, the Company requires a sales order generated by the online store platform, which specifies pricing, quantity and product specifications. The Company is a principal for the online store sales as i) the Company produce or obtain control of the specified goods before transferring to the customers; ii) the Company has the right to determine the sales price; iii) the Company bears the risk of inventories and collection of consideration. Under ASC 606, the Company recognizes revenue upon the satisfaction of its performance obligation, which is to transfer the control of the promised products to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those products, excluding amounts collected on behalf of third parties (e.g., value-added taxes). The transfer of control of the products is satisfied at a point in time, which is the delivery of the products to customers’ premises and evidenced by signed customer acknowledgment. The selling price, which is specified in the signed sales orders, is fixed. The Company has unconditional right to receive full payment of the sales price, upon the delivery of the products to customers and the signing of the customer acknowledgment unless the customers require sales return within 7 days after the acknowledgement. Customers are required to pay to the third-party platform before the goods were send out and the Company will receive the amount from the third-party platform after the customer sign off the acceptance form on the platform.
Internet information and advertising service
The Company provides internet information and advertising service online. For all sales, the Company requires a signed contract and sales order, which specifies the price and service range. The Company is a principal for the services as i) the Company has the right to determine the sales price; ii) the Company bears the collection risks; iii) the Company is responsible to the service provided. Under ASC 606, the Company recognizes revenue upon the satisfaction of its performance obligation, which is to provide specified information and advertising service to customers in an amount that reflects the consideration to which the Company expects to be entitled to in exchange for those services, excluding amounts collected on behalf of third parties (e.g., value-added taxes). The information and advertising service provided is satisfied at a point in time, which is the time when the information and advertising service is performed. No sales return is permitted after the service performed according to the contract signed. The selling price per click, which is specified in the signed sales orders, is fixed. The Company has unconditional right to receive full payment of the sales price, upon the completion of the service. Customers are required to pay to the Company in advance according to the contract.
All of the Company’s revenues from contracts with customers represent products transferred at a point in time as control is transferred to the customer and are generated in PRC. All of the Company’s revenues are recognized on a gross basis and presented as revenue on the consolidated statements of operations and comprehensive income/(loss).
F-19
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Healthcare products | $ | $ | $ | |||||||||
| Online store | ||||||||||||
| Internet information and advertising | ||||||||||||
| Automobile | ||||||||||||
| Revenue | $ | $ | $ | |||||||||
Cost of Revenues
Healthcare products
Cost of revenue of healthcare product is mainly composed of the cost of product sales, employees, depreciation expenses and other manufacturing overhead expenses that are directly attributable to the business.
Automobile
Cost of revenue of automobile is mainly composed of the cost of automobile and other miscellaneous expenses that are directly attributable to the business.
Online store
Cost of revenue of online store is mainly composed of the cost of goods sales and other miscellaneous expenses that are directly attributable to the business.
Internet information and advertising service
Cost of revenue of automobile is mainly composed of the cost of service provide and other miscellaneous expenses that are directly attributable to the business.
Government Grants
Government grants are recognized when received
and all the conditions for their receipt have been met. Government grants as compensation for the Company’s research and development
efforts. For the years ended March 31, 2023, 2022 and 2021, the Company recognized government grants of $
Research and Development Costs
Research and development activities are directed toward the development of new products as well as improvements in existing processes. These costs, which primarily include salaries, contract services, raw materials, and supplies, are expensed as incurred.
F-20
Shipping and Handling Costs
Shipping and handling costs are expensed when
incurred as selling and marketing expense. Shipping and handling costs were $
Advertising Costs
Advertising costs expensed as economic benefits
are consumed in accordance with ASC 720-35, “Other Expenses-Advertising Costs”. Advertising costs were $
Stock-Based Compensation
The Company accounts for stock-based compensation to employees in accordance with ASC 718, “Compensation-Stock Compensation”. ASC 718 requires companies to measure the cost of employee services received in exchange for an award of equity instruments, including the equity incentive plan, based on the grant date fair value of the award and to recognize it as compensation expense over the period the employee is required to provide service in exchange for the award, usually the vesting period. Stock option forfeitures are recognized at the date of employee termination. Effective April 1, 2019, the Company adopted ASU 2018-07 for the accounting of share-based payments granted to non-employees for goods and services and no material impacts to the Financial Statements.
Option
The fair value of options issued pursuant to the Company’s option plans at the grant date was estimated using the Black-Scholes option pricing model. This model was developed for use in estimating the fair value of traded options that have no vesting restrictions and are fully transferable. In addition, option-pricing models require the input of highly subjective assumptions, including the expected term of the options, the estimated forfeiture rates and the expected stock price volatility. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The Group uses projected volatility rates based upon the Group’s historical volatility rates. These assumptions are inherently uncertain. Different assumptions and judgments would affect the Company’s calculation of the fair value of the underlying ordinary shares for the options granted, and the valuation results and the amount of option would also vary accordingly.
F-21
Income Taxes
The Company accounts for current income taxes in accordance with the laws of the relevant tax authorities. Deferred income taxes are recognized when temporary differences exist between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized.
The provisions of ASC 740-10, “Accounting for Uncertainty in Income Taxes”, prescribe a more-likely-than-not threshold for consolidated financial statement recognition and measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, and related disclosures. The Company does not believe that there was any uncertain tax position at March 31, 2023 and 2022.
To the extent applicable, the Company records interest and penalties as a general and administrative expense. All of the tax returns of the Company and its subsidiaries remain subject to examination by PRC tax authorities for five years from the date of filing.
The Company is subject to Chinese tax laws. We are not subject to U.S. tax laws and local state tax laws. Our income and our related entities must be computed in accordance with Chinese and foreign tax laws, as applicable, and we are subject to Chinese tax laws, all of which may be changed in a manner that could adversely affect the amount of distributions to shareholders. There can be no assurance that Income Tax Laws of China will not be changed in a manner that adversely affects shareholders. In particular, any such change could increase the amount of tax payable by us, reducing the amount available to pay dividends to the holders of our ordinary shares.
We are a holding company with no material
operations of our own. We conduct our operations through our subsidiaries in China. As a result, our ability to pay dividends and to
finance any debt we may incur depends upon dividends paid by our subsidiaries. Under applicable PRC regulations, foreign-invested enterprises
in China may pay dividends only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and
regulations. In addition, a foreign-invested enterprise in China is required to set aside at least
As of March 31, 2023, our PRC subsidiaries
had an aggregate retained deficit of approximately RMB
F-22
Value-added Tax
Value-added taxes (“VAT”) collected from customers relating to product sales and remitted to governmental authorities are presented on a net basis. VAT collected from customers is excluded from revenue. The Company is generally subject to the VAT for merchandise sales and services performed. Before May 1, 2018, the applicable VAT rate was 17%, while after May 1, 2018 and before April 1, 2019, the Company is subject to a VAT rate of 16%. After April 1, 2019, the Company is subject to a VAT rate of 13% based on the new Chinese tax law.
Earnings/ Loss per Share
Basic earnings/loss per share is computed by dividing net profit/loss attributable to holders of ordinary shares by the weighted average number of ordinary shares outstanding during the year using the two-class method. Using the two class method, net profit/loss is allocated between Class A ordinary shares, Class B ordinary shares and other participating securities (i.e. preferred shares) based on their participating rights.
The Company computes earnings per share (“EPS”) in accordance with ASC 260, “Earnings per Share”. ASC 260 requires companies with complex capital structures to present basic and diluted EPS. Basic EPS is measured as Net profit divided by the weighted average common shares outstanding for the period. Diluted earnings/loss per share is calculated by dividing net profit/loss attributable to ordinary shareholders as adjusted for the effect of dilutive ordinary equivalent shares, if any, by the weighted average number of ordinary and dilutive ordinary equivalents shares outstanding during the year/period. Dilutive equivalent shares are excluded from the computation of diluted earnings/loss per share if their effects would be anti-dilutive. Ordinary share equivalents consist of the ordinary shares issuable in connection with the Group’s convertible redeemable preferred shares using the if-converted method, and ordinary shares issuable upon the conversion of the stock options, using the treasury stock method. Except for voting rights, the Class A and Class B ordinary shares have all the same rights and therefore the earning/loss per share for both classes of shares are identical. The earning/loss per share amounts are the same for Class A and Class B ordinary shares because the holders of each class are entitled to equal per share dividends or distributions in liquidation.
Foreign Currency Translation
The Company and its subsidiaries’ principal country of operations is the PRC. The Company maintained its financial record using the United States dollar (“US dollar”) as the functional currency, while the subsidiaries of the Company in Hong Kong and mainland China maintained their financial records using RMB as the functional currencies. The consolidated statements of operation and other comprehensive (loss)/ income and cash flows denominated in foreign currency are translated at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average rate of exchange, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated statements of changes in shareholders’ equity. Gains and losses from foreign currency transactions are included in the consolidated statement of income and comprehensive income.
The value of RMB against US$ and other currencies
may fluctuate and is affected by, among other things, changes in the PRC’s political and economic conditions. Any significant revaluation
of RMB may materially affect the Company’s financial condition in terms of US$ reporting.
| March
31, 2023 | March
31, 2022 | March
31, 2021 | |||||||
| Period-end spot rate | US$ | US$ | US$ | ||||||
| Average rate | US$ | US$ | US$ |
Comprehensive Income
Comprehensive income includes net income and foreign currency translation adjustments and is reported in the consolidated statements of operation and other comprehensive (loss)/ income.
F-23
Segment Reporting
The Company uses the “management approach” in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief operating decision maker (“CODM”) for making operating decisions and assessing performance as the source for determining the Company’s reportable segments. The Company’s CODM has been identified as the chief executive officer of the Company who reviews financial information of separate operating segments based on U.S. GAAP. In the year ended March 31, 2023, the CODM reviews financial information analyzed by customer, which only presented at the gross profit level with no allocation of operating expenses. Thus, the Company determined that it operates in four operating segments: (1) Healthcare products; (2) Automobiles; (3) Online store; and (4) Internet information and advertising service. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies.
As the Company’s long-lived assets are substantially all located in the PRC and all of the Company’s revenue and expense are derived from within the PRC, no geographical segments are presented.
Concentration of Risks
Exchange Rate Risks
The Company operates in China, which may give
rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the US$ and
the RMB. As of March 31, 2023 and 2022, cash and cash equivalents of $
Currency Convertibility Risks
Substantially all of the Company’s operating activities are transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with other information such as suppliers’ invoices, shipping documents and signed contracts.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentration of credit risks consist primarily of cash and cash equivalents and accounts receivable, the balances of which are stated on the consolidated balance sheets which represent the Company’s maximum exposure. The Company places its cash and cash equivalents in good credit quality financial institutions in China. Concentration of credit risks with respect to accounts receivables is linked to the concentration of revenue. To manage credit risk, the Company performs ongoing credit evaluations of customers’ financial condition.
Interest Rate Risks
The Company is subject to interest rate risk. Bank interest bearing loans are charged at variable interest rates within the reporting period. The Company is subject to the risk of adverse changes in the interest rates charged by the banks when these loans are refinanced.
F-24
Risks and Uncertainties
The operations of the Company are located in the PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by political, economic, and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s results may be adversely affected by changes in the political, regulatory and social conditions in the PRC. Although the Company has not experienced losses from these situations and believes that it is in compliance with existing laws and regulations including its organization and structure disclosed in Note 1, this may not be indicative of future results.
COVID-19 Pandemic
The outbreak of COVID-19 began in January 2020 and was quickly declared as a Public Health Emergency of International Concern and subsequently a pandemic by the World Health Organization. A series of prevention and control measures including quarantines, travel restrictions, and the temporary closure of facilities were implemented across the country.
The Company was impacted by the COVID-19 pandemic in many ways, including the plump of closures of experience stores, diving sales by distribution channels, and shut down or partly shut down of production facilities for several months.
Despite the fact that China has largely brought the pandemic under control, there is still a high degree of uncertainty as to how the pandemic will evolve going forward. A new outbreak in China could cause new disruptions of our production, distribution and sales, and have an adverse impact on our business, financial condition and results of operations for the remainder of the fiscal year ending March 31, 2023. The Company will regularly assess its business conditions and adopt measures to mitigate any new impact of the ongoing pandemic.
Related Parties
Recent Accounting Pronouncements
The Company considers the applicability and impact of all accounting standards updates (“ASUs”). Management periodically reviews new accounting standards that are issued.
The Company is an “emerging growth company” (“EGC”) as defined in the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”). Under the JOBS Act, EGC can delay adopting new or revised accounting standards issued subsequent to the enactment of the JOBS Act until such time as those standards apply to private companies.
F-25
Recently Issued Accounting Pronouncements
In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which increases lease transparency and comparability among organizations. Under the new standard, lessees will be required to recognize all assets and liabilities arising from leases on the balance sheet, with the exception of leases with a term of 12 months or less, which permits a lessee to make an accounting policy election by class of underlying asset not to recognize lease assets and liabilities. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years, and early adoption is permitted. In March 2018, the FASB approved an alternative transition method to the modified retrospective approach, which eliminates the requirement to restate prior period financial statements and requires the cumulative effect of the retrospective allocation to be recorded as an adjustment to the opening balance of retained earnings at the date of adoption. In May 2020, the FASB issued ASC 2020-05 to defer the effective date for non-issuer entities that have not yet issued their financial statements reflecting the adoption of leases; the amended effective date for non-issuer entities is for fiscal years beginning after December 15, 2021.
In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity.” ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. For public business entities, the amendments in ASU 2020-06 are effective for public entities which meet the definition of a smaller reporting company are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2023. The Company will adopt ASU 2020-06 effective January 1, 2024. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.
The Company adopted ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement on January 1, 2021 and the adoption of this standard did not have any material impact on the Company’s consolidated financial statements.
F-26
NOTE 3 – ACCOUNTS RECEIVABLE
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Accounts receivable, gross | $ | $ | ||||||
| Less: allowance for doubtful accounts | ||||||||
| Accounts receivable | $ | $ | ||||||
Movement of allowance for doubtful accounts
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Beginning balance | $ | $ | ||||||
| Provision for doubtful accounts | ||||||||
| Written-off | ( | ) | ||||||
| Ending balance | $ | $ | ||||||
The Company recorded net of allowance for
doubtful accounts of $
NOTE 4 – INVENTORIES
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Raw materials | $ | $ | ||||||
| Work in process | ||||||||
| Finished goods | ||||||||
| Total | $ | $ | ||||||
lower of cost or net realizable value adjustment was recorded as of March 31, 2023 and 2022, respectively.
inventory provision or write-downs for the years ended March 31, 2023 and 2022.
F-27
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Prepayments to suppliers | $ | $ | ||||||
| Loans receivables (a) | ||||||||
| Deposit | ||||||||
| Prepayments to technical provider | ||||||||
| VAT-in | ||||||||
| Prepayment to Weilan (b) | ||||||||
| Receivable from disposal of subsidiaries | ||||||||
| Investment receivables from the investors | ||||||||
| Other current assets | ||||||||
| Total | $ | $ | ||||||
| (a) | |
| (b) |
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Buildings | $ | $ | ||||||
| Machinery | ||||||||
| Furniture, fixture and electronic equipment | ||||||||
| Vehicles | ||||||||
| Total property plant and equipment, at cost | ||||||||
| Less: accumulated depreciation | ( | ) | ( | ) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
As of March 31, 2023 and 2022, the Company
pledged its building with a carrying value of approximately $
Depreciation expense was $
The carrying amount of disposed property,
plant and equipment recognized for the year ended March 31, 2023 and 2022 were amounted to $
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NOTE 7 – INTANGIBLE ASSETS, NET
| As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Land use right, cost | $ | $ | ||||||
| Customer relationship (Note 15) | ||||||||
| Proprietary technology | ||||||||
| Trademark | ||||||||
| Software, cost | ||||||||
| Total | ||||||||
| Less: accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
As of March 31, 2023 and 2022, the Company
pledged its land use right on its land with a carrying value of $
Amortization expense was $
| Years ending March 31, | Amortization expense | |||
| 2024 | $ | |||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| 2028 | ||||
| Thereafter | ||||
| $ | ||||
F-29
NOTE 8 – GOODWILL
| As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Shennong | $ | $ | ||||||
| Hekangyuan | ||||||||
| 2Lab3 | ||||||||
| Daji | ||||||||
| Total | $ | $ | ||||||
| As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Balance as of March 31 | $ | $ | ||||||
| Acquisitions (Note 15) | ||||||||
| Disposal | ( | ) | ||||||
| Impairment | ( | ) | ( | ) | ||||
| Exchange gain and loss | ( | ) | ( | ) | ||||
| Goodwill, net | $ | $ | ||||||
The goodwill generated from the expected synergies from the output capacity of the transaction and service scenario of the multi-industry, full-link and full-closed-loop of Shennong, and cooperation of developing the health commodities business stably, combining the production and supply, jointly build a perfect supply chain system with Hekangyuan, new development of consulting, marketing, design, and software development services to empower our clients to adapt and thrive in the Web 3.0 era
Due to the continually influence of the COVID-19
pandemic, Shennong and Hekangyuan’s operating result decreased significantly. The Company assessed qualitative factors and performed
the quantitative impairment test. As of March 31, 2023 and 2022, the Company recognized impairment amounted to $
NOTE 9 – PREPAID ASSETS
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Prepayments for advertising or marketing | $ | $ | ||||||
| Prepayment of celebrity endorsement fee | ||||||||
| Total | $ | $ | ||||||
F-30
NOTE 10 – OTHER PAYABLES AND ACCRUED LIABILITIES
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Advances from customers | $ | $ | ||||||
| Employee benefits payable | ||||||||
| Other payables | ||||||||
| Total | $ | $ | ||||||
NOTE 11 – SHORT-TERM BANK BORROWINGS
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Industrial Bank Co., Ltd | $ | $ | ||||||
| Postal Saving Bank of Chin | ||||||||
| Rural Credit Cooperative (ShunChang) | ||||||||
| Total | $ | $ | ||||||
On May 4, 2018, the Company entered into a
bank loan agreement with Industrial Bank Co., Ltd to borrow $
On June 24, 2019, the Company entered into
a loan facility framework agreement with Postal Saving Bank of China. The agreement allows the Company to access a total borrowing of
approximately $
F-31
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Buildings, net | $ | $ | ||||||
| Land use rights, net | ||||||||
| Total | $ | $ | ||||||
For the years ended March 31, 2023, 2022 and
2021, interest expense on all short-term bank loans amounted to $
NOTE 12 – SHARE BASED COMPENSATION
2020 Equity incentive plan
In February 2021, the Company adopted the
2020 Equity incentive plan which allows the Company to offer incentive awards to employee, directors and consultants (collectively, “the
Participants”). Under the 2020 Equity incentive plan, the Company may issue incentive awards to the Participants to purchase no
more than
Share-based compensation expense of $
The fair values of share units are determined based on the fair value of the grant date of the Company’s ordinary shares.
NOTE 13 – SHAREHOLDERS’ EQUITY
Ordinary shares
Paranovus Cayman was incorporated under the
laws of the Cayman Islands on February 9, 2018. The Company issued
A Reorganization of the legal structure was
completed in August 2018. The Reorganization involved the incorporation of PARANOVUS ENTERTAINMENT TECHNOLOGY LIMITED, a Cayman Islands
holding company; Happiness Biology Technology Group Limited, a holding company established in Hong Kong, PRC; Happiness (Fuzhou) E-commerce
Co., Ltd, a holding company established in Fujian, PRC; and the transfer of
In May 2018, the Company received $
On March 4, 2019, the Company subdivided its
F-32
On October 25, 2019, the Company announced
the closing of its initial public offering of
The Company entered several Securities Purchase
Agreement from September 2020 through March 2021. Pursuant to which, the Company issued
On March 15, 2021, the Company issued
On June 21, 2021, the Company issued an aggregate
of
On June 25, 2021, the Company entered several
Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued
On October 14, 2021, the Company issued an
aggregate of
On October 20, 2021, the Company entered into
a certain equity agreement with Shennong for the purchase of
On October 21, 2021, the Company held its
annual meeting of shareholders for its fiscal year ending March 31, 2021. The Company approved as a special resolution an alteration
to the share capital of the Company by: a: the conversion of each issued paid up Ordinary Share with a par value of $
On January 12, 2022, the Company issued an
aggregate of
On January 20, 2022, the Company entered several
Securities Purchase Agreement with non-US persons. Pursuant to which, the Company issued
On March 4, 2022, the Company entered into
a certain equity transfer agreement with Hekangyuan for the purchase of
F-33
On March 10, 2022, the Company entered several
Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued
On April 21, 2022,
On October 10, 2022,
On December 27, 2022, the Company entered
into certain securities purchase agreement (the “SPA”) with certain sophisticated purchasers (the “Purchasers”),
pursuant to which the Company agreed to sell
On March 14, 2022, the Company entered into
a certain equity transfer agreement with 2Lab3 LLC for the purchase of
Non-controlling Interest
Non-controlling interests represent the interest
of non-controlling shareholders in Paranovus Entertainment Technology Limited based on their proportionate interests in the equity of
that company adjusted for their proportionate share, which is
Statutory reserve
The Company is required to make appropriations
to certain reserve funds, comprising the statutory surplus reserve and the discretionary surplus reserve, based on after-tax net income
determined in accordance with generally accepted accounting principles of the PRC (“PRC GAAP”).
Under PRC laws and regulations, statutory
surplus reserves are restricted to set-off against losses, expansion of production and operation and increasing registered capital of
the respective company and are not distributable other than upon liquidation. The reserves are not allowed to be transferred to the Company
in terms of cash dividends, loans or advances, nor allowed for distribution except under liquidation. Amounts restricted include paid-in
capital, additional paid-in capital and statutory surplus reserves of the Company in PRC amounted $
As of March 31, 2023, our PRC subsidiaries
had an aggregate retained deficit of approximately RMB
F-34
Options
In October 2019, the Company granted its underwriters
an option for a period of 45 days after the closing of the initial public offering to purchase up to
| Number Outstanding | Weighted Average Exercise Price | Contractual Life in Days | Intrinsic Value | |||||||||||||
| Options Outstanding as of March 31, 2020 | $ | $ | ||||||||||||||
| Options Exercisable as of March 31, 2020 | $ | |||||||||||||||
| Options granted | ||||||||||||||||
| Options forfeited | ||||||||||||||||
| Options expired | ( | ) | ||||||||||||||
| Options Outstanding as of March 31, 2023 and 2022 | $ | $ | ||||||||||||||
| Options Exercisable as of March 31, 2023 and 2022 | $ | $ | ||||||||||||||
Warrants
In October 2019,
| Number Outstanding | Weighted Average Exercise Price | Contractual Life in Years | Intrinsic Value | |||||||||||||
| Warrants Outstanding as of March 31, 2020 | $ | $ | ||||||||||||||
| Warrants granted | $ | |||||||||||||||
| Warrants forfeited | ||||||||||||||||
| Warrants exercised | $ | |||||||||||||||
| Warrants Outstanding as of March 31, 2021 | $ | $ | ||||||||||||||
| Warrants Outstanding as of March 31, 2022 | $ | $ | ||||||||||||||
| Warrants Outstanding as of March 31, 2023 | ||||||||||||||||
F-35
NOTE 14 – TAXES
(a) Corporate Income Taxes (“CIT”)
The Company was incorporated in the Cayman Islands and is not subject to tax on income or capital gain under the laws of the Cayman Islands.
Happiness Hong Kong was incorporated in Hong
Kong and is subject to a statutory income tax rate of
Under the Law of the People’s Republic
of China on Enterprise Income Tax (“New EIT Law”), which was
The Company evaluates each uncertain tax position (including the potential application of interest and penalties) based on the technical merits, and measure the unrecognized benefits associated with the tax positions. As of March 31, 2023 and 2022, the Company did not have any significant unrecognized uncertain tax positions. The Company did not incur any interest and penalties related to potential underpaid income tax expenses for the years ended March 31, 2023 and 2022, respectively, and also did not anticipate any significant increases or decreases in unrecognized tax benefits in the next 12 months from March 31, 2023.
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| PRC statutory income tax rate | % | % | % | |||||||||
| Effect of PRC preferential tax rate | ( | )% | ( | )% | ( | )% | ||||||
| Effect of other deductible expenses | % | % | % | |||||||||
| Total | % | % | % | |||||||||
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Current income tax provision | $ | $ | $ | |||||||||
| Deferred income tax provision | ( | ) | ||||||||||
| Total | $ | $ | ( | ) | $ | |||||||
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Net accumulated loss-carry forward | $ | $ | $ | |||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||||||
| Net deferred tax assets | $ | $ | $ | |||||||||
F-36
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Beginning balance | $ | $ | $ | |||||||||
| Write-off | ||||||||||||
| Change of valuation allowance | ||||||||||||
| Ending balance | $ | $ | $ | |||||||||
| For the years ended March 31, | ||||||||||||
| 2023 | 2022 | 2021 | ||||||||||
| Intangible assets arising from acquisition | $ | ( | ) | $ | ( | ) | $ | |||||
| Total deferred tax liabilities | $ | ( | ) | $ | ( | ) | $ | |||||
Deferred income taxes reflect the net effects
of temporary difference between the carrying amounts of assets and liabilities for financial statement purposes and the amounts used
for income tax purposes. The Company recorded deferred tax assets of and deferred tax liabilities of $
(b) Taxes Payable
As of March 31, | As of March 31, | |||||||
| 2023 | 2022 | |||||||
| Income tax payable | $ | $ | ||||||
| VAT payable | ||||||||
| Other tax payables | ||||||||
| Total | $ | $ | ||||||
F-37
NOTE 15 – BUSINESS COMBINATION
Acquisition of 2Lab3
On March 28, 2023, the Company acquired
The Company engaged an independent valuation firm to assist management in valuing assets acquired, liabilities assumed, intangible assets identified and contingent consideration as of the acquisition day.
The identifiable intangible assets acquired upon acquisition were proprietary technology with definite useful life. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the consideration was based on closing market price of the Company’s common share on the acquisition date.
| Fair value of total consideration transferred: | ||||
| Equity instrument ( | $ | |||
| Subtotal | $ | |||
| Recognized amounts of identifiable assets acquired and liability assumed: | ||||
| Cash | $ | |||
| Intangible asset –proprietary technology | ||||
| Current liabilities | ( | ) | ||
| Total identifiable net assets | $ | |||
| Fair value of non-controlling interests | ||||
| Goodwill* | $ | |||
| * |
F-38
Acquisition of Shennong
On November 12, 2021, the Company acquired
The Company engaged an independent valuation firm to assist management in valuing assets acquired, liabilities assumed, intangible assets identified, contingent consideration and non-controlling interests as of the acquisition day.
The identifiable intangible assets acquired upon acquisition were customer relationships with definite useful life. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the consideration was based on closing market price of the Company’s common share on the acquisition date.
According to the independent valuation report, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values. Fair value of the non-controlling interests was evaluated based on the equity value of Shennong derived by the discounted cash flow method after considering a discount for lack of control:
| Fair value of total consideration transferred: | ||||
| Equity instrument ( | $ | |||
| Cash consideration | ||||
| Subtotal | $ | |||
| Recognized amounts of identifiable assets acquired and liability assumed: | ||||
| Cash | $ | |||
| Current assets other than cash | ||||
| Intangible asset – customer relationships | ||||
| Current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total identifiable net assets | $ | |||
| Fair value of non-controlling interests* | ||||
| Goodwill* | $ | |||
| * |
Non-controlling interest was recognized and measured at fair value on the acquisition date by the Company.
F-39
Acquisition of Hekangyuan
On March 4, 2022, the Company acquired
The Company engaged an independent valuation firm to assist management in valuing assets acquired, liabilities assumed, intangible assets identified and contingent consideration as of the acquisition day.
The identifiable intangible assets acquired upon acquisition were customer relationships with definite useful life. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the consideration was based on closing market price of the Company’s common share on the acquisition date.
According to the independent valuation report, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values was as follows:
| Fair value of total consideration transferred: | ||||
| Equity instrument ( | $ | |||
| Cash consideration | ||||
| Subtotal | $ | |||
| Recognized amounts of identifiable assets acquired and liability assumed: | ||||
| Cash | $ | |||
| Current assets other than cash | ||||
| Property, plant and equipment, net | ||||
| Intangible asset – customer relationships | ||||
| Current liabilities | ( | ) | ||
| Deferred tax liabilities | ( | ) | ||
| Total identifiable net assets | $ | |||
| Fair value of non-controlling interests | ||||
| Goodwill* | $ | |||
| * |
The business combination accounting is provisionally complete for all assets and liabilities acquired on the acquisition date and the Company will continue to evaluate the asset values within the 1-year timeframe according to ASC 805.
NOTE 16 – DECONSOLIDATION
During the year, the Company has disposed
several subsidiaries supporting the online store business and automobiles sales to optimize the Company’s structure and recognized
gain from the deconsolidation amounted to $
F-40
NOTE 17 – COMMITMENTS AND CONTINGENCIES
As of March 31, 2023 and 2022, Company has no significant leases or unused letters of credit.
From time to time, the Company is involved in various legal proceedings, claims and other disputes arising from commercial operations, 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 our consolidated financial position or results of operations or liquidity. As of March 31, 2023 and 2022, Company has no pending legal proceedings.
NOTE 18 – SEGMENT REPORTING
Before March 31, 2021, the Company’s CODM, chief executive officer, measures the performance of the Company based on metrics of revenue only and doesn’t focus on any profit of the business. Starting from April 1, 2021, the Company’s CODM, chief executive officer, measures the performance of each segment based on metrics of revenue and gross profit and uses these results to evaluate the performance of, and to allocate resources to each of the segments. As most of the Company’s long-lived assets are located in the PRC and most of the Company’s revenues are derived from the PRC, no geographical information is presented. The Company does not allocate assets and operating expenses to its segments as the CODM does not evaluate the performance of segments using asset and operating expenses information.
For the year ended March 31, 2023, the Company has determined that it operates in four operating segments: (1) Healthcare products; (2) Automobile; (3) Online store; and (4) Internet information and advertising service. The Company’s reportable segments are strategic business units that offer different products and services. They are managed separately because each business requires different marketing strategies.
| Fiscal year ended March 31, 2023 | ||||||||||||||||||||
| Healthcare products | Automobile | Online store | Internet information and advertising service | Consolidated | ||||||||||||||||
| Revenues | $ | $ | $ | $ | $ | |||||||||||||||
| Cost | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| Segment gross profit | $ | $ | $ | $ | $ | |||||||||||||||
| Segment gross profit margin | % | % | % | % | % | |||||||||||||||
F-41
NOTE 19 – CUSTOMER AND SUPPLIER CONCENTRATION
The Company’s sales are made to customers
that are located primarily in China. For the years ended March 31, 2023 and 2022, no individual customer accounted for more than
For the year ended March 31, 2023, no individual
supplier accounted for more than
NOTE 20 – SUBSEQUENT EVENTS
On April 10, the Company’s indirect
wholly owned subsidiary (the “Seller”), Fujian Happiness Biotech Co., Limited (“Fujian Happiness”) and Fujian
Hengda Beverage Co., Ltd, a PRC company which is not affiliate of the Company or any of its directors or officers (the “Purchaser”)
entered into certain share purchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed
to purchase the Fujian Happiness in exchange for cash consideration of RMB
On April 10, the Company cancelled the
On May 3, 2023, Sichuan Taochejun New Energy Technology Co., Ltd. was dissolved.
On May 23, 2023, Shunchang Haiwushuo Brand Management Co., Ltd. was transferred to a third party.
The Company evaluated all events and transactions that occurred after March 31, 2023 through the date of the issuance of the consolidated financial statements on July 21, 2023 and noted that there were no other material subsequent events.
F-42
ITEM 19. EXHIBITS
EXHIBIT INDEX
1
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F, as amended, and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| Date: September 26, 2023 | PARANOVUS ENTERTAINMENT TECHNOLOGY LTD. |
| /s/ Xuezhu Wang | |
| Xuezhu Wang | |
| Chief Executive Officer |
2