UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
FORM 20-F
☐ REGISTRATION STATEMENT PURSUANT
TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
OR
☒ ANNUAL REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended March 31, 2023
OR
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from
to
OR
☐ SHELL COMPANY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of event requiring this shell company
report
Commission file number: 333-230170
Paranovus Entertainment Technology Ltd.
(Exact name of Registrant as specified in its
charter)
N/A
(Translation of the Registrant’s name
into English)
Cayman Islands
(Jurisdiction of incorporation or organization)
No. 11, Dongjiao East Road, Shuangxi, Shunchang,
Nanping City
Fujian Province, People’s Republic
of China
(Address of principal executive offices)
Xuezhu Wang, Chief Executive Officer
Telephone: +86-0599-782-8808
No. 11, Dongjiao East Road, Shuangxi, Shunchang,
Nanping City
Fujian Province, People’s Republic
of China
(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 |
| Class A ordinary shares, par value US$0.01 per share | | PAVS | | NASDAQ Capital Market |
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 7,724,675 Class A ordinary shares, par value $0.01 per share
and 612,255 Class B ordinary shares, par value $0.01 per share.
Indicate by check mark if the registrant is
a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐ No ☒
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 ☐ No ☒
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.
Yes ☒ No ☐
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).
Yes ☒ No ☐
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 ☐ | Non-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:
| ☒ | U.S. GAAP | ☐ | 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
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
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/ TPS Thayer, LLC
We have served
as the Company’s auditor since 2022
Sugar Land,
TX
August 15,
2022
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.
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 | |
$ | 3,355,487 | | |
$ | 19,733,631 | |
| Accounts receivable, | |
| 1,706,279 | | |
| 27,447,907 | |
| Notes receivable | |
| - | | |
| 89,332 | |
| Inventories | |
| 335,019 | | |
| 1,389,561 | |
| Prepaid expenses and other current assets | |
| 4,389,186 | | |
| 7,909,233 | |
| Total current assets | |
| 9,785,971 | | |
| 56,569,664 | |
| | |
| | | |
| | |
| Property, plant and equipment, net | |
| 8,470,272 | | |
| 11,246,815 | |
| Intangible assets, net | |
| 9,446,255 | | |
| 10,101,405 | |
| Goodwill | |
| 6,455,781 | | |
| 10,084,201 | |
| Deferred tax assets | |
| - | | |
| 3,796,492 | |
| Prepaid assets | |
| 2,181,930 | | |
| 5,627,099 | |
| TOTAL ASSETS | |
$ | 36,340,209 | | |
$ | 97,425,676 | |
| | |
| | | |
| | |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| Current liabilities | |
| | | |
| | |
| Accounts payable | |
$ | 13,462,008 | | |
$ | 12,155,733 | |
| Other payables and accrued liabilities | |
| 5,106,634 | | |
| 3,469,768 | |
| Income tax payable | |
| 143,360 | | |
| 37,225 | |
| Short-term bank borrowings | |
| 2,241,076 | | |
| 2,268,360 | |
| Total current liabilities | |
| 20,953,078 | | |
| 17,931,086 | |
| Deferred tax liability | |
| 1,514,060 | | |
| 2,079,986 | |
| TOTAL LIABILITIES | |
| 22,467,138 | | |
| 20,011,072 | |
| | |
| | | |
| | |
| COMMITMENTS AND CONTINGENCIES (NOTE 17) | |
| | | |
| - | |
| | |
| | | |
| | |
| SHAREHOLDERS’ EQUITY | |
| | | |
| | |
| Preferred shares, $0.01 par value,500,000 shares authorized, 0 shares issued and outstanding | |
| - | | |
| - | |
| Class A Ordinary shares, $0.01 par value 350,000,000 shares authorized, 7,724,675 shares issued and outstanding; $0.0005 par value, 70,000,000 shares authorized, 67,004,583 shares issued and outstanding | |
| 77,177 | | |
| 33,502 | |
| Class B Ordinary shares, $0.01 par value, 100,000,000 shares authorized, 612,255 shares issued and outstanding; $0.0005 par value, 20,000,000 shares authorized, 12,095,100 shares issued and outstanding | |
| 6,123 | | |
| 6,048 | |
| Additional paid-in capital | |
| 66,908,726 | | |
| 53,871,226 | |
| Statutory surplus reserve | |
| 7,622,765 | | |
| 7,622,765 | |
| Retained earnings (accumulated losses) | |
| (59,453,593 | ) | |
| 12,285,281 | |
| Accumulated other comprehensive income (loss) | |
| (402,119 | ) | |
| 4,306,536 | |
| Total Paranovus Entertainment Technology Ltd.’s shareholders’
equity | |
| 14,759,079 | | |
| 78,125,358 | |
| Non-controlling interests | |
| (886,008 | ) | |
| (710,754 | ) |
| Total shareholders’ equity | |
| 13,873,071 | | |
| 77,414,604 | |
| | |
| | | |
| | |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | |
$ | 36,340,209 | | |
$ | 97,425,676 | |
The accompanying notes are an integral part
of these consolidated financial statements.
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 | |
$ | 98,152,825 | | |
$ | 89,488,658 | | |
$ | 71,484,703 | |
| Cost of revenues | |
| (93,098,463 | ) | |
| (85,777,192 | ) | |
| (53,309,102 | ) |
| Gross profit | |
| 5,054,362 | | |
| 3,711,466 | | |
| 18,175,601 | |
| | |
| | | |
| | | |
| | |
| Operating expenses: | |
| | | |
| | | |
| | |
| Selling and marketing | |
| 54,701,318 | | |
| 40,476,616 | | |
| 9,958,886 | |
| General and administrative | |
| 9,478,099 | | |
| 9,126,812 | | |
| 5,030,899 | |
| Research and development | |
| 1,397,118 | | |
| 1,684,089 | | |
| 1,660,100 | |
| Goodwill impairment | |
| 7,872,696 | | |
| 10,309,745 | | |
| - | |
| Total operating expenses | |
| 73,449,231 | | |
| 61,597,262 | | |
| 16,649,885 | |
| | |
| | | |
| | | |
| | |
| Operating (loss) income | |
| (68,394,869 | ) | |
| (57,885,796 | ) | |
| 1,525,716 | |
| | |
| | | |
| | | |
| | |
| Other income (expenses): | |
| | | |
| | | |
| | |
| Interest income | |
| 31,886 | | |
| 108,395 | | |
| 131,901 | |
| Interest expense | |
| (72,303 | ) | |
| (85,993 | ) | |
| (111,799 | ) |
| Other income, net | |
| (294,750 | ) | |
| 117,086 | | |
| 105,522 | |
| Total other income, net | |
| (335,167 | ) | |
| 139,488 | | |
| 125,624 | |
| | |
| | | |
| | | |
| | |
| (Loss) Income before income taxes | |
| (68,730,036 | ) | |
| (57,746,308 | ) | |
| 1,651,340 | |
| | |
| | | |
| | | |
| | |
| Income tax benefit (provision) | |
| (3,457,080 | ) | |
| 3,726,227 | | |
| (959,384 | ) |
| | |
| | | |
| | | |
| | |
| Net (loss) income | |
$ | (72,187,116 | ) | |
$ | (54,020,081 | ) | |
$ | 691,956 | |
| Net loss attributable to non-controlling interests | |
| 448,242 | | |
| 4,829,471 | | |
| 94,400 | |
| Net (loss) income attributable to Paranovus Entertainment Technology Ltd | |
| (71,738,874 | ) | |
| (49,190,610 | ) | |
| 786,356 | |
| | |
| | | |
| | | |
| | |
| Other comprehensive income (loss): | |
| | | |
| | | |
| | |
| Foreign currency translation adjustments | |
| (4,435,667 | ) | |
| 2,523,258 | | |
| 6,113,570 | |
| Comprehensive (loss) income | |
$ | (76,622,783 | ) | |
$ | (51,496,823 | ) | |
$ | 6,805,526 | |
| Less: comprehensive (loss) income
attributable to non-controlling interests | |
| (272,988 | ) | |
| 2,696,899 | | |
| (2,873,378 | ) |
| Comprehensive
(loss) income attributable to Paranovus Entertainment Technology Ltd | |
$ | (76,895,771 | ) | |
$ | (48,799,924 | ) | |
$ | 3,932,148 | |
| | |
| | | |
| | | |
| | |
| Basic and diluted earnings per ordinary share | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (12.63 | ) | |
$ | (1.22 | ) | |
$ | 0.03 | |
| Weighted average number of ordinary shares outstanding | |
| | | |
| | | |
| | |
Basic and diluted | |
| 5,678,081 | | |
| 40,485,912 | | |
| 26,160,270 | |
The accompanying notes are an integral
part of these consolidated financial statements.
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 | |
| 25,000,000 | | |
$ | 12,500 | | |
| - | | |
$ | - | | |
$ | 15,044,002 | | |
$ | 2,064,096 | | |
$ | 66,623,204 | | |
$ | (4,153,813 | ) | |
$ | 79,589,989 | | |
$ | - | | |
$ | 79,589,989 | |
| Ordinary
shares issued for cash | |
| 5,100,000 | | |
| 2,550 | | |
| - | | |
| - | | |
| 10,723,150 | | |
| - | | |
| - | | |
| - | | |
| 10,725,700 | | |
| - | | |
| 10,725,700 | |
| Ordinary
shares issued for services | |
| 381,580 | | |
| 191 | | |
| - | | |
| - | | |
| 778,232 | | |
| - | | |
| - | | |
| - | | |
| 778,423 | | |
| - | | |
| 778,423 | |
| Statutory
reserves | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,558,669 | | |
| (5,558,669 | ) | |
| - | | |
| - | | |
| - | | |
| - | |
| Contribution
from non-controlling shareholders | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 112,418 | | |
| 112,418 | |
| Net
income (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 786,356 | | |
| - | | |
| 786,356 | | |
| (94,400 | ) | |
| 691,956 | |
| Dividend | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (375,000 | ) | |
| - | | |
| (375,000 | ) | |
| - | | |
| (375,000 | ) |
| Foreign
currency translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 3,240,192 | | |
| 3,240,192 | | |
| 2,873,378 | | |
| 6,113,570 | |
| Balance
at March 31, 2021 | |
| 30,481,580 | | |
$ | 15,241 | | |
| - | | |
| - | | |
$ | 26,545,384 | | |
$ | 7,622,765 | | |
$ | 61,475,891 | | |
$ | (913,621 | ) | |
$ | 94,745,660 | | |
$ | 2,891,396 | | |
$ | 97,637,056 | |
| | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| Ordinary
shares issued for cash | |
| 32,940,000 | | |
| 16,470 | | |
| - | | |
| - | | |
| 18,861,130 | | |
| - | | |
| - | | |
| - | | |
| 18,877,600 | | |
| - | | |
| 18,877,600 | |
| Ordinary
shares issued for services | |
| 1,478,103 | | |
| 739 | | |
| - | | |
| - | | |
| 1,085,492 | | |
| - | | |
| - | | |
| - | | |
| 1,086,231 | | |
| - | | |
| 1,086,231 | |
| Business
acquisition (Note 14) | |
| 14,200,000 | | |
| 7,100 | | |
| - | | |
| - | | |
| 7,379,220 | | |
| - | | |
| - | | |
| - | | |
| 7,386,320 | | |
| 3,924,220 | | |
| 11,310,540 | |
| Convention
of Class A Ordinary shares into Class B Ordinary shares | |
| (12,095,100 | ) | |
| (6,048 | ) | |
| 12,095,100 | | |
| 6,048 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Net
(loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (49,190,610 | ) | |
| - | | |
| (49,190,610 | ) | |
| (4,829,471 | ) | |
| (54,020,081 | ) |
| Foreign
currency translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| 5,220,157 | | |
| 5,220,157 | | |
| (2,696,899 | ) | |
| 2,523,258 | |
| Balance
at March 31, 2022 | |
| 67,004,583 | | |
$ | 33,502 | | |
| 12,095,100 | | |
$ | 6,048 | | |
$ | 53,871,226 | | |
$ | 7,622,765 | | |
$ | 12,285,281 | | |
$ | 4,306,536 | | |
$ | 78,125,358 | | |
$ | (710,754 | ) | |
$ | 77,414,604 | |
| Ordinary
shares issued for cash | |
| 3,000,000 | | |
| 30,000 | | |
| - | | |
| - | | |
| 5,970,000 | | |
| - | | |
| - | | |
| - | | |
| 6,000,000 | | |
| - | | |
| 6,000,000 | |
| Share
consolidation | |
| (63,504,908 | ) | |
| | | |
| (11,640,345 | ) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Business
acquisition (Note 15) | |
| 1,375,000 | | |
| 13,750 | | |
| - | | |
| - | | |
| 7,067,500 | | |
| - | | |
| - | | |
| - | | |
| 7,081,250 | | |
| - | | |
| 7,081,250 | |
| Convention
of Class A Ordinary shares into Class B Ordinary shares | |
| (150,000 | ) | |
| (75 | ) | |
| 150,000 | | |
| 75 | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
| Net
(loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| (71,738,874 | ) | |
| - | | |
| (71,738,874 | ) | |
| (448,242 | ) | |
| (72,187,116 | ) |
| Foreign
currency translation adjustments | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| | | |
| (4,708,655 | ) | |
| (4,708,655 | ) | |
| 272,988 | | |
| (4,435,667 | ) |
| Balance
at March 31, 2023 | |
| 7,724,675 | | |
| 77,177 | | |
| 604,755 | | |
| 6,123 | | |
| 66,908,726 | | |
| 7,622,765 | | |
| (59,453,593 | ) | |
| (402,119 | ) | |
| 14,759,079 | | |
| (886,008 | ) | |
| 13,873,071 | |
The accompanying notes are an integral part
of these consolidated financial statements.
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 | |
$ | (72,187,116 | ) | |
$ | (54,020,081 | ) | |
$ | 691,956 | |
| Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities: | |
| | | |
| | | |
| | |
| Depreciation and amortization | |
| 3,378,952 | | |
| 2,187,206 | | |
| 880,879 | |
| Allowance for doubtful accounts | |
| 854,615 | | |
| 463,514 | | |
| - | |
| Goodwill impairment | |
| 7,872,696 | | |
| 10,407,349 | | |
| - | |
| Loss on disposal of roperty, plant and equipment | |
| 97,552 | | |
| 434,183 | | |
| - | |
| (Gain) Loss on disposal of subsidiaries | |
| (383,376 | ) | |
| 95,932 | | |
| - | |
| Deferred taxes | |
| 3,230,566 | | |
| (3,921,856 | ) | |
| - | |
| Share-based compensation | |
| - | | |
| 1,086,231 | | |
| 778,423 | |
| Changes in operating assets and liabilities: | |
| | | |
| | | |
| | |
| Accounts receivable | |
| 24,887,013 | | |
| 23,222,982 | | |
| (2,106,752 | ) |
| Notes receivable | |
| 89,332 | | |
| (88,495 | ) | |
| - | |
| Inventories | |
| 1,054,542 | | |
| 454,262 | | |
| 389,388 | |
| Prepaid expenses and other current assets | |
| 3,520,047 | | |
| 12,250,088 | | |
| (8,057,239 | ) |
| Prepaid assets | |
| 3,445,169 | | |
| (329,926 | ) | |
| 1,718,110 | |
| Accounts payable | |
| 1,306,275 | | |
| (4,845,854 | ) | |
| 6,723,151 | |
| Other payables and accrued liabilities | |
| 1,636,866 | | |
| (15,213,292 | ) | |
| 3,134,093 | |
| Due to related parties | |
| - | | |
| - | | |
| (844,718 | ) |
| Income taxes payable | |
| 106,135 | | |
| (317,026 | ) | |
| (402,825 | ) |
| Net cash (used in) provided by operating activities | |
| (21,090,732 | ) | |
| (28,134,783 | ) | |
| 2,904,466 | |
| | |
| | | |
| | | |
| | |
| Cash Flows from Investing Activities: | |
| | | |
| | | |
| | |
| Purchases of property, plant and equipment | |
| (45,819 | ) | |
| (2,390,339 | ) | |
| (2,783,440 | ) |
| Purchase of intangible assets | |
| - | | |
| (17,165 | ) | |
| (1,051,138 | ) |
| Business acquisitions of Hekangyuan | |
| - | | |
| (7,998,836 | ) | |
| - | |
| Business acquisitions of Baodeng | |
| - | | |
| (79,584 | ) | |
| | |
| Deposits return from Shennong | |
| - | | |
| 1,931,646 | | |
| - | |
| Purchase of DAJI | |
| - | | |
| - | | |
| (75,044 | ) |
| Deposits paid for business acquisitions | |
| - | | |
| - | | |
| (9,313,225 | ) |
| Proceeds from disposal of subsidiaries | |
| 23,777 | | |
| 34,330 | | |
| | |
| Proceeds from disposal of roperty, plant and equipment | |
| 111,364 | | |
| 43,069 | | |
| - | |
| Net cash provided by/ (used in) investing activities | |
| 89,322 | | |
| (8,476,879 | ) | |
| (13,222,847 | ) |
| | |
| | | |
| | | |
| | |
| Cash Flows from Financing Activities: | |
| | | |
| | | |
| | |
| Ordinary shares issued for cash | |
| 3,000,000 | | |
| 18,877,600 | | |
| 10,965,553 | |
| Cash contribution from non-controlling shareholders | |
| - | | |
| - | | |
| 37,522 | |
| Dividend payment | |
| - | | |
| - | | |
| (375,000 | ) |
| Proceeds from short-term loans | |
| 2,488,467 | | |
| 2,247,086 | | |
| 2,163,037 | |
| Repayments of short-term loans | |
| (2,342,943 | ) | |
| (2,293,900 | ) | |
| (2,118,893 | ) |
| Net cash provided by financing activities | |
| 3,145,524 | | |
| 18,830,786 | | |
| 10,672,219 | |
| | |
| | | |
| | | |
| | |
| Effect of exchange rate changes on cash and cash equivalents | |
| 1,477,742 | | |
| 955,755 | | |
| 2,550,149 | |
| | |
| | | |
| | | |
| | |
| Net (decrease) increase in cash and cash equivalents | |
| (16,378,144 | ) | |
| (16,825,121 | ) | |
| 2,903,987 | |
| Cash and cash equivalents at the beginning of year | |
| 19,733,631 | | |
| 36,558,752 | | |
| 33,654,765 | |
| | |
| | | |
| | | |
| | |
| Cash and cash equivalents at the end of year | |
$ | 3,355,487 | | |
$ | 19,733,631 | | |
$ | 36,558,752 | |
| | |
| | | |
| | | |
| | |
| Supplemental disclosures of cash flows information: | |
| | | |
| | | |
| | |
| Cash paid for income taxes | |
$ | 306,090 | | |
$ | 570,113 | | |
$ | 1,209,381 | |
| Cash paid for interest expense | |
$ | 72,303 | | |
$ | 85,993 | | |
$ | 111,790 | |
| Supplemental schedule of non-cash investing and financing activities | |
| | | |
| | | |
| | |
| Ordinary shares issued for acquisitions | |
$ | - | | |
$ | 7,386,320 | | |
$ | - | |
The accompanying notes are an integral
part of these consolidated financial statements.
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 100% equity or ownership of
2Lab3 LLC, which was established on December 8, 2022.
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 100% ownership of Fujian Happiness from the former shareholders
to Happiness Fuzhou. Paranovus Cayman, Happiness Hong Kong and Happiness Fuzhou are all holding companies and had not commenced operation
until August 21, 2018.
Prior to the reorganization, Mr. Wang Xuezhu,
Chief Executive Officer owns 47.7% ownership of Fujian Happiness. On August 21, 2018, Mr. Wang Xuezhu and other shareholders of Fujian
Happiness transferred their 100% ownership interests in Fujian Happiness to Happiness Fuzhou, which is 100% owned by Happiness Hong Kong.
After the reorganization, Paranovus Cayman owns 100% equity interests of Fujian Happiness. Mr. Wang Xuezhu, who owns 52.37% ownership
of Paranovus Cayman, became the ultimate controlling shareholder (“the Controlling Shareholder”) of the Company.
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
50,000 ordinary shares into 90,000,000 Ordinary shares and 10,000,000 Preferred shares. The authorized ordinary shares became 100,000,000
shares and the par value was changed from $1 to $0.0005. On the same day, the Company cancelled 77,223,100 ordinary shares and sold additional
223,100 ordinary shares. As of March 31, 2019, the Company has 23,000,000 ordinary shares issued and outstanding. The Company has retrospectively
reflected the stock subdivision and cancellation in all periods presented in these financial statements.
Initial Public Offering
On October 25, 2019, the Company announced
the closing of its initial public offering of 2,000,000 ordinary shares, US$0.0005 par value per share (“Ordinary Shares”)
at an offering price of $5.50 per share for a total of $11,000,000 in gross proceeds. The Company raised total net proceeds of $9,342,339
after deducting underwriting discounts and commissions and offering expenses. In addition, the Company granted to its underwriters, Univest
Securities, LLC as the Underwriter Representative, an option for a period of 45 days after the closing of the initial public offering
to purchase up to 15% of the total number of the Company’s Ordinary Shares to be offered by the Company pursuant to the initial
public offering (excluding shares subject to this option), solely for the purpose of covering overallotments, at the initial public offering
price less the underwriting discount.
During the reporting periods, the Company
has several subsidiaries in PRC. Details of the Company and its operating subsidiaries are set out below:
| Name of Entity |
| Date
of Incorporation |
| Place
of Incorporation | |
Registered
Capital | |
%
of Ownership | |
Principal Activities |
| |
| |
| | |
| |
| |
|
| Happiness (Fuzhou) E-commerce
Co., Ltd (“ Happiness Fuzhou”) |
| June 1, 2018 |
| PRC | |
US$ 10,000,000 | |
| |
Investment |
| Fujian Happiness Biotech Co.,
Ltd (“Fujian Happiness”) |
| November 19, 2004 |
| PRC | |
RMB 100,000,000 | |
100% by Nanping Happiness | |
Research, development, production and selling of nutraceutical and dietary supplements |
| Fujian Happiness comes Medical
Equipment Manufacturing Co., Ltd. |
| April 15, 2020 |
| PRC | |
RMB 10,000,000 | |
51% by Fujian Happiness | |
Selling of medical equipment |
| Shunchang Happiness comes Health
Products Co., Ltd. |
| May 19, 1998 |
| PRC | |
RMB 2,000,000 | |
100% by Fujian Happiness | |
Research, development, production and selling of edible fungi |
| Fujian Shennongjiagu Development
Co., Ltd.(“Shennong”) |
| December 10, 2012 |
| PRC | |
RMB 51,110,000 | |
70% by Fujian Happiness | |
Advertising service, online sales, food sales, data service, information consulting service |
| Fuzhou Hekangyuan Trading Co.,
Ltd. (“Hekangyuan”) |
| October 13, 2017 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Happiness | |
Advertising service, online sales, food sales, commodity sales, information consulting service |
| Fuzhou Happiness Enterprise Management
Consulting Co., Ltd. |
| December 15, 2020 |
| PRC | |
RMB 1,000,000 | |
100% by Nanping Happiness | |
Management and consulting service |
| Happy Buy (Fujian) Network Technology
Co., Ltd. (“Happy Buy”) |
| July 16, 2020 |
| PRC | |
RMB 30,000,000 | |
100% by Nanping Happiness | |
Advertising service, online sales |
| Fujian Happy Studio Network Technology
Co. LTD |
| August 10, 2020 |
| PRC | |
RMB 10,000,000 | |
51% by Happy Buy | |
Advertising service |
| Hangzhou C’est la vie Interactive
Technology Co., Ltd. (“Hangzhou C’est la vie”) (b) |
| August 26, 2020 |
| PRC | |
RMB 10,000,000 | |
51% by Happy Buy | |
Online sales |
| Fujian Lever Media Co., Ltd. (“Fujian
Lever”) (b) |
| March 1, 2021 |
| PRC | |
RMB 10,000,000 | |
51% by Hangzhou C’est la vie | |
Online sales |
| Shunchang Baolong Electronic Commerce
Co., Ltd. (b) |
| December 3, 2020 |
| PRC | |
RMB 100,000 | |
100% by Fujian Lever | |
Online sales |
| Shunchang Shihong Electronic Commerce
Co., Ltd. (b) |
| December 3, 2020 |
| PRC | |
RMB 100,000 | |
100% by Fujian Lever | |
Online sales |
| Happiness Youdao (Hangzhou) Electronic
Commerce Co., Ltd. (b) |
| August 21, 2017 |
| PRC | |
RMB 10,000,000 | |
70% by Hangzhou C’est la vie | |
Online sales |
| Putian City Hanjiang
District Luochen Network Technology Co., Ltd. (“Putian Luochen”) (a) |
| February 8, 2021 |
| PRC | |
RMB 100,000 | |
100% by Hangzhou C’est la vie | |
Online sales |
| Putian City Hanjiang District
Qiyao Trading Co., Ltd. (a) |
| February 9, 2021 |
| PRC | |
RMB 100,000 | |
100% by Putian Luochen | |
Online sales |
| Putian City Hanjiang District
Zhiran Trading Co., Ltd. (a) |
| February 8, 2021 |
| PRC | |
RMB 100,000 | |
100% by Putian Luochen | |
Online sales |
| Fujian Seravi Electronic Commerce
Co., Ltd. (“Fujian Seravi”) (b) |
| November 30, 2020 |
| PRC | |
RMB 10,000,000 | |
100% by Hangzhou C’est la vie | |
Online sales |
| Shunchang Qida Electronic Commerce
Co., Ltd. (a) |
| December 3, 2020 |
| PRC | |
RMB 30,000 | |
100% by Fujian Seravi | |
Online sales |
| Shunchang Penghong Electronic
Commerce Co., Ltd. (a) |
| December 2, 2020 |
| PRC | |
RMB 30,000 | |
100% by Fujian Seravi | |
Online sales |
| Fujian Daji Media Co., Ltd. (“Daji”)
(c) |
| February 1, 2021 |
| PRC | |
RMB 10,000,000 | |
51% by Happy Buy | |
Live streaming service |
| Happy Buy (Nanping) Automobile
Sales Co., Ltd. (d) |
| December 15, 2020 |
| PRC | |
RMB 5,000,000 | |
100% by Happy Buy Automobile | |
Automobile sales |
| Happy Optimal (Fujian) Network
Technology Co., Ltd. (“Happy Optimal”) (c) |
| December 29, 2020 |
| PRC | |
RMB 10,000,000 | |
51% by Happy Buy | |
Advertising service |
| Shunchang Haiwushuo Brand Management
Co., Ltd. (“Shunchang Haiwushuo”) |
| September 2, 2021 |
| PRC | |
RMB 1,000,000 | |
51% by Happy Buy | |
Advertising service, online sales |
| Shunchang Salt Sweet Network Technology
Co., Ltd. (a) |
| July 9, 2021 |
| PRC | |
RMB 500,000 | |
100% by Shunchang Haiwushuo | |
Online Sales |
| Haiwushuo (Hangzhou) Media Technology
Co., Ltd. (a) |
| October 29, 2021 |
| PRC | |
RMB 1,000,000 | |
100% by Shunchang Haiwushuo | |
Advertising service, online sales |
| Shunchang County Partners Supply
Chain Management Co., Ltd. (b) |
| June 11, 2021 |
| PRC | |
RMB 2,000,000 | |
51% by Hangzhou C’est la vie | |
Online Sales, Advertising |
| Shunchang Youxi e-commerce Co.,
Ltd. (b) |
| May 18, 2021 |
| PRC | |
RMB 200,000 | |
100% by Fujian Seravi | |
Online Sales |
| Haiwushuo (Fujian) Food Co., Ltd.
(a) |
| March 9, 2022 |
| PRC | |
RMB 10,000,000 | |
51% by Nanping Happiness | |
Advertising service, online sales |
| Happy Unicorn (Hangzhou) Network
Technology Co., Ltd. (“Happy Unicorn”) (c) |
| June 1, 2021 |
| PRC | |
RMB 10,000,000 | |
51% by Happy Buy | |
Advertising service, online sales, automobile sales, Internet technology service |
| Ganzhou Youjia New Energy Automobile
Sales Co., Ltd. (a) |
| May 10, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales |
| Happy car source (Ningbo) Automobile
Service Co., Ltd. (a) |
| May 14, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales |
| Wuhan Xingfu Youxuan
Automobile Sales Co., Ltd. (a) |
| May 12, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales |
| Taochejun (Hangzhou) New Energy
Technology Co., Ltd. (“Hangzhou Taochejun”) |
| July 12, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Technology service, automobile sales |
| Zhejiang Yiche Chuxing Technology
Co., Ltd. (a) |
| May 26, 2020 |
| PRC | |
RMB 10,000,000 | |
100% by Hangzhou Taochejun | |
Technology service, automobile sales |
| Happy Travel Technology (Fujian)
Co., Ltd. (e) |
| October 27, 2020 |
| PRC | |
RMB 50,000,000 | |
100% by Fujian Taochejun | |
Technology service, automobile sales |
| Sichuan Taochejun New Energy Technology
Co., Ltd. |
| July 13, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales. |
| Taochejun (Xi’an) Car Rental
Co., Ltd. (a) |
| August 20, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales, online sales, car rental service |
| Taochejun (Fuzhou) Automotive
Technology Co., Ltd. (g) |
| December 27, 2019 |
| PRC | |
RMB 30,000,000 | |
60% by Fujian Taochejun | |
Automobile sales, online sales |
| Fuzhou Taochejun Culture Media
Co., Ltd. (f) |
| July 12, 2021 |
| PRC | |
RMB 1,000,000 | |
100% by Fujian Taochejun | |
Advertising service, information consulting service, |
| Taochejun (Hainan) New Energy
Technology Co., Ltd. |
| June 15, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
Automobile sales, online sales, car rental service |
| Hunan Xingfu Vehicle Source Technology
Co., Ltd. (a) |
| May 28, 2021 |
| PRC | |
RMB 10,000,000 | |
100% by Fujian Taochejun | |
NEV charging technology service, advertising service, automobile sales, automobile parts sales |
| Happy Automobile Service (Nanping)
Co., Ltd. (e) |
| December 4, 2020 |
| PRC | |
RMB 30,000,000 | |
70% by Fujian Taochejun | |
Automobile sales, online sales |
| Hangzhou Happiness Youche Automobile
Partnership (Limited partnership) (a) |
| December 29, 2021 |
| PRC | |
RMB 3,000,000 | |
60% by Nanping Happiness | |
automobile parts sales |
| Taochejun (Fujian) automobiles
Co., ltd |
| April 27, 2021 |
| PRC | |
RMB 30,000,000 | |
100% by Nanping Happiness | |
Automobile sales |
| (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$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.
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 one year from the acquisition date.
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.
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
Property, plant and equipment are stated at
cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| | |
Useful Lives |
| Buildings | |
20 years |
| Machinery | |
10 years |
| Furniture, fixture and electronic equipment | |
3-10 years |
| Vehicles | |
4 years |
Expenditures for maintenance and repairs,
which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and
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.
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.
The estimated useful lives of intangible assets are as follows:
| | |
Useful life |
| Land use right | |
50 years |
| Licensed software | |
5-10 years |
| Trademark | |
10 years |
| Customer relationship | |
5 years |
| Proprietary technology | |
5 years |
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.
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 1% of the
Company’s consolidated revenue and the disposal did not constitute a strategic shift that would have a major effect on the Company’s
operations and financial results. The results of operations for these subsidiaries were not reported as discontinued operations in the
consolidated financial statements.
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.
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).
The following table presents an overview of
our sales from our product lines for the years ended March 31, 2023, 2022 and 2021:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Healthcare products | |
$ | 31,770,835 | | |
$ | 30,323,831 | | |
$ | 45,389,702 | |
| Online store | |
| 42,201,865 | | |
| 28,014,109 | | |
| 13,473,626 | |
| Internet information and advertising | |
| 1,197,348 | | |
| 10,538,943 | | |
| 9,245,019 | |
| Automobile | |
| 22,982,777 | | |
| 20,611,775 | | |
| 3,376,356 | |
| Revenue | |
$ | 98,152,825 | | |
$ | 89,488,658 | | |
$ | 71,484,703 | |
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 $10,134, $11,893 and $63,520,
respectively, for the government support of the Company’s research and development activities and patent applications. The government
grants were recorded as other income.
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.
Shipping and Handling Costs
Shipping and handling costs are expensed when
incurred as selling and marketing expense. Shipping and handling costs were $46,950, $291,170 and $1,104,120 for the years ended March
31, 2023, 2022 and 2021, respectively.
Advertising Costs
Advertising costs expensed as economic benefits
are consumed in accordance with ASC 720-35, “Other Expenses-Advertising Costs”. Advertising costs were $51,805,596, $26,210,291
and $5,720,458 for the years ended March 31, 2023, 2022 and 2021, respectively.
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.
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 10% of its after-tax profit based
on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches 50% of its registered
capital. These reserves are not distributable as cash dividends.
As of March 31, 2023, our PRC subsidiaries
had an aggregate retained deficit of approximately RMB 269.46 million (US$39.21million) under PRC GAAP. With respect to retained earnings
accrued after such date, our Board of Directors may declare dividends after taking into account our operations, earnings, financial condition,
cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment, as well as the
amount, of dividends will be subject to our By-Laws, charter and applicable Chinese and U.S. state and federal laws and regulations,
including the approval from the shareholders of each subsidiary which intends to declare such dividends, if applicable.
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. The following table outlines the currency
exchange rates that were used in creating the consolidated financial statements in this report:
| | |
March
31,
2023 | | |
March
31,
2022 | | |
March
31,
2021 | |
| Period-end spot rate | |
US$1=RMB 6.8717 | | |
US$1=RMB 6.3482 | | |
US$1=RMB 6.5713 | |
| Average rate | |
US$1=RMB 6.8855 | | |
US$1=RMB 6.4083 | | |
US$1=RMB 6.7960 | |
Comprehensive Income
Comprehensive income includes net income and
foreign currency translation adjustments and is reported in the consolidated statements of operation and other comprehensive (loss)/
income.
Segment Reporting
The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker (“CODM”) for making operating decisions and assessing performance as the source for determining
the Company’s reportable segments. The Company’s CODM has been identified as the chief executive officer of the Company who
reviews financial information of separate operating segments based on U.S. GAAP. In the year ended March 31, 2023, the CODM reviews financial
information analyzed by customer, which only presented at the gross profit level with no allocation of operating expenses. Thus, the
Company determined that it operates in four operating segments: (1) Healthcare products; (2) Automobiles; (3) Online store; and (4) Internet
information and advertising service. The Company’s reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires different marketing strategies.
As the Company’s long-lived assets are
substantially all located in the PRC and all of the Company’s revenue and expense are derived from within the PRC, no geographical
segments are presented.
Concentration of Risks
Exchange Rate Risks
The Company operates in China, which may give
rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the US$ and
the RMB. As of March 31, 2023 and 2022, cash and cash equivalents of $1,825,187 (RMB 12,542,139) and $19,571,668 (RMB 124,244,865), respectively,
is denominated in RMB and is held in PRC.
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.
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
The Company accounts for related party transactions
in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence
the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties
or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one
or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party. There were
no related party transactions as of March 31, 2023.
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.
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.
NOTE 3 – ACCOUNTS RECEIVABLE
Accounts receivable consisted of the following as of March 31,
2023 and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Accounts receivable, gross | |
$ | 2,560,894 | | |
$ | 27,911,421 | |
| Less: allowance for doubtful accounts | |
| 854,615 | | |
| 463,514 | |
| Accounts receivable | |
$ | 1,706,279 | | |
$ | 27,447,907 | |
Movement of allowance for doubtful accounts
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Beginning balance | |
$ | 463,514 | | |
$ | - | |
| Provision for doubtful accounts | |
| 854,615 | | |
| 463,514 | |
| Written-off | |
| (463,514 | ) | |
| - | |
| Ending balance | |
$ | 854,615 | | |
$ | 463,514 | |
The Company recorded net of allowance for
doubtful accounts of $854,615 as of March 31, 2023 due to uncollectible balances from three companies over 1 year. The Company gives
its customers credit period of 180 days and continually assesses the recoverability of uncollected accounts receivable. As of March 31,
2023, the balance of the Company’s accounts receivable was almost within 180 days. As of March 31, 2022, the balance of the Company’s
accounts receivable was almost within 180 days. The Company believes the balances of its accounts receivable are fully recoverable as
of March 31, 2023.
NOTE 4 – INVENTORIES
All the inventories are located in China. Inventories consisted
of the following as of March 31, 2023 and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Raw materials | |
$ | 282,618 | | |
$ | 786,082 | |
| Work in process | |
| - | | |
| - | |
| Finished goods | |
| 52,401 | | |
| 603,479 | |
| Total | |
$ | 335,019 | | |
$ | 1,389,561 | |
No lower of cost or net realizable value adjustment
was recorded as of March 31, 2023 and 2022, respectively.
No inventory provision or write-downs for
the years ended March 31, 2023 and 2022.
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following
as of March 31, 2023 and 2022:
| | |
As of
March 31, | | |
As of
March 31, | |
| | |
2023 | | |
2022 | |
| Prepayments to suppliers | |
$ | 1,252,094 | | |
$ | 4,177,537 | |
| Loans receivables (a) | |
| 254,668 | | |
| 727,765 | |
| Deposit | |
| - | | |
| 691,070 | |
| Prepayments to technical provider | |
| 618,479 | | |
| 669,481 | |
| VAT-in | |
| - | | |
| 560,155 | |
| Prepayment to Weilan (b) | |
| - | | |
| 448,946 | |
| Receivable from disposal of subsidiaries | |
| - | | |
| 408,106 | |
| Investment receivables from the investors | |
| 2,000,000 | | |
| - | |
| Other current assets | |
| 263,945 | | |
| 226,173 | |
| Total | |
$ | 4,389,186 | | |
$ | 7,909,233 | |
NOTE 6 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following as of
March 31, 2023 and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Buildings | |
$ | 14,111,170 | | |
$ | 15,345,997 | |
| Machinery | |
| 1,585,671 | | |
| 1,918,918 | |
| Furniture, fixture and electronic equipment | |
| 74,719 | | |
| 179,667 | |
| Vehicles | |
| 20,636 | | |
| 176,606 | |
| Total property plant and equipment, at cost | |
| 15,792,196 | | |
| 17,621,188 | |
| Less: accumulated depreciation | |
| (7,321,924 | ) | |
| (6,374,373 | ) |
| Property, plant and equipment, net | |
$ | 8,470,272 | | |
$ | 11,246,815 | |
As of March 31, 2023 and 2022, the Company
pledged its building with a carrying value of approximately $1.2 million and $2.1 million, respectively, as the collateral for short-term
bank loans (see Note 10).
Depreciation expense was $1,615,173, $1,553,399
and $849,454 for the years ended March 31, 2023, 2022 and 2021, respectively. Depreciation allocated as manufacturing overhead to inventories
was $ 278,111, $621,654 and $589,610 for the years ended March 31, 2023, 2022 and 2021, respectively.
The carrying amount of disposed property,
plant and equipment recognized for the year ended March 31, 2023 and 2022 were amounted to $267,719 and $505,969, respectively.
NOTE 7 – INTANGIBLE ASSETS, NET
| | |
As of
March 31, | | |
As of
March 31, | |
| | |
2023 | | |
2022 | |
| Land use right, cost | |
$ | 841,421 | | |
$ | 910,808 | |
| Customer relationship (Note 15) | |
| 8,149,366 | | |
| 8,822,973 | |
| Proprietary technology | |
| 1,900,000 | | |
| | |
| Trademark | |
| 10,187 | | |
| 11,027 | |
| Software, cost | |
| 1,041,799 | | |
| 1,127,710 | |
| Total | |
| 11,942,773 | | |
| 10,872,518 | |
| Less: accumulated amortization | |
| (2,496,518 | ) | |
| (771,113 | ) |
| Intangible assets, net | |
$ | 9,446,255 | | |
$ | 10,101,405 | |
As of March 31, 2023 and 2022, the Company
pledged its land use right on its land with a carrying value of $83,520 (12,120 square meters) and $93,140 (12,120 square meters), respectively,
as the collateral for a short-term bank loan (see Note 10). Additions to intangible assets for the year ended March 31, 2023 amounting
to $1,900,000 were acquired from issuing ordinary shares with non-cash transactions.
Amortization expense was $1,763,779, $633,807
and $31,425 for the years ended March 31, 2023, 2022 and 2021, respectively.
Estimated future amortization expense is as
follows as of March 31, 2023:
| Years ending March 31, | |
Amortization
expense | |
| 2024 | |
$ | 2,132,482 | |
| 2025 | |
| 2,132,482 | |
| 2026 | |
| 2,132,482 | |
| 2027 | |
| 2,132,482 | |
| 2028 | |
| 916,327 | |
| Thereafter | |
| - | |
| | |
$ | 9,446,255 | |
NOTE 8 – GOODWILL
Goodwill consisted of the following as of March 31, 2023 and 2022:
| | |
As of
March 31, | | |
As of
March 31, | |
| | |
2023 | | |
2022 | |
| Shennong | |
$ | 1,250,470 | | |
$ | 6,288,219 | |
| Hekangyuan | |
| 21,275 | | |
| 3,627,427 | |
| 2Lab3 | |
| 5,184,036 | | |
| - | |
| Daji | |
| - | | |
| 168,555 | |
| Total | |
$ | 6,455,781 | | |
$ | 10,084,201 | |
The changes in the carrying amount of goodwill for the years ended
March 31, 2023 and 2022 were as follow:
| | |
As of
March 31, | | |
As of
March 31, | |
| | |
2023 | | |
2022 | |
| Balance as of March 31 | |
$ | 10,084,201 | | |
$ | 162,832 | |
| Acquisitions (Note 15) | |
| 5,184,036 | | |
| 20,237,015 | |
| Disposal | |
| (168,555 | ) | |
| - | |
| Impairment | |
| (7,872,696 | ) | |
| (10,309,745 | ) |
| Exchange gain and loss | |
| (771,205 | ) | |
| (5,901 | ) |
| Goodwill, net | |
$ | 6,455,781 | | |
$ | 10,084,201 | |
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 $7,872,696 and $10,309,745,
respectively.
NOTE 9 – PREPAID ASSETS
Prepaid assets consisted of the following as of March 31, 2023
and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Prepayments for advertising or marketing | |
$ | 2,138,273 | | |
$ | 5,485,325 | |
| Prepayment of celebrity endorsement fee | |
| 43,657 | | |
| 141,774 | |
| Total | |
$ | 2,181,930 | | |
$ | 5,627,099 | |
NOTE 10 – OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consisted of the following
as of March 31, 2023 and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Advances from customers | |
$ | 5,060,149 | | |
$ | 3,310,906 | |
| Employee benefits payable | |
| 46,485 | | |
| 130,439 | |
| Other payables | |
| - | | |
| 28,423 | |
| Total | |
$ | 5,106,634 | | |
$ | 3,469,768 | |
NOTE 11 – SHORT-TERM BANK BORROWINGS
Short-term bank borrowings consisted of the following as of March
31, 2023 and 2022:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Industrial Bank Co., Ltd | |
$ | 1,018,672 | | |
$ | 1,102,675 | |
| Postal Saving Bank of Chin | |
| 1,076,880 | | |
| 1,165,685 | |
| Rural Credit Cooperative (ShunChang) | |
| 145,524 | | |
| - | |
| Total | |
$ | 2,241,076 | | |
$ | 2,268,360 | |
On May 4, 2018, the Company entered into a
bank loan agreement with Industrial Bank Co., Ltd to borrow $1,039,578 (RMB 7.0 million) as working capital for one year with due date
on April 21, 2019 and it was renewed in 2019 for another year. The loan bears a fixed interest rate of 1-year Loan Prime Rate (“LPR”)
+2.19% on the date of drawing per annum. The loan facility agreement is personally guaranteed by Mr. Xuezhu Wang, Mr. Xianfu Wang, and
Mrs. Yanying Lin. Based on guarantee contract the maximum guaranteed amount was RMB 7.0 million. The Company also pledged its building
and land use rights as collaterals. Based on the pledge agreement, the maximum pledged amount was RMB 17.4 million. There were no loan
guarantee fees paid to the personal guarantors. In April 2020, Fujian Happiness renewed the loan agreement with Industrial Bank Co. Ltd
for $1,065,238 (RMB 7.0 million) bearing interest rate at LPR plus 1.45% per annum, payable monthly. The loan was expired and paid off
in April 2021. In addition, the Company entered into a loan agreement of $1,065,238 (RMB 7.0 million) bearing interest rate at LPR plus
0.75% on June 9, 2021 and repaid it on June 5, 2022.
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 $3.4 million (RMB 24.4 million) for short-term loans. The loan facility agreement is valid until June 23, 2025 and subject
to renewal. The loan facility agreement is personally guaranteed by Mr. Xuezhu Wang and Happiness Fuzhou. The Company also pledged its
building and land use right as collaterals. Pursuant to the loan facility agreement with Postal Saving Bank of China, which is valid
from June 24, 2019 to June 23, 2025. On January 12, 2022 and January 13, 2022, the Company entered into a loan agreement of $846,848
(RMB 6.0 million) and $197,597 (RMB 1.4 million) short-term loans bearing fixed interest rate of 4.25%, which was due on January 10,
2023 and February 12, 2023, respectively. In addition, on April 7, 2020 and January 15, 2021, the Company entered into a loan agreement
of RMB 1.7 million and RMB 6.0 million with Postal Saving Bank of China as working capital for one year, respectively. The loans bear
a fixed interest rate of LPR+20 BP. The Company repaid RMB 1.7 million on April 6, 2021 and April 8, 2021, and repaid RMB 6.0 million
on January 12, 2022.
The carrying values of the Company’s
pledged assets to secure short-term borrowings by the Company are as follows:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Buildings, net | |
$ | 1,176,100 | | |
$ | 2,076,215 | |
| Land use rights, net | |
| 83,520 | | |
| 93,140 | |
| Total | |
$ | 1,259,620 | | |
$ | 2,169,355 | |
For the years ended March 31, 2023, 2022 and
2021, interest expense on all short-term bank loans amounted to $72,303, $85,993 and $111,790 respectively.
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 3,500,000 ordinary shares with no restrictive legend affixed.
Share-based compensation expense of $1,086,231
and $778,423 was immediately recognized in general and administrative expenses for the year ended March 31, 2022 and 2021 with no vesting
conditions. No share-based compensation expense was recognized for the year ended Marche 31, 2023.
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 50,000 ordinary shares with par value of $1 to exchange for the ownership
in Fujian Happiness from the former shareholders to Happiness Fuzhou.
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 100% ownership of Fujian Happiness from the former shareholders
to Happiness Fuzhou.
In May 2018, the Company received $627,628
(RMB 4.0 million) from two investors into Fujian Happiness.
On March 4, 2019, the Company subdivided its
50,000 ordinary shares into 90,000,000 Ordinary shares and 10,000,000 Preferred shares. The authorized ordinary shares became 100,000,000
shares and the par value changed from $1 to $0.0005. On the same day, the Company cancelled 77,223,100 ordinary shares and sold additional
223,100 ordinary shares. The Company has retrospectively reflected the stock subdivision and cancellation in all periods presented in
these financial statements.
On October 25, 2019, the Company announced
the closing of its initial public offering of 2,000,000 ordinary shares, US$0.0005 par value per share (“Ordinary Shares”)
at an offering price of $5.50 per share for a total of $11,000,000 in gross proceeds. The Company raised total net proceeds of $9,342,339
after deducting underwriting discounts and commissions and offering expenses.
The Company entered several Securities Purchase
Agreement from September 2020 through March 2021. Pursuant to which, the Company issued 5,100,000 ordinary shares to the purchasers with
a total consideration amounted $10,965,703. The Company collected total net proceeds of $10,725,700 after deducting commissions and offering
expenses.
On March 15, 2021, the Company issued 381,580
ordinary shares to its management and employees for their service. The Company recorded compensation cost $778,423 according to the fair
value of the shares issued.
On June 21, 2021, the Company issued an aggregate
of 231,445 Class A ordinary shares of the Company to certain employees and a director for their services. The total compensation cost
was $351,796.
On June 25, 2021, the Company entered several
Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued 1,240,000 Class A ordinary shares to the purchasers
with a total consideration amounted $2,157,600. The Company collected total net proceeds of $2,157,600 after deducting commissions and
offering expenses.
On October 14, 2021, the Company issued an
aggregate of 113,458 Class A ordinary shares of the Company to certain employees and a director for their services. The total compensation
cost was $99,843.
On October 20, 2021, the Company entered into
a certain equity agreement with Shennong for the purchase of 70% of the equity interest of Shennong at a consideration of RMB 103.0 million
(approximately $16.1 million). The total consideration paid for the Equity Interests are RMB 48.0 million (approximately $7.5 million)
in cash and 4,200,000 Class A ordinary shares of the Company. The Company issued an aggregate of 4,200,000 ordinary shares of the Company
to certain transaction on November 12, 2021. The total compensation cost was $3,736,320.
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 $0.0005 each into
stock (the “Stock”); b: the alteration of the authorized issued share capital of the Company from (i) US$50,000 divided into
90,000,000 Ordinary Shares with a par value of US$0.0005 each and 10,000,000 Preferred Shares with a par value of US$0.0005 each; to
(ii) 70,000,000 Class A Ordinary Shares with a par value of $0.0005 each, 20,000,000 Class B Ordinary Shares with a par value of US$0.0005
each and 10,000,000 Preferred Shares with a par value of US$0.0005 each. Class A Ordinary Shares was entitled to one vote per share and
to receive notice of, attend at and vote as a member at any general meeting of the Company; and be entitled to such dividends as the
Board may from time to time declare; and generally be entitled to enjoy all of the rights attaching to shares. Class B Ordinary Shares
was entitled to twenty (20) votes per share and to receive notice of, attend at and vote as a member at any general meeting of the Company;
be entitled to such dividends as the Board may from time to time declare; and generally be entitled to enjoy all of the rights attaching
to shares.
On January 12, 2022, the Company issued an
aggregate of 1,133,200 Class A ordinary shares of the Company to certain employees for their services. The total compensation cost was
$634,592.
On January 20, 2022, the Company entered several
Securities Purchase Agreement with non-US persons. Pursuant to which, the Company issued 12,500,000 Class A ordinary shares to the purchasers
with a total consideration amounted $10,000,000. The Company collected total net proceeds of $10,000,000 after deducting commissions
and offering expenses.
On March 4, 2022, the Company entered into
a certain equity transfer agreement with Hekangyuan for the purchase of 100% of the equity interest of Hekangyuan at a consideration
of $12.0 million. The total consideration paid for the Equity Interests are $8.0 million in cash and 10,000,000 Class A ordinary shares
of the Company. The Company issued an aggregate of 10,000,000 ordinary shares of the Company to certain transaction on March 7, 2022.
The total compensation cost was $3,560,000.
On March 10, 2022, the Company entered several
Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued 19,200,000 Class A ordinary shares to the
purchasers with a total consideration amounted $6,720,000. The Company collected total net proceeds of $6,720,000 after deducting commissions
and offering expenses.
On April 21, 2022, 150,000 Class A Ordinary
Shares owned by Xuezhu Wang were reconverted into Class B Ordinary Shares.
On October 10, 2022, a Share Consolidation
of the Company’s ordinary shares at a ratio of one-for-twenty (the “Share Consolidation”) was effected as determined
by the Board of Directors. At the time the Share Consolidation is effective, our authorized ordinary shares will be consolidated at the
same ratio. The authorized share capital of the Company shall be decreased from an authorized share capital of US$50,000 divided into
70,000,000 Class A ordinary shares, par value US$0.0005 each, 20,000,000 Class B ordinary shares, par value US$0.0005 each, and 10,000,000
preferred shares with a par value of US$0.0005 each to an authorized share capital of US$50,000 divided into 3,500,000 Class A ordinary
shares, par value US$0.01 each, 1,000,000 Class B ordinary shares, par value US$0.01 each, and 500,000 preferred shares, par value US$0.01
each.
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 3,000,000 Class A ordinary shares, (the “Shares”) par value $0.01 per share
(the “Ordinary Shares”), at a per share purchase price of $2.00. The gross proceeds to the Company from this transaction
were approximately $6.0 million.
On March 14, 2022, the Company entered into
a certain equity transfer agreement with 2Lab3 LLC for the purchase of 100% of the equity interest of 2Lab3 LLC at a consideration of
approximately $6 million. The total consideration paid for the Equity Interests is 1,375,000 Class A ordinary shares of the Company.
The Company issued an aggregate of 1,375,000 Class A ordinary shares of the Company to certain transaction on March 28, 2023. The total
compensation cost was $7,081,250.
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 30% to 49% of the particular subsidiaries, of income or losses from operations.
See Note 1 for details of the Company and its operating subsidiaries ownership.
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”). Appropriations to the statutory
surplus reserve are required to be at least 10% of the after-tax net income determined in accordance with PRC GAAP until the reserve
is equal to 50% of the entity’s registered capital. Appropriations to the discretionary surplus reserve are made at the discretion
of the Board of Directors. In 2019, $56,077 was appropriated by Fujian Happiness to the statutory surplus reserve and the statutory reserve
reached 50% of its registered capital. In 2020, no statutory surplus was appropriated. In 2021, $5,558,669 was appropriated by Fujian
Happiness to the statutory surplus reserve. The reserved amounts as determined pursuant to PRC statutory laws amounted $7,622,765 and
$7,622,765 as of March 31, 2023 and 2022.
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 $20,714,673 and $19,978,449 as of March
31, 2023 and 2022, respectively.
As of March 31, 2023, our PRC subsidiaries
had an aggregate retained deficit of approximately RMB269.46 million (US$39.21 million) under PRC GAAP. With respect to retained earnings
accrued after such date, our Board of Directors may declare dividends after taking into account our operations, earnings, financial condition,
cash requirements and availability and other factors as it may deem relevant at such time.
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 15% of the total number of the Company’s
Ordinary Shares to be offered by the Company pursuant to the offering (excluding shares subject to this option), solely for the purpose
of covering overallotments, at the initial public offering price less the underwriting discount. These options expired and unexercised
in 2020.
| | |
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 | |
| 300,000 | | |
| 5.12 | | |
| 45 | | |
| - | |
| Options forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
| Options expired | |
| (300,000 | ) | |
| 5.12 | | |
| 45 | | |
| - | |
| | |
| | | |
| | | |
| | | |
| | |
| Options Outstanding as of March 31, 2023 and 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
| Options Exercisable as of March 31, 2023 and 2022 | |
| - | | |
$ | - | | |
| - | | |
$ | - | |
Warrants
In October 2019, the Company granted to the
underwriters warrants to purchase up to a total of 184,000 ordinary shares (equal to 8% of the aggregate number of ordinary shares
sold in the offering, if over-allotment shares are placed by the underwriters. Without over-allotment share issuance, a total of 160,000
warrants will be granted). The warrants will be exercisable at an exercise price equal to one hundred twenty percent (120%) of the offering
price, in whole or in parts, at any time from issuance and expire five (5) years from the effective date of the offering.
The Company’s outstanding and exercisable
warrants as of March 31, 2023 are presented below:
| | |
Number
Outstanding | | |
Weighted
Average
Exercise
Price | | |
Contractual
Life in Years | | |
Intrinsic
Value | |
| Warrants Outstanding as of March 31, 2020 | |
| 160,000 | | |
$ | 6.60 | | |
| 4.6 | | |
$ | - | |
| Warrants granted | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Warrants forfeited | |
| - | | |
| - | | |
| - | | |
| - | |
| Warrants exercised | |
| - | | |
$ | - | | |
| - | | |
| - | |
| Warrants Outstanding as of March 31, 2021 | |
| 160,000 | | |
$ | 6.60 | | |
| 3.6 | | |
$ | - | |
| Warrants Outstanding as of March 31, 2022 | |
| 160,000 | | |
$ | 6.60 | | |
| 2.6 | | |
$ | - | |
| Warrants Outstanding as of March 31, 2023 | |
| 160,000 | | |
| 6.60 | | |
| 1.6 | | |
| - | |
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 16.5%.
Under the Law of the People’s Republic
of China on Enterprise Income Tax (“New EIT Law”), which was effective from January 1, 2008, both domestically-owned enterprises
and foreign-invested enterprises are subject to a uniform tax rate of 25% while preferential tax rates, tax holidays and even tax exemption
may be granted on case-by-case basis. EIT grants preferential tax treatment to High and New Technology Enterprises (“HNTEs”).
Under this preferential tax treatment, HNTEs are entitled to an income tax rate of 15%, subject to a requirement that they re-apply for
HNTE status every three years. Fujian Happiness, the Company’s main operating entity in PRC, was approved as HNTEs and is entitled
to a reduced income tax rate of 15% from December 2019 to December 2022.
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.
The following table reconciles the statutory
rate to the Company’s effective tax rate:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| PRC statutory income tax rate | |
| 25.0 | % | |
| 25.0 | % | |
| 25.0 | % |
| Effect of PRC preferential tax rate | |
| (10.0 | )% | |
| (10.0 | )% | |
| (10.0 | )% |
| Effect of other deductible expenses | |
| 2.2 | % | |
| 2.7 | % | |
| 7.4 | % |
| Total | |
| 17.2 | % | |
| 17.7 | % | |
| 22.4 | % |
The provision for income tax consisted of
the following:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Current income tax provision | |
$ | 363,493 | | |
$ | 195,678 | | |
$ | 959,384 | |
| Deferred income tax provision | |
| 3,093,587 | | |
| (3,921,905 | ) | |
| - | |
| Total | |
$ | 3,457,080 | | |
$ | (3,726,227 | ) | |
$ | 959,384 | |
The deferred income tax assets and liabilities as below:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Net accumulated loss-carry forward | |
$ | 20,634,308 | | |
$ | 4,402,633 | | |
$ | - | |
| Less: valuation allowance | |
| (20,634,308 | ) | |
| (606,141 | ) | |
| - | |
| Net deferred tax assets | |
$ | - | | |
$ | 3,796,492 | | |
$ | - | |
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Beginning balance | |
$ | 4,402,633 | | |
$ | - | | |
$ | - | |
| Write-off | |
| - | | |
| - | | |
| - | |
| Change of valuation allowance | |
| 16,231,675 | | |
| 4,402,633 | | |
| - | |
| Ending balance | |
$ | 20,634,308 | | |
$ | 4,402,633 | | |
$ | - | |
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Intangible assets arising from acquisition | |
$ | (1,514,060 | ) | |
$ | (2,079,986 | ) | |
$ | - | |
| Total deferred tax liabilities | |
$ | (1,514,060 | ) | |
$ | (2,079,986 | ) | |
$ | - | |
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 nil and deferred tax liabilities of $ 1,514,060 as of March 31,
2023. The Company recorded deferred tax assets of $3,796,492 and deferred tax liabilities of $2,079,986 as of March 31, 2022.
(b) Taxes Payable
The Company’s taxes payable as of March 31, 2023 and 2022
consisted of the following:
| | |
As
of March
31, | | |
As
of March
31, | |
| | |
2023 | | |
2022 | |
| Income tax payable | |
$ | 57,167 | | |
$ | 15,078 | |
| VAT payable | |
| 31,600 | | |
| 2,189 | |
| Other tax payables | |
| 54,593 | | |
| 19,958 | |
| Total | |
$ | 143,360 | | |
$ | 37,225 | |
NOTE 15 – BUSINESS COMBINATION
Acquisition of 2Lab3
On March 28, 2023, the Company acquired 100%
equity interest of 2Lab3 with 1,375,000 Class A Ordinary Shares of the Company for investing with non-cash transactions. The Class A
Ordinary Shares were registered on March 28, 2023, valued at $5.15 per share. 2Lab3 is a company incorporated in Delaware of United States.
It provides consulting, marketing, design, and software development services to empower its clients to adapt and thrive in the Web 3.0
era. The acquisition has further strengthened the transaction and service scenario of the Web 3.0 era of the Company. The results of
2Lab3 have been included in the consolidated financial statements of the Company since the acquisition date of March 28, 2023.
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.
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 (1.374 million Class A Ordinary Shares issued) | |
$ | 7,081,250 | |
| | |
| | |
| Subtotal | |
$ | 7,081,250 | |
| | |
| | |
| Recognized amounts of identifiable assets acquired and liability assumed: | |
| | |
| Cash | |
$ | 555 | |
| Intangible asset –proprietary technology | |
| 1,900,000 | |
| Current liabilities | |
| (3,341 | ) |
| Total identifiable net assets | |
$ | 1,897,214 | |
| Fair value of non-controlling interests | |
| - | |
| Goodwill* | |
$ | 5,184,036 | |
Acquisition of Shennong
On November 12, 2021, the Company acquired
70% equity interest of Shennong with total cash consideration of $7.5 million (RMB 48.0 million) and 4,200,000 Class A ordinary shares
of the Company. The Class A Ordinary Shares were registered on November 12, 2021, valued at $0.8896 per share. Shennong is a company
incorporated in Fujian, the PRC and focus on agriculture products, electronic products and hardware products. Acquisition of Shennong
has strengthen the supply-chain as well as the industrial integration of online store. According to the share transfer agreement signed
with the transferer, the Company owns the right to require the transferer purchasing back all the equity interests in cash of RMB72.1million
if the target company doesn’t meet the profit target. In the year ended March 31, 2021, the Company has paid $9.1 million (RMB
60.0 million) to the transferer as a deposit of this acquisition. And the overpaid RMB 12.0 million (approximately $1.9 million with
$0.3 million exchange gain) has been collected back in the year ended March 31, 2022. The results of Shennong have been included in the
consolidated financial statements of the Company since the acquisition date of November 12, 2021.
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 (4.2 million Class A Ordinary Shares issued) | |
$ | 3,736,320 | |
| Cash consideration | |
| 7,492,391 | |
| Subtotal | |
$ | 11,228,711 | |
| | |
| | |
| Recognized amounts of identifiable assets acquired and liability assumed: | |
| | |
| Cash | |
$ | 59,091 | |
| Current assets other than cash | |
| 13,591,825 | |
| Intangible asset – customer relationships | |
| 4,214,470 | |
| Current liabilities | |
| (13,650,246 | ) |
| Deferred tax liabilities | |
| (1,053,617 | ) |
| Total identifiable net assets | |
$ | 3,161,523 | |
| Fair value of non-controlling interests* | |
| 4,010,254 | |
| Goodwill* | |
$ | 12,077,442 | |
Non-controlling interest was recognized and measured at fair value
on the acquisition date by the Company.
Acquisition of Hekangyuan
On March 4, 2022, the Company acquired 100%
equity interest of Hekangyuan with total cash consideration of $8 million and 10,000,000 Class A Ordinary Shares of the Company. The
Class A Ordinary Shares were registered on March 4, 202, valued at $0.365 per share. Hekangyuan is a company incorporated in Fujian,
the PRC and focus on the sales of healthcare products and optical glasses. The acquisition has further strengthened the distribution
network of the Company. According to the share transfer agreement signed with the transferer, the Company owns the right to require the
transferer purchasing back all the equity interests in cash of $12.0 million if the target company doesn’t meet the profit target.
The results of Hekangyuan have been included in the consolidated financial statements of the Company since the acquisition date of March
4, 2022.
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 (10 million Class A Ordinary Shares issued) | |
$ | 3,650,000 | |
| Cash consideration | |
| 8,000,000 | |
| | |
| | |
| Subtotal | |
$ | 11,650,000 | |
| | |
| | |
| Recognized amounts of identifiable assets acquired and liability assumed: | |
| | |
| Cash | |
$ | 1,164 | |
| Current assets other than cash | |
| 1,882,139 | |
| Property, plant and equipment, net | |
| 187 | |
| Intangible asset – customer relationships | |
| 4,582,227 | |
| Current liabilities | |
| (1,829,733 | ) |
| Deferred tax liabilities | |
| (1,145,557 | ) |
| Total identifiable net assets | |
$ | 3,490,427 | |
| Fair value of non-controlling interests | |
| - | |
| Goodwill* | |
$ | 8,159,573 | |
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 $383,376 for the year ended March 31, 2023, and recognized loss resulting from the deconsolidation
amounted to $95,932, for the year ended March 31, 2022, respectively.
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.
The following tables present the summary of
each reportable segment’s revenue and gross profit, which is considered as a segment operating performance measure, for the fiscal
year ended March 31, 2023:
| Fiscal year ended March 31, 2023 | |
| | |
Healthcare products | | |
Automobile | | |
Online store | | |
Internet information and advertising
service | | |
Consolidated | |
| Revenues | |
$ | 31,770,835 | | |
$ | 22,982,777 | | |
$ | 42,201,865 | | |
$ | 1,197,348 | | |
$ | 98,152,825 | |
| Cost | |
$ | (28,551,175 | ) | |
$ | (22,631,083 | ) | |
$ | (40,739,395 | ) | |
$ | (1,176,810 | ) | |
$ | (93,098,463 | ) |
| Segment gross profit | |
$ | 3,219,660 | | |
$ | 351,694 | | |
$ | 1,462,470 | | |
$ | 20,538 | | |
$ | 5,054,362 | |
| Segment gross profit margin | |
| 10.1 | % | |
| 1.5 | % | |
| 3.5 | % | |
| 1.7 | % | |
| 5.1 | % |
NOTE 19 – CUSTOMER AND SUPPLIER CONCENTRATION
Significant customers and suppliers are those
that account for greater than 10% of the Company’s revenues and purchases.
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 10%
of the Company’s total revenues.
For the year ended March 31, 2023, no individual
supplier accounted for more than 10% of the Company’s total purchase. For the years ended March 31, 2022 and 2021, the Company
purchased a substantial portion of raw materials from the third-party suppliers (25.9% of total raw materials purchase for the year ended
March 31, 2022 and 16.8% of total raw materials purchase for the year ended March 31, 2021. As of March 31, 2022, the amounts due to
these vendors was $4.3 million.
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 78 million (approximately $11.3 million, the “Purchase
Price”). Upon the closing of the transaction (the “Disposition”) contemplated by the Disposition SPA, the Buyer will
become the sole shareholder of Fujian Happiness and as a result, assume all assets and liabilities of Fujian Happiness and subsidiaries
owned or controlled by Fujian Happiness. The closing was approved by a majority of the Company’s shareholders on June 30, 2023.
On April 10, the Company cancelled the 1,000,000 Class A Ordinary
shares issued to the two investors.
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.
ITEM 19. EXHIBITS
EXHIBIT INDEX
|
|
|
|
Incorporated by
reference to |
|
Filed |
| Exhibit No. |
|
Description |
|
Form Exhibit Filing Date |
|
herewith |
| |
|
|
|
|
|
|
|
|
| 1.1 |
|
Original
Memorandum and Articles of Association dated March 4, 2019 |
|
F-1 |
|
3.1 |
|
March 8, 2019 |
|
|
| 1.2 |
|
Amended
and Restated Articles of Association , effective on March 28, 2019 |
|
F-1 |
|
3.1 |
|
March 28, 2019 |
|
|
| 1.3 |
|
First
Amended and Restated Memorandum of Association , effective on March 28, 2019 |
|
F-1 |
|
3.2 |
|
March 28, 2019 |
|
|
| 1.4 |
|
Amended
and Restated Memorandum and Articles of Association, effective on October 21, 2021 |
|
20-F |
|
1.4 |
|
August 15, 2022 |
|
|
| 1.5 |
|
Amended
and Restated Memorandum and Articles of Association, effective on October 7, 2022 |
|
20-F/A |
|
1.5 |
|
April 3, 2023 |
|
|
| 1.6 |
|
Amended
and Restated Memorandum and Articles of Association, effective on March 10, 2023 |
|
20-F/A |
|
1.6 |
|
April 3, 2023 |
|
|
| 2.1 |
|
Specimen
Certificate for Ordinary Shares |
|
F-1 |
|
4.1 |
|
March 28, 2019 |
|
|
| 4.1 |
|
Employment
Agreement by and between CEO Xuezhu Wang and the Company dated August 28, 2018 |
|
F-1 |
|
10.3 |
|
March 28, 2019 |
|
|
| 4.2 |
|
Form
of Securities Purchase Agreement, by and between the Company and the Purchasers, dated June 25, 2021 |
|
6-K |
|
1.1 |
|
July 1, 2021 |
|
|
| 4.3 |
|
Share
Purchase Agreement, by and among the Company, Fujian Happiness Biotech Co., Limited, and Fujian Shennong Jiagu Development Co., Ltd.,
dated October 14, 2021 |
|
6-K |
|
4.1 |
|
October 25, 2021 |
|
|
| 4.4 |
|
Form
of Securities Purchase Agreement, by and between the Company and the Purchasers, dated January 18, 2022 |
|
6-K |
|
99.1 |
|
January 21, 2022 |
|
|
| 4.5 |
|
Equity
Transfer Agreement, by and among the Company, Fujian Happiness Biotech Co., Limited, and Fuzhou Hekangyuan Trading Co., Ltd., dated
March 4, 2022 |
|
6-K |
|
4.1 |
|
March 7, 2022 |
|
|
| 4.6 |
|
Form
of Securities Purchase Agreement, by and between the Company and the Purchasers, dated March 11, 2022 |
|
6-K |
|
1.1 |
|
March 16, 2022 |
|
|
| 4.7 |
|
Form
of Securities Purchase Agreement, by and between the Company and the Purchasers, dated December, 2022 |
|
6-K |
|
10.1 |
|
January 3, 2023 |
|
|
| 4.8 |
|
Collaboration
Agreement, by and between the Company and DMG Tech Investment LLC, dated December 28, 2022 |
|
6-K |
|
10.2 |
|
January 3, 2023 |
|
|
| 4.9 |
|
Employment
Agreement by and between CFO Sophie Ye Tao and the Company dated January 16, 2023 |
|
6-K |
|
10.2 |
|
January 19, 2023 |
|
|
| 4.10 |
|
The
Securities Purchase Agreement by and among the Company, 2lab3, and 2lab3’s Sole Member |
|
6-K |
|
10.1 |
|
April 18, 2023 |
|
|
| 8.1 |
|
List
of Subsidiaries |
|
20-F |
|
8.1 |
|
July 27, 2023 |
|
|
| 11.1 |
|
Code
of Business Conduct and Ethics of the Registrant |
|
F-1/A |
|
99.1 |
|
May 6, 2019 |
|
|
| 12.1 |
|
Certification of the Chief
Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended. |
|
|
|
|
|
|
|
X |
| 12.2 |
|
Certification of the Chief
Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act, as amended |
|
|
|
|
|
|
|
X |
| 13.1 |
|
Certification of the Chief
Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002 |
|
|
|
|
|
|
|
X |
| 23.1 |
|
Consent letter of TPS Thayer,
LLC |
|
|
|
|
|
|
|
X |
| 23.2 |
|
Consent letter of Enrome
LLP |
|
|
|
|
|
|
|
X |
| 23.3 |
|
Consent letter of Briggs
& Veselka Co. |
|
|
|
|
|
|
|
X |
| 99.1 |
|
Consent
of Allbright Law Offices |
|
20-F |
|
8.1 |
|
July 27, 2023 |
|
|
| 101.INS |
|
Inline XBRL Instance Document. |
| 101.SCH |
|
Inline XBRL Taxonomy Extension Schema
Document. |
| 101.CAL |
|
Inline XBRL Taxonomy Extension Calculation
Linkbase Document. |
| 101.DEF |
|
Inline XBRL Taxonomy Extension Definition
Linkbase Document. |
| 101.LAB |
|
Inline XBRL Taxonomy Extension Label
Linkbase Document. |
| 101.PRE |
|
Inline XBRL Taxonomy Extension Presentation
Linkbase Document. |
| 104 |
|
Cover Page Interactive Data File (formatted
as Inline XBRL and contained in Exhibit 101). |
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
20-F/A
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1. I have reviewed this annual report on Form
20-F, as amended, of Paranovus Entertainment Technology Ltd. (the “Company”);
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company
and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the
Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors
and the audit committee of the Company’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s internal control over financial reporting.
1. I have reviewed this annual report on Form
20-F, as amended, of Paranovus Entertainment Technology Ltd. (the “Company”);
2. Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the
circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements,
and other financial information included in this report, fairly present in all material respects the financial condition, results of operations
and cash flows of the Company as of, and for, the periods presented in this report;
4. The Company’s other certifying officer
and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)
and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the Company
and have:
(a) Designed such disclosure controls and procedures,
or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to
the Company, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period
in which this report is being prepared;
(b) Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with
generally accepted accounting principles;
(c) Evaluated the effectiveness of the Company’s
disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the
Company’s internal control over financial reporting that occurred during the period covered by the annual report that has materially
affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting; and
5. The Company’s other certifying officer
and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the Company’s auditors
and the audit committee of the Company’s board of directors (or persons performing the equivalent function):
(a) All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the
Company’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves
management or other employees who have a significant role in the Company’s internal control over financial reporting.
Pursuant to U.S.C. Section 1350 of the Sarbanes-Oxley
Act of 2002 (subsections (a) and (b) of Section 1350, Chapter 63 of Title 18, United States Code), each of the undersigned officers of
Paranovus Entertainment Technology Ltd.. (the “Company”), does hereby certify, to such officer’s knowledge, that:
We consent to the reference to our firm under
the caption “Experts” and to the use of our report dated August 15, 2022, with respect to the consolidated financial statements
of Paranovus Entertainment Technology Ltd. (formerly known as “Happiness Development Group Limited”), for the year ended March
31, 2022, on Form S-8 (File No. 333-253602), and Form F-3 (File No. 333-250026) of Paranovus Entertainment Technology Ltd. (formerly known
as “Happiness Development Group Limited”) filed with the Securities and Exchange Commission.
We hereby consent to the incorporation
by reference in the Registration Statements on Form S-8 (File No. 333-253602), and Form F-3 (File No. 333-250026) of Paranovus Entertainment
Technology Ltd. (the “Company”) of our report dated July 27, 2023, relating to the consolidated balance sheet of 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, included in its Annual Report on Form 20-F.
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (File No. 333-253602), and Form F-3 (File
No. 333-250026) of Paranovus Entertainment Technology Ltd. (formerly known as “Happiness BioTech Group Limited”) of our report
dated August 2, 2021, relating to our audit of the consolidated financial statements of Happiness BioTech Group Limited for the fiscal
year ended March 31, 2021, included in its Annual Report on Form 20-F.
Accounting Policies, by Policy (Policies)
|
12 Months Ended |
Mar. 31, 2023 |
|---|
| Significant Accounting Policies [Abstract] |
|
| Basis of Presentation and Principles of Consolidation |
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 |
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 |
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 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 one year from the acquisition date.
|
| Cash and Cash Equivalents |
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 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 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 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.
|
| Goodwill |
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 |
Property, Plant and Equipment Property, plant and equipment are stated at
cost. The straight-line depreciation method is used to compute depreciation over the estimated useful lives of the assets, as follows:
| | |
Useful Lives |
| Buildings | |
20 years |
| Machinery | |
10 years |
| Furniture, fixture and electronic equipment | |
3-10 years |
| Vehicles | |
4 years |
Expenditures for maintenance and repairs,
which do not materially extend the useful lives of the assets, are charged to expense as incurred. Expenditures for major renewals and
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.
|
| Intangible Assets |
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. The estimated useful lives of intangible assets are as follows:
| | |
Useful life |
| Land use right | |
50 years |
| Licensed software | |
5-10 years |
| Trademark | |
10 years |
| Customer relationship | |
5 years |
| Proprietary technology | |
5 years |
|
| Impairment of Long-lived Assets other than goodwill |
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 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 |
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.
|
| Warrants |
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 |
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 1% of the
Company’s consolidated revenue and the disposal did not constitute a strategic shift that would have a major effect on the Company’s
operations and financial results. The results of operations for these subsidiaries were not reported as discontinued operations in the
consolidated financial statements.
|
| Revenue Recognition |
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. 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). The following table presents an overview of
our sales from our product lines for the years ended March 31, 2023, 2022 and 2021:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Healthcare products | |
$ | 31,770,835 | | |
$ | 30,323,831 | | |
$ | 45,389,702 | |
| Online store | |
| 42,201,865 | | |
| 28,014,109 | | |
| 13,473,626 | |
| Internet information and advertising | |
| 1,197,348 | | |
| 10,538,943 | | |
| 9,245,019 | |
| Automobile | |
| 22,982,777 | | |
| 20,611,775 | | |
| 3,376,356 | |
| Revenue | |
$ | 98,152,825 | | |
$ | 89,488,658 | | |
$ | 71,484,703 | |
|
| Cost of Revenues |
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. 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). The following table presents an overview of
our sales from our product lines for the years ended March 31, 2023, 2022 and 2021:
| | |
For the years ended March 31, | |
| | |
2023 | | |
2022 | | |
2021 | |
| Healthcare products | |
$ | 31,770,835 | | |
$ | 30,323,831 | | |
$ | 45,389,702 | |
| Online store | |
| 42,201,865 | | |
| 28,014,109 | | |
| 13,473,626 | |
| Internet information and advertising | |
| 1,197,348 | | |
| 10,538,943 | | |
| 9,245,019 | |
| Automobile | |
| 22,982,777 | | |
| 20,611,775 | | |
| 3,376,356 | |
| Revenue | |
$ | 98,152,825 | | |
$ | 89,488,658 | | |
$ | 71,484,703 | |
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 Grant |
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 $10,134, $11,893 and $63,520,
respectively, for the government support of the Company’s research and development activities and patent applications. The government
grants were recorded as other income.
|
| Research and Development Costs |
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.
|
| Shipping and Handling Costs |
Shipping and Handling Costs Shipping and handling costs are expensed when
incurred as selling and marketing expense. Shipping and handling costs were $46,950, $291,170 and $1,104,120 for the years ended March
31, 2023, 2022 and 2021, respectively.
|
| Advertising Costs |
Advertising Costs Advertising costs expensed as economic benefits
are consumed in accordance with ASC 720-35, “Other Expenses-Advertising Costs”. Advertising costs were $51,805,596, $26,210,291
and $5,720,458 for the years ended March 31, 2023, 2022 and 2021, respectively.
|
| Stock-Based Compensation |
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 |
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.
|
| Income Taxes |
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 10% of its after-tax profit based
on PRC accounting standards each year to its general reserves until the accumulative amount of such reserves reaches 50% of its registered
capital. These reserves are not distributable as cash dividends. As of March 31, 2023, our PRC subsidiaries
had an aggregate retained deficit of approximately RMB 269.46 million (US$39.21million) under PRC GAAP. With respect to retained earnings
accrued after such date, our Board of Directors may declare dividends after taking into account our operations, earnings, financial condition,
cash requirements and availability and other factors as it may deem relevant at such time. Any declaration and payment, as well as the
amount, of dividends will be subject to our By-Laws, charter and applicable Chinese and U.S. state and federal laws and regulations,
including the approval from the shareholders of each subsidiary which intends to declare such dividends, if applicable.
|
| Value-added Tax |
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 |
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 |
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. The following table outlines the currency
exchange rates that were used in creating the consolidated financial statements in this report:
| | |
March
31,
2023 | | |
March
31,
2022 | | |
March
31,
2021 | |
| Period-end spot rate | |
US$1=RMB 6.8717 | | |
US$1=RMB 6.3482 | | |
US$1=RMB 6.5713 | |
| Average rate | |
US$1=RMB 6.8855 | | |
US$1=RMB 6.4083 | | |
US$1=RMB 6.7960 | |
|
| Comprehensive Income |
Comprehensive Income Comprehensive income includes net income and
foreign currency translation adjustments and is reported in the consolidated statements of operation and other comprehensive (loss)/
income.
|
| Segment Reporting |
Segment Reporting The Company uses the “management approach”
in determining reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s
chief operating decision maker (“CODM”) for making operating decisions and assessing performance as the source for determining
the Company’s reportable segments. The Company’s CODM has been identified as the chief executive officer of the Company who
reviews financial information of separate operating segments based on U.S. GAAP. In the year ended March 31, 2023, the CODM reviews financial
information analyzed by customer, which only presented at the gross profit level with no allocation of operating expenses. Thus, the
Company determined that it operates in four operating segments: (1) Healthcare products; (2) Automobiles; (3) Online store; and (4) Internet
information and advertising service. The Company’s reportable segments are strategic business units that offer different products
and services. They are managed separately because each business requires different marketing strategies. As the Company’s long-lived assets are
substantially all located in the PRC and all of the Company’s revenue and expense are derived from within the PRC, no geographical
segments are presented.
|
| Concentration of Risks |
Concentration of Risks Exchange Rate Risks The Company operates in China, which may give
rise to significant foreign currency risks from fluctuations and the degree of volatility of foreign exchange rates between the US$ and
the RMB. As of March 31, 2023 and 2022, cash and cash equivalents of $1,825,187 (RMB 12,542,139) and $19,571,668 (RMB 124,244,865), respectively,
is denominated in RMB and is held in PRC. 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.
|
| Risks and Uncertainties |
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 |
Related Parties The Company accounts for related party transactions
in accordance with ASC 850 (“Related Party Disclosures”). A party is considered to be related to the Company if the party
directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company.
Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of
the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence
the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing
its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties
or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one
or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
|
| Recent Accounting Pronouncements |
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. 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.
|