PAVS 20-F
Paranovus Entertainment Technology Ltd. (PAVS)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
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
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:
(Exact name of Registrant as specified in its charter) |
N/A
(Translation of the Registrant’s name into English)
(Jurisdiction of incorporation or organization)
(Address of principal executive offices)
Telephone: +1
Email:
(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 |
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| Name of Each Exchange on Which Registered |
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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, 2026 were approximately
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes ☐
If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.
Yes ☐
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ | Emerging growth company |
If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards† provided pursuant to Section 13(a) of the Exchange Act. ☐
† The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive- based compensation received by any of the registrant’s executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:
☒ | ☐ | International Financial Reporting Standards as issued by the International Accounting Standards Board | ☐ | Other |
If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow: Item 17 ☐ Item 18 ☐
If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
TABLE OF CONTENTS
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MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS |
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PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS |
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DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTIONS |
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INTRODUCTORY NOTES
Unless otherwise indicated or the context otherwise requires in this annual report:
| · | “2lab3” refer to 2lab3 Inc., a Delaware corporation which is wholly owned by the Company; |
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| · | “China” or the “PRC” refers to the People’s Republic of China, including Hong Kong Special Administrative Region and the Macau Special Administrative Region, unless referencing specific laws and regulations adopted by the PRC and other legal or tax matters only applicable to mainland China, and excluding, for the purposes of this annual report only, Taiwan; “PRC subsidiaries” and “PRC entities” refer to entities established in accordance with PRC laws and regulations; |
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| · | “Class A Ordinary Shares” refer to the Class A ordinary shares of the Company, par value $0.000012 each; |
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| · | “Class B Ordinary Shares” refer to the Class B ordinary shares of the Company, par value $0.000012 each; |
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| · | “Fujian Happiness” refers to Fujian Happiness Biotech Co., Limited, a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Happiness Fuzhou; |
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| · | “Happiness Hong Kong” refers to Happiness Holding Group Limited (formerly known as Happiness Biology Technology Group Limited), a Hong Kong limited liability company organized under the laws of Hong Kong and a wholly-owned subsidiary of Happiness Development; |
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| · | “Happiness Fuzhou” refers to Happiness (Fuzhou) E-commerce Co., Ltd,, formerly known as Happiness (Nanping) Biotech Co., Limited (“Happiness Nanping”), a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Happiness Hong Kong; |
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| · | “Happy Buy” refers to Happy Buy (Fujian) Internet Technology Co., Limited, a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Happiness Fuzhou; |
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| · | “PAVS”, “Paranovus”, or “the Company” refer to Paranovus Entertainment Technology Ltd. (formerly known as “Happiness Development Group Limited”), an exempted company registered in the Cayman Islands with limited liability; |
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| · | “Paranovus Hong Kong” refers to Paranovus Entertainment Technology Limited, a limited liability company established under the laws of Hong Kong and a wholly owned subsidiary of PAVS; |
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| · | “Paranovus PRC” refers to Hainan Paranovus Entertainment Technology Co., Ltd., a limited liability company organized under the laws of the PRC and a wholly-owned subsidiary of Paranovus Hong Kong; |
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| · | “BW” refers to Bomie Wookoo Inc, a corporation organized under the laws of New York, a 51% subsidiary controlled by PAVS; |
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| · | “RMB” and “Renminbi” refer to the legal currency of China; |
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| · | “Shunchang Happiness” refers to Shunchang Happiness Nutraceutical Co., Ltd, a 100% subsidiary of “Fujian Happiness”; |
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| · | “Taochejun,” refers to Taochejun (Fujian) Auto Sales Co., Limited., a 51% subsidiary controlled by Happiness Fuzhou; |
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| · | “US$,” “U.S. dollars,” “$” and “dollars” refer to the legal currency of the United States; and |
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| · | “we,” “us,” “our company” and “our” refer to Paranovus Entertainment Technology Ltd. and its consolidated subsidiaries. |
Names of certain companies provided in this annual report are translated or transliterated from their original Chinese legal names.
All shares and per-share amounts are retroactively adjusted to reflect (i) the 1-for-100 reverse split effective on June 29, 2026 and (ii) the 1-for-12 reverse split effective on March 31, 2026), unless otherwise specified.
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FORWARD-LOOKING STATEMENTS
This annual report on Form 20-F contains forward-looking statements that reflect our current expectations and views of future events. These statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by terminology such as “may,” “will,” “expect,” “anticipate,” “aim,” “estimate,” “intend,” “plan,” “believe,” “is/are likely to,” “potential,” “continue” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include, but are not limited to:
| · | our goals and strategies; |
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| · | our future business development, financial condition and results of operations; |
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| · | our expectations regarding the market for our products; |
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| · | our expectations regarding demand for and market acceptance of our products; |
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| · | our plans to establish partnerships and develop new businesses; |
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| · | our plans to invest in our business; |
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| · | our relationships with our partners; |
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| · | our future business development, results of operations and financial condition; |
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| · | market conditions affecting our equity capital; |
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| · | change in macroeconomic conditions; |
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| · | competition in our industry; and |
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| · | relevant government policies and regulations relating to our industry. |
We would like to caution you not to place undue reliance on these forward-looking statements and you should read these statements in conjunction with the risk factors disclosed in “Item 3. Key Information—D. Key Information—Risk Factors.” Those risks are not exhaustive. We operate in an evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law. You should read this annual report and the documents that we reference in this annual report completely and with the understanding that our actual future results may be materially different from what we expect.
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PART I
ITEM 1. IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS
Not applicable.
ITEM 2. OFFER STATISTICS AND EXPECTED TIMETABLE
Not applicable.
ITEM 3. KEY INFORMATION
A. [Reserved]
B. Capitalization and indebtedness.
Not applicable.
C. Reasons for the offer and use of proceeds.
Not applicable.
D. Risk factors.
An investment in our ordinary shares involves a high degree of risk. You should carefully consider the risks and uncertainties described below together with all other information contained in this annual report, including the matters discussed under the headings “Forward-Looking Statements” and “Operating and Financial Review and Prospects” before you decide to invest in our ordinary shares. We are a holding company with substantial operations in China and are subject to a legal and regulatory environment that in many respects differs from the United States. If any of the following risks, or any other risks and uncertainties that are not presently foreseeable to us, actually occur, our business, financial condition, results of operations, liquidity and our future growth prospects could be materially and adversely affected.
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Summary of Risk Factors
Investing in our company involves significant risks. You should carefully consider all of the information in this annual report before making an investment in our company. These risks include but not limited to the following:
Risk factors relating to our business include but not limited to the following:
| · | We face risks related to nature disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, in particular, the current coronavirus pandemic, terrorist acts and global political events. See a more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Our failure to compete effectively could adversely affect our market share, revenues and growth prospects. See a more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations. See a more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | If we are unable to provide superior user experience, we may not be able to maintain or grow our user base or keep our users highly engaged. See a more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | BW has a limited operating history and face significant challenges in an emerging industry. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | BW’s business depends substantially on the continuing efforts of its executive officers, and its business may be severely disrupted if it loses their services. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Global economic conditions could materially and adversely affect BW’s business, financial condition, operating results and prospects. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | BW may be unable to obtain financing for its working capital needs on favorable terms. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | BW may be subject to product liability claims for products or brands that are marketed. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Seasonal fluctuations in e-commerce activity could have a material impact on the revenue, cash flow and operating results. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | BW rely on a number of internet platforms to conduct their e-commerce and e-commerce solution businesses. However, operators of the platforms may curtail or inhibit BW’s ability to use the platforms, or there may be material disruption of the platforms. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Changes in BW’s clients’ marketing strategies, advertising and e-commerce budgets, or allocation of spending to TikTok could adversely affect our business, results of operations and financial condition. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | The TikTok-Driven E-Commerce business is heavily dependent on TikTok’s operation in the U.S. See more detailed discussion of this risk factor on page 1 of this annual report. |
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Risk factors relating to our Class A Ordinary Shares include but not limited to the following:
| · | Our Memorandum and Articles of Association afford less protection to our shareholders and may discourage claims and limit shareholders’ ability to bring claims. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Certain judgments obtained against us by our shareholders may not be enforceable. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | We are an emerging growth company within the meaning of the Securities Act and may take advantage of certain reduced reporting requirements. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | We qualify as a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that permit less detailed and less frequent reporting than that of a U.S. domestic public company. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our ordinary shares. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | We may be exposed to potential risks relating to our internal controls over financial reporting. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | The requirements associated with being a U.S. public company may strain our resources and divert management’s attention. See more detailed discussion of this risk factor on page 1 of this annual report. |
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| · | Our Class A Ordinary Shares are very thinly traded, and there can be no assurance that there will be an active market for our Class A Ordinary Shares in the future. See more detailed discussion of this risk factor on page 1 of this annual report. |
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Risks related to Our Business
We have an evolving business model with still untested growth initiatives.
We have an evolving business model and intend to implement new strategies to grow our business in the future. On March 25, 2025, we closed an acquisition transaction of 51% equity interests of BW for a total consideration of $22,440,000 in cash. BW operates through its two wholly owned subsidiaries, Bomie US LLC in New Jersey and WooKoo LLC in Texas, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers. This acquisition aligns with the Company’s strategy to expand into marketing-commerce field. By securing a majority interest in BW, the Company aims to capitalize on the growing interests demand for TikTok-driven e-commerce and related solutions. There can be no assurance that we will be successful in developing new product categories or in entering new specialty markets or in implementing any other growth strategies. Similarly, there can be no assurance that we already have or will be able to obtain or retain any employees, consultants or other resources with any specialized skills or relationships to successfully implement our strategies for our business in the future.
We face risks related to nature disasters (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, in particular, the current coronavirus pandemic, terrorist acts and global political events, all of which could result in adverse effects to our business and financial performance.
Our business and operations may be adversely affected by natural disasters, such as hurricanes, fires, floods and earthquakes, whether or not caused or exacerbated by climate change, as well as unusually severe or prolonged weather conditions, epidemics or pandemics and other public health emergencies, terrorist acts, geopolitical conflicts and other disruptive events beyond our control. The occurrence of one or more natural disasters, such as hurricanes, fires, floods and earthquakes (whether or not caused by climate change), unusually adverse weather conditions, pandemic outbreaks, terrorist acts or disruptive global political events, could adversely affect our operations and financial performance.
The extent to which any such event may affect our business will depend on a number of factors that may be difficult to predict, including the location, severity and duration of the event, governmental and private-sector responses, and the extent of any resulting disruptions to our operations, supply chain and the broader economy. Any of these effects could materially and adversely affect our business, financial condition and results of operations.
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We may not effectively manage our growth, which could materially harm our business.
We expect that our business will continue to grow, which may place a significant strain on our management, personnel, systems and resources. We must continue to improve our operational and financial systems and managerial controls and procedures, and we will need to continue to expand, train and manage our technology and workforce. We must also maintain close coordination among our compliance, accounting, finance, marketing and sales organizations. We cannot assure you that we will manage our growth effectively. If we fail to do so, our business could be materially harmed.
Our continued growth will require an increased investment by us in technology, facilities, personnel and financial and management systems and controls. It also will require expansion of our procedures for monitoring and assuring our compliance with applicable regulations, and we will need to integrate, train and manage a growing employee base. The expansion of our existing businesses, any expansion into new businesses and the resulting growth of our employee base will increase our need for internal audit and monitoring processes that are more extensive and broader in scope than those we have historically required. Further, unless our growth results in an increase in our revenues that is proportionate to the increase in our costs associated with this growth, our operating margins and profitability will be adversely affected.
We are dependent on certain key personnel and loss of these key personnel could have a material adverse effect on our business, financial condition and results of operations.
Our success is, to a certain extent, attributable to the management, sales and marketing, and research and development expertise of key personnel. We are dependent upon the services of experienced personal and technicians, there can be no assurance that we will be able to recruit and retain qualified management team and skillful labor, due to labor market competition. The loss of these officers could have a material adverse effect upon our business, financial condition, and results of operations.
We may not be able to hire and retain qualified personnel to support our growth and if we are unable to retain or hire these personnel in the future, our ability to improve our products and implement our business objectives could be adversely affected.
We must attract, recruit and retain a sizeable workforce of technically competent employees. Competition for senior management and personnel is intense. We may not be able to retain the services of our senior executives or personnel, or attract and retain high-quality senior executives or personnel in the future. This failure could materially and adversely affect our future growth and financial condition.
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If we fail to increase our brands’ recognition, we may face difficulty in obtaining new customers.
We believe that maintaining and enhancing our brand recognition in a cost-effective manner outside of that market is critical to achieving widespread acceptance of our current and future products and services and is an important element in our effort to increase our customer base. Successful promotion of our brand will depend largely on our ability to maintain a sizeable and active customer base, our marketing efforts and ability to provide reliable and useful products and services at competitive prices. Brand promotion activities may not yield increased revenue, and even if they do, any increased revenue may not offset the expenses we will incur in building our brand. If we fail to successfully promote and maintain our brands, or if we incur substantial expenses in an unsuccessful attempt to promote and maintain our brand, we may fail to attract enough new customers or retain our existing customers to the extent necessary to realize a sufficient return on our brand-building efforts, in which case our business, operating results and financial condition, would be materially adversely affected.
We rely extensively on information technology systems, and cybersecurity incidents could adversely affect us.
We rely on information technology systems and infrastructure to connect with clients, people and others, and to store and process business and financial data. Increased cybersecurity threats and attacks, including computer viruses, hacking and ransomware attacks, are constantly evolving and pose a risk to our systems and networks. Security breaches, improper use of our systems and unauthorized access to our data and information by employees and others may pose a risk that sensitive data may be exposed to unauthorized persons or to the public. We also have access to sensitive or personal data or information that is subject to privacy laws and regulations. Our systems and processes may be unable to prevent material security breaches, and such breaches could adversely affect our business, results of operations, financial position and reputation.
We do not own the trademarks associated with the Heyviva brand in the European Union or the United Kingdom, which may limit our ability to expand the brand into those markets and could expose us to risks arising from divided ownership of the brand.
In connection with our acquisition of certain assets relating to the Heyviva brand in August 2026, we acquired the U.S. trademarks and certain other intellectual property and assets associated with the brand. However, the acquisition did not include certain trademarks, trademark registrations and pending trademark applications relating to the brand in the European Union and the United Kingdom (the “EU/UK Marks”), which continue to be owned by the seller. Accordingly, although we currently intend to operate the Heyviva business primarily in the United States and do not have current plans to expand the business into the European Union or the United Kingdom, we do not own the EU/UK Marks or the goodwill associated with such marks in those jurisdictions.
Although the asset purchase agreement provides us with certain contractual protections with respect to the EU/UK Marks, including restrictions on the seller’s use of the EU/UK Marks outside the European Union and the United Kingdom and a right of first refusal for a period of seven years following the closing with respect to certain proposed transfers or exclusive licenses of the EU/UK Marks, these protections do not provide us with ownership of, or an unconditional right to acquire, the EU/UK Marks. We therefore may be required to expend additional capital to acquire rights to the EU/UK Marks if we determine to expand the Heyviva brand into the European Union or the United Kingdom, and we may be unable or unwilling to acquire such rights on commercially acceptable terms.
In addition, because the Heyviva brand is owned and may be used by different parties in different jurisdictions, we may face challenges in maintaining a consistent global brand identity and addressing consumer confusion, digital overlap or other cross-border issues. While the asset purchase agreement contains certain brand quality, territorial use and cooperation obligations intended to mitigate these risks, such contractual protections may not prevent all disputes, consumer confusion or adverse effects on our brand, and enforcing these contractual rights could require us to incur significant costs and divert management resources.
If we are unable to obtain sufficient rights to the Heyviva brand in jurisdictions in which we seek to operate, or if disputes or other issues arise from the divided ownership of the brand, our ability to expand our business internationally and the value of the Heyviva brand could be adversely affected, which could have a material adverse effect on our business, results of operations and prospects.
BW’s business is heavily dependent on TikTok’s operation in the U.S.
By securing a majority interest in BW, we expand into marketing-commerce field and capitalize on the growing interests demand for TikTok-driven e-commerce and related solutions. BW operates through its two wholly owned subsidiaries, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers. This business currently relies heavily on TikTok as its primary sales and marketing platform, and any disruptions, regulatory restrictions, or changes to the platform’s operations could have a material adverse effect on the business, financial condition, and results of operations.
Furthermore, these newer advertising and e-commerce channels often evolve rapidly and can be subject to disruptions beyond our control. For example, lawmakers in the United States, Europe, and Canada have intensified efforts to restrict or regulate access to TikTok due to national security concerns. On April 24, 2024, President Biden signed a bill requiring ByteDance to divest TikTok by January 19, 2025, or face a potential ban in the United States. Although ByteDance did not sell TikTok by the deadline, on January 20, 2025, President Trump issued an executive action delaying the enforcement of the TikTok ban for 75 days. Additionally, several U.S. states, governmental agencies, and institutions have raised similar concerns, leading to localized restrictions and prohibitions on TikTok’s usage.
As laws and regulations governing digital platforms continue to evolve, any restrictions or outright bans on TikTok could significantly impact BW’s ability to conduct business, as BW relies on the platform for product sales, advertising, and customer engagement. Furthermore, failure by BW, its employees, or third-party partners to comply with emerging regulations could expose it to regulatory investigations, legal liabilities, fines, or other penalties. Any sudden loss of access to TikTok or limitations on its functionality could require BW to rapidly shift to alternative sales channels, which may not be as effective or scalable, and could negatively affect BW’s revenues, customer acquisition, and overall growth strategy.
Given BW’s reliance on TikTok, any regulatory uncertainty, access restrictions, or platform policy changes could materially and adversely affect BW’s ability to operate and grow BW’s business.
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BW has a limited operating history and face significant challenges in an emerging industry.
BW has a limited operating history which makes it difficult to predict its results of operations. In addition, BW’s results of operations may fluctuate from quarter to quarter as a result of the nature of its business and a number of factors, many of which are outside of BW’s control and may be difficult to predict. Some additional factors that affect BW’s results include, but are not limited to:
| · | the level of demand for BW’s services and solutions; |
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| · | BW’s ability to retain existing or add new creators and brands; |
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| · | BW’s ability to successfully integrate companies and assets it has acquired and in the future may acquire into its business; |
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| · | the timing and success of new features, integrations, capabilities and enhancements by BW to its products or by its competitors to their products; |
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| · | changes in the competitive landscape of BW’s market; |
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| · | BW’s ability to accept and use of any new technology or marketing platform; |
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| · | errors in BW’s forecasting of the demand, which could lead to lower revenue, increased costs or both; |
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| · | the amount and timing of operating expenses and capital expenditures, as well as entry into operating leases, that BW may incur to maintain and expand its business and operations and to remain competitive; |
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| · | the timing of expenses and recognition of revenue; |
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| · | security breaches, technical difficulties or interruptions resulting in service level agreement credits; |
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| · | adverse litigation judgments, other dispute-related settlement payments or other litigation-related costs; |
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| · | regulatory fines; |
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| · | changes in, and continuing uncertainty in relation to, the legislative or regulatory environment; |
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| · | legal and regulatory compliance costs in new and existing markets; |
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| · | the number of new employees added and employee turnover; |
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| · | the timing of the grant or vesting or settlement of equity awards to employees, directors or consultants; |
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| · | the availability of content for licensing for use by creators; |
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| · | pricing pressure as a result of competition or otherwise; |
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| · | costs and timing of expenses related to the acquisition of businesses, talent, technologies or intellectual property, including potentially significant amortization costs and possible write-downs; and |
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| · | general economic conditions in either domestic or international markets, including geopolitical uncertainty and instability. |
Any one or more of the factors above may result in significant fluctuations in BW’s quarterly results of operations. You should not rely on BW’s past results as an indicator of its future performance. The variability and unpredictability of its quarterly results of operations or other operating metrics could result in its failure to meet its expectations or those of analysts that cover BW or investors with respect to revenue or other key metrics for a particular period. If BW fails to meet or exceed such expectations for these or any other reasons, the market price of shares could fall, and BW could face costly lawsuits, including securities class action suits.
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BW depends on the performance and reputation of key opinion leaders (KOLs) and influencers, and its inability to attract, retain or effectively manage these individuals could materially and adversely affect its business, financial condition and results of operations.
BW relies on the ability of KOLs and influencers to engage audiences and drive sales through short-form videos and livestreaming on platforms such as TikTok. BW collaborates with KOLs in both our self-operated TikTok shops and our e-commerce enablement services for third-party merchants. The effectiveness of these collaborations directly affects consumer traffic, brand visibility, and gross merchandise value (GMV), which in turn impacts the service fees and commission income BW earns.
BW’s continued success depends on its ability to identify, attract and retain KOLs with strong content creation capabilities and established followings. However, there is intense competition for high-performing influencers, and we may not be able to retain them on commercially reasonable terms or at all. In addition, shifts in consumer preferences, platform algorithm changes, or reputational issues involving individual KOLs, such as public controversies, breaches of contract, or failure to comply with platform policies, which could result in the underperformance of influencer-driven campaigns, negatively affecting BW’s financial performance.
If BW is unable to maintain strong relationships with a network of high-performing KOLs or fail to effectively manage influencer-led campaigns, its ability to deliver value to both its own e-commerce stores and its merchant clients may be materially and adversely affected.
BW operates in highly competitive and rapidly evolving markets, and intense competition in the social commerce and e-commerce enablement sectors could adversely affect its business, financial condition, and results of operations.
BW faces intense competition across multiple aspects of its business, including its own TikTok shops and its service offerings to third-party merchants. The social commerce industry is rapidly evolving and characterized by low barriers to entry, frequent innovation, and shifting consumer and platform dynamics. As a result, BW competes with a wide range of players, including other social commerce retailers, multi-channel networks (MCNs), livestreaming agencies, influencer marketing firms, and digital advertising solution providers.
In its own product sales channels, BW competes for consumer attention, traffic, and conversion with both established brands and individual content creators who manage their own online stores. Success in this environment depends heavily on the ability to produce engaging content, manage effective livestreams, and respond quickly to evolving trends. BW may face pressure to reduce pricing or increase promotional activity, which could erode its margins or require higher marketing expenditure.
In its e-commerce enablement services, BW competes for merchant clients with a growing number of third-party service providers offering livestreaming support, KOL engagement, advertising placement, and analytics tools. Many of these competitors may have longer operating histories, greater financial resources, deeper relationships with platforms, or stronger technological capabilities. Some merchants may also choose to develop in-house capabilities to manage content, KOLs, and digital marketing, reducing the demand for outsourced services.
In addition, platform operators such as TikTok may offer their own native marketing and commerce tools to brands, potentially disintermediating third-party service providers like BW. As competition intensifies, BW may be required to lower its pricing, offer more favorable commercial terms, or increase investment in talent, tools, and content production—each of which may adversely impact its financial performance.
If BW fails to compete effectively across its business lines, or is unable to differentiate its services and maintain strong relationships with merchants, KOLs, and platform partners, its market position, revenue growth, and profitability could be materially and adversely affected.
BW’s operations may be adversely affected by evolving regulations related to digital advertising, data privacy, and influencer marketing.
BW engages in various activities that are subject to increasing regulatory scrutiny, including livestreaming sales, digital advertising placements, use of third-party influencers (KOLs), and data analytics services. Governments and regulatory authorities in BW’s key markets, including the United States, have introduced or are considering new laws and regulations aimed at strengthening consumer protection, regulating influencer disclosures, ensuring transparency in online advertising, and protecting personal data.
For example, changes to rules requiring clearer disclosure of paid promotions, restrictions on ad targeting or algorithmic content distribution, or enhanced obligations around data collection and usage could affect how BW structures its services and interacts with consumers and merchant clients. Regulatory developments may also impose new compliance burdens on BW’s clients, which could indirectly affect demand for BW’s enablement services.
Because the regulatory landscape in these areas is evolving rapidly and may vary across jurisdictions, BW may be required to adapt its operations or technology on short notice, increase its compliance efforts, or face uncertainty when entering new markets. Failure to comply with applicable regulations, or delays in responding to regulatory changes, could result in reputational harm, fines, or restrictions on BW’s business activities.
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BW’s business depends substantially on the continuing efforts of its executive officers, and its business may be severely disrupted if it loses their services.
BW’s future success depends substantially on the continued services of its executive officers. BW does not currently maintain key man life insurance on any of its executive officers. If any of its executive officers are unable or unwilling to continue in their present positions, it may not be able to replace them readily, if at all. Therefore, BW’s business may be severely disrupted, and it may incur additional expenses to recruit and retain new officers. In addition, if any of BW’s executive officers joins a competitor or forms a competing company, its business, financial condition, operating results or prospects could be harmed.
Global economic conditions could materially and adversely affect BW’s business, financial condition, operating results and prospects.
The global macroeconomic environment is facing challenges, and the uncertain state of the global economy continues to impact businesses around the world, including as a result of COVID-19. If global economic and financial market conditions do not improve or further deteriorate, BW’s business, financial condition, operating results and prospects may be materially and adversely affected.
BW may be unable to obtain financing for its working capital needs on favorable terms.
BW’s success and growth are largely dependent upon having adequate working capital to fund its business objectives and planned growth on favorable terms. BW cannot assure you that it will be able to generate cash flow or that it will be able to borrow funds in amounts sufficient to enable it to meet its working capital requirements.
Seasonal fluctuations in e-commerce activity could have a material impact on the revenue, cash flow and operating results.
BW’s business is subject to seasonal fluctuations that are generally consistent with seasonality in the U.S. e-commerce industry. Consumer spending and e-commerce activity generally increase during the fourth quarter of the calendar year as a result of the holiday shopping season. Accordingly, BW’s clients may increase their marketing and advertising expenditures during this period to capitalize on higher levels of consumer demand and e-commerce activity, which may result in higher demand for BW’s e-commerce services and sales, and higher revenue during the fourth quarter compared to other periods of the year.
These seasonal trends may cause our revenue, cash flows, results of operations and other key operating and performance metrics to fluctuate from quarter to quarter. In addition, periods of increased e-commerce activity may result in greater competition for products inventory, advertising, and other marketing resources and may increase the costs associated with providing our services and with our product sales. Accordingly, our results for any particular period may not be indicative of the results we may achieve in other periods or for a full fiscal year.
BW may be subject to product liability claims for products or brands that are marketed.
As part of BW’s e-commerce solution services, they provide integrated marketing services for products or brands. If any product or brand marketed by BW were to cause personal injury or injury to property, the injured party or parties could bring claims against BW. BW could also be subject to claims that consumers were harmed due to their reliance on BW’s promotion of products or brands. If a claim were brought against BW, regardless of its merit, BW’s business and the reputation of their services may be adversely affected. If a claim were to become successful, BW may have the right under the applicable laws, rules, and regulations to seek indemnification from the relevant manufacturers or third-party brands or merchants for any compensation that BW may be required to pay to consumers in connection with product liability, personal injury, or a similar claim, if such relevant party is found liable. However, there can be no assurance that BW will be able to recover all or any amounts from these parties. Any product liability claim, regardless of its merit or success, could result in the expenditure of funds and management time and adverse publicity and could have a negative impact on BW’s reputation, business, financial condition, and results of operations.
BW rely on a number of internet platforms to conduct their e-commerce and e-commerce solution businesses. However, operators of the platforms may curtail or inhibit BW’s ability to use the platforms, or there may be material disruption of the platforms.
BW rely on various internet platforms and social media networks to distribute marketing content. While these platforms are generally open to all users, they have no obligation to allow BW to use their platforms in the long term. The platform operators may decide at any time to curtail or inhibit BW’s ability to use such platforms if BW breach the terms of use of such platforms or for any other reason. Additionally, these platforms may increase their fees or make changes to their respective business models, terms of use, policies, or systems, and those changes could impair or restrict BW’s ability to post content. Further, platforms could cease operations unexpectedly due to a number of events, including interruptions in telecommunication services, computer viruses, and security breaches. Any of the above could reduce BW’s ability to post marketing content, drive user traffic, and reach target audiences, and thus impair BW’s ability to serve their customers, any of which could affect their ability to achieve profitability or have a material adverse effect on their business, financial condition and results of operations.
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Changes in BW’s clients’ marketing strategies, advertising and e-commerce budgets, or allocation of spending to TikTok could adversely affect our business, results of operations and financial condition.
Our revenue depends significantly on BW’s clients’ marketing and e-commerce activities and their willingness to allocate a portion of their advertising and e-commerce budgets to TikTok and the services BW provides. BW’s clients determine their marketing strategies and budgets based on a variety of factors, including their business performance, marketing objectives, consumer preferences, expected returns on marketing expenditures, general economic conditions and the relative effectiveness and popularity of available sales and marketing channels. These factors are generally outside of our control.
BW’s clients may reduce their overall marketing or e-commerce expenditures, reallocate their budgets among different marketing channels or platforms, or reduce the proportion of their budgets allocated to TikTok. In particular, if BW’s clients perceive TikTok to be less effective, attractive or important as a sales or marketing channel, or if alternative social media, e-commerce or digital advertising platforms become more attractive to our clients, they may reduce their spending on TikTok-related marketing activities and, consequently, their use of BW’s e-commerce solution services. Even if BW maintains its relationships with such clients, reductions or reallocations in their marketing budgets could result in lower demand for BW’s e-commerce solution services and reduced revenue from those clients.
Our ability to sustain or increase our revenue therefore depends, in part, on BW’s ability to demonstrate the value and effectiveness of its services, adapt to changes in its clients’ marketing strategies and spending priorities, and encourage existing and prospective clients to allocate sufficient resources to the sales and marketing channels that it supports. We cannot assure you that BW’s clients will maintain or increase their marketing expenditures, continue to allocate the same or a greater proportion of their budgets to TikTok, or maintain their current level of spending on BW’s services. If a significant number of BW’s clients reduce their marketing budgets, shift spending away from TikTok or otherwise reduce their use of BW’s services, our business, financial condition and results of operations could be materially and adversely affected.
Risks Related to Our Class A Ordinary Shares
There can be no assurance that we will be able to comply with the continued listing standards of Nasdaq. If we are not able to comply with the applicable continued listing requirements or standards of the Nasdaq Capital Markets, Nasdaq could delist our Class A Ordinary Shares.
The Company’s Class A Ordinary Shares are currently listed on the Nasdaq Capital Market. In order to maintain that listing, we must satisfy minimum financial and other continued listing requirements and standards, including those regarding minimum stockholders’ equity, minimum market value, minimum share price, and certain corporate governance requirements.
If Nasdaq delists the Class A Ordinary Shares from trading on its exchange for failure to meet the listing standards, we and our shareholders could face significant material adverse consequences including:
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| · | a determination that the Class A Ordinary Shares is a “penny stock” which will require brokers trading in the Class A Ordinary Shares to adhere to more stringent rules and possibly result in a reduced level of trading activity in the secondary trading market for our securities; |
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The National Securities Markets Improvement Act of 1996, which is a federal statute, prevents or preempts the states from regulating the sale of certain securities, which are referred to as “covered securities.” To the extent the Class A Ordinary Shares are listed on Nasdaq, they are covered securities. Although the states are preempted from regulating the sale of our securities, the federal statute does allow the states to investigate companies if there is a suspicion of fraud, and, if there is a finding of fraudulent activity, then the states can regulate or bar the sale of covered securities in a particular case. Further, if we were no longer listed on Nasdaq, our securities would not be covered securities and we would be subject to regulation in each state in which we offer our securities.
Upon delisting from Nasdaq, our Class A Ordinary Shares may be traded, if at all in the over-the-counter inter-dealer quotation system, more commonly known as the OTC. OTC transactions involve risks in addition to those associated with transactions in securities traded on securities exchanges such as Nasdaq. Many OTC stocks trade less frequently and in smaller volumes than exchange-listed Stocks. Accordingly, our stock would be less liquid than it would be otherwise. Also, the values of OTC stocks are often more volatile than exchange-listed stocks. Additionally, institutional investors are often prohibited from investing in OTC stocks, and it might be more challenging to raise capital when needed.
In addition, if our Class A Ordinary Shares are delisted, your ability to transfer or sell your Class A Ordinary Shares may be limited and the value of those securities will be materially adversely affected.
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Our Memorandum and Articles of Association afford less protection to our shareholders and may discourage claims and limit shareholders’ ability to bring claims.
Our shareholders could have more difficulty protecting their interests than would shareholders of a corporation incorporated in a jurisdiction of the United States. As a Cayman Islands company, we are governed by our memorandum and articles of association and Cayman Islands Companies Law (as amended). The provisions of the Cayman Islands Companies Act, which applies to us, differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including the provisions relating to shareholder lawsuits.
Our amended and restated memorandum and articles of association contain a provision by virtue of which we and our shareholders waive any claim or right of action that they have, both individually and on our behalf, against any director or officer in relation to any action or failure to take action by such director or officer, except in respect of any fraud or dishonesty of such director or officer. Class actions and derivative actions generally are available to shareholders under Delaware law for, among other things, breach of fiduciary duty, corporate waste and actions not taken in accordance with applicable law. In such actions, the court has discretion to permit the winning party to recover attorneys’ fees incurred in connection with such action. Although this provision does not preclude our shareholders to bring federal securities claims against us, it may be difficult or impossible for our shareholders to bring an action against us or against any director or officer in the United States in the event that our shareholders believe that their rights have been infringed under the United States federal securities laws or otherwise. Even if the Shareholder are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
As a result of these differences, investors could have more difficulty protecting their interests than would shareholders of a corporation incorporated in the United States.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are a Cayman Islands company. It may be difficult or impossible for you to bring an action against us in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands and of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
In addition, judgment of United States courts will not be directly enforced in Hong Kong. There are currently no treaties or other arrangements providing for reciprocal enforcement of foreign judgments between Hong Kong and the United States. There is uncertainty as to whether the courts of Hong Kong would (i) recognize or enforce judgments of United States courts obtained against us or our directors or officers predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States or (ii) entertain original actions brought in Hong Kong against us or our directors or officers predicated upon the securities laws of the United States or any state in the United States. A judgment of a court in the United States predicated upon U.S. federal or state securities laws may be enforced in Hong Kong at common law by bringing an action in a Hong Kong court on that judgment for the amount due thereunder, and then seeking summary judgment on the strength of the foreign judgment, provided that the foreign judgment, among other things, is (i) for a debt or a definite sum of money (not being taxes or similar charges to a foreign government taxing authority or a fine or other penalty) and (ii) final and conclusive on the merits of the claim, but not otherwise. Such a judgment may not, in any event, be so enforced in Hong Kong if (a) it was obtained by fraud; (b) the proceedings in which the judgment was obtained were opposed to natural justice; (c) its enforcement or recognition would be contrary to the public policy of Hong Kong; (d) the court of the United States was not jurisdictionally competent; or (e) the judgment was in conflict with a prior Hong Kong judgment. Hong Kong has no arrangement for the reciprocal enforcement of judgments with the United States. As a result, there is uncertainty as to the enforceability in Hong Kong, in original actions or in actions for enforcement, of judgments of United States courts of civil liabilities predicated solely upon the federal securities laws of the United States or the securities laws of any State or territory within the United States.
We qualify as a foreign private issuer and, as a result, we are not subject to U.S. proxy rules and are subject to Exchange Act reporting obligations that permit less detailed and less frequent reporting than that of a U.S. domestic public company.
We report under the Exchange Act as a non-U.S. company with foreign private issuer status. Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the Exchange Act that are applicable to U.S. domestic public companies, including (i) the sections of the Exchange Act regulating the solicitation of proxies, consents or authorizations in respect of a security registered under the Exchange Act; (ii) the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and (iii) the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q containing unaudited financial and other specified information, or current reports on Form 8-K upon the occurrence of specified significant events. In addition, foreign private issuers are required to file their annual report on Form 20-F within four months after the end of each fiscal year, while U.S. domestic issuers that are accelerated filers are required to file their annual report on Form 10-K within 75 days after the end of each fiscal year. Foreign private issuers also are exempt from Regulation Fair Disclosure, aimed at preventing issuers from making selective disclosures of material information. As a result of the above, you may not have the same protections afforded to shareholders of companies that are not foreign private issuers.
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If we lose our status as a foreign private issuer, we would be required to comply with the Exchange Act reporting and other requirements applicable to U.S. domestic issuers, which are more detailed and extensive than the requirements for foreign private issuers. We may also be required to make changes in our corporate governance practices in accordance with various SEC and Nasdaq rules. The regulatory and compliance costs to us under U.S. securities laws if we are required to comply with the reporting requirements applicable to a U.S. domestic issuer may be significantly higher than the cost we would incur as a foreign private issuer. As a result, we expect that a loss of foreign private issuer status would increase our legal and financial compliance costs and would make some activities highly time consuming and costly. We also expect that if we were required to comply with the rules and regulations applicable to U.S. domestic issuers, it would make it more difficult and expensive for us to obtain and maintain directors’ and officers’ liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These rules and regulations could also make it more difficult for us to attract and retain qualified members of our board of directors.
As a foreign private issuer, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with corporate governance listing standards.
As a foreign private issuer, we are permitted to take advantage of certain provisions in the Nasdaq rules that allow us to follow our home country law for certain governance matters. Certain corporate governance practices in our home country, the Cayman Islands, may differ significantly from corporate governance listing standards. We choose to follow home country practice with respect to our corporate governance, therefore, our shareholders may be afforded less protection than they would otherwise enjoy under the Nasdaq corporate governance listing standards applicable to U.S. domestic issuers. See Item 16G “Corporate Governance”.
We may lose our foreign private issuer status in the future, which could result in significant additional costs and expenses.
As discussed above, we are a foreign private issuer, and therefore, we are not required to comply with all the periodic disclosure and current reporting requirements of the Exchange Act. The determination of foreign private issuer status is made annually on the last business day of an issuer’s most recently completed second fiscal quarter, and, accordingly, the next determination will be made with respect to us on September 30, 2026.
In the future, we would lose our foreign private issuer status if, among others, (1) more than 50% of our outstanding voting securities, which we intend to determine based on the voting power of our common shares and high voting shares on a combined basis are directly or indirectly held of record by U.S. residents and (2) a majority of our directors or executive officers are U.S. citizens or residents, more than 50% of our assets are located in the United States or our business is administered principally in the United States. If we lose our foreign private issuer status, we will be required to file with the SEC periodic reports and registration statements on U.S. domestic issuer forms including consolidated financial statements prepared under US GAAP, and which are more detailed and extensive than the forms available to a foreign private issuer. We will also have to mandatorily comply with U.S. federal proxy requirements . In addition, we will lose our ability to rely upon exemptions from certain corporate governance requirements under the listing rules of Nasdaq.
As a U.S. listed public company that is not a foreign private issuer, we would incur significant additional legal, accounting and other expenses that we would not incur as a foreign private issuer. These expenses would relate to, among other things, the obligation to present our financial information in accordance with U.S. GAAP in the future. Additionally, a loss of our foreign private issuer status would divert our management’s attention from other business concerns, which could have a material adverse effect on our business, financial condition, results of operations and prospects.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for U.S. federal income tax purposes for any taxable year, which could result in adverse U.S. federal income tax consequences to U.S. holders of our Class A Ordinary Shares.
A non-U.S. corporation will be a PFIC for any taxable year if either (1) at least 75% of its gross income for such year consists of certain types of “passive” income; or (2) at least 50% of the value of its assets (based on an average of the quarterly values of the assets) during such year is attributable to assets that produce passive income or are held for the production of passive income (the “asset test”). Based on our current and expected income and assets (taking into account the expected cash proceeds and our market capitalization), we do not presently expect to be a PFIC for the current taxable year or the foreseeable future. However, no assurance can be given in this regard because the determination of whether we are or will become a PFIC is a fact-intensive inquiry made on an annual basis that depends, in part, upon the composition of our income and assets. In addition, there can be no assurance that the Internal Revenue Service, or IRS, will agree with our conclusion or that the IRS would not successfully challenge our position. Fluctuations in the market price of our Class A Ordinary Shares may cause us to become a PFIC for the current or subsequent taxable years because the value of our assets for the purpose of the asset test may be determined by reference to the market price of our Class A Ordinary Shares. The composition of our income and assets may also be affected by how, and how quickly, we use our liquid assets and the cash raised in our initial public offering. If we were to be or become a PFIC for any taxable year during which a U.S. Holder holds our Class A Ordinary Shares, certain adverse U.S. federal income tax consequences could apply to such U.S. Holder. See “Taxation— Passive Foreign Investment Company Consequences.”
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The economic substance legislation of the Cayman Islands may adversely impact the Company or its operations.
The Cayman Islands, together with several other non-European Union jurisdictions, have introduced legislation aimed at addressing concerns raised by the Council of the European Union as to offshore structures engaged in certain activities which attract profits without real economic activity. With effect from January 1, 2019, the International Tax Co-operation (Economic Substance) Law, 2018 (the “ES Law”) and issued related Regulations and Guidance Notes came into force in the Cayman Islands introducing certain economic substance requirements for “relevant entities” which are engaged in certain “relevant activities,” which in the case of exempted companies incorporated before January 1, 2019, will apply in respect of financial years commencing July 1, 2019, onwards. A “relevant entity” includes an exempted company incorporated in the Cayman Islands; however, it does not include an entity that is tax resident outside the Cayman Islands. Accordingly, for so long as the Company is a tax resident outside the Cayman Islands, it is not required to satisfy the economic substance test. Although it is presently anticipated that the ES Law will have little material impact on the Company or its operations, as the legislation is new and remains subject to further clarification and interpretation it is not currently possible to ascertain the precise impact of these legislative changes on the Company.
We may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that we violated the Foreign Corrupt Practices Act or Chinese anti-corruption law could have a material adverse effect on our business.
We are subject to the Foreign Corrupt Practice Act, or FCPA, and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties by U.S. persons and issuers as defined by the statute for the purpose of obtaining or retaining business. Chinese anti-corruption law also strictly prohibits bribery of government officials. We have operations, agreements with third parties and make sales in China, where corruption may occur. Our activities in China create the risk of unauthorized payments or offers of payments by one of the employees, consultants, sales agents or distributors of our Company, even though these parties are not always subject to our control. It is our policy to implement safeguards to prevent these practices by our employees. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants, sales agents or distributors of our Company may engage in conduct for which we might be held responsible.
Violations of the FCPA or other anti-corruption laws may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the United States government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
We rely on internal models to manage risk, to provide accounting estimates and to make other business decisions. Our results could be adversely affected if those models do not provide reliable estimates or predictions of future activity.
We rely heavily on internal models in making a variety of decisions crucial to the successful operation of our business, including the allowance for doubtful accounts and other accounting estimates. It is therefore important that our models are accurate, and any failure in this regard could have a material adverse effect on our results. Models are inherently imperfect predictors of actual results because they are based on historical data available to us and our assumptions about factors such as credit demand, payment rates, default rates, delinquency rates and other factors that may overstate or understate future experience. Our models could produce unreliable results for a number of reasons, including the limitations of historical data to predict results due to unprecedented events or circumstances, invalid or incorrect assumptions underlying the models, the need for adjustments in response to rapid changes in economic and health conditions. In particular, models are less dependable when the economic environment is outside of historical experience, as has been the case recently.
The requirements associated with being a U.S. public company may strain our resources and divert management’s attention.
As a Nasdaq-listed company, we are subject to significant legal, accounting, reporting and other regulatory requirements, including requirements under the U.S. federal securities laws, the Sarbanes-Oxley Act and applicable Nasdaq rules. Compliance with these requirements requires significant management attention and resources and may result in substantial legal, accounting and other expenses.
Although our management team has gained experience with these requirements during the years in which we have operated as a public company listed in the U.S. national stock exchange, applicable laws, regulations and listing standards continue to evolve and may become increasingly complex. We may need to devote additional resources to maintaining and, where necessary, enhancing our disclosure controls and procedures, internal control over financial reporting and other corporate governance practices. If we fail to comply with applicable legal, regulatory or reporting requirements, we could be subject to fines, penalties or other regulatory action, our management’s attention could be diverted from the operation and growth of our business, and investor confidence in our financial reporting could be adversely affected, any of which could have a material adverse effect on our business, financial condition, results of operations and the trading price of our securities.
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We may be exposed to potential risks relating to our internal controls over financial reporting.
As directed by Section 404 of the Sarbanes-Oxley Act of 2002 or SOX 404, the SEC adopted rules requiring public companies to include a report of management on the company’s internal controls over financial reporting in their annual reports. Under current law, the auditor attestation will not be required as long as our filing status remains as a smaller reporting company, but we may cease to be a smaller reporting company in future years, in which case we will be subject to the auditor attestation requirement. We were subject to the management report requirement for the fiscal year ended March 31, 2026 , and a report of our management for the 2026 fiscal year is included under Item 15 of this annual report concluding that, as of March 31, 2026, our internal controls over financial reporting were not effective. If we cannot remediate the material weakness identified in a timely manner, investors and others may lose confidence in the reliability of our financial statements, which could adversely affect the price of our ordinary shares.
Our Class A Ordinary Shares are very thinly traded, and there can be no assurance that there will be an active market for our Class A Ordinary Shares in the future.
Our Class A Ordinary Shares are very thinly traded, and the price if traded may not reflect our value. There can be no assurance that there will be an active market for our Class A Ordinary Shares in the future. The market liquidity will be dependent on the perception of our operating business and any steps that our management might take to bring us to the awareness of investors. There can be no assurance given that there will be any awareness generated. Consequently, investors may not be able to liquidate their investment or liquidate it at a price that reflects the value of the business. If a more active market should develop, the price may be highly volatile. Because there may be a low price for our Class A Ordinary Shares, many brokerage firms may not be willing to effect transactions in the securities. Even if an investor finds a broker willing to effect a transaction in our Class A Ordinary Shares, the combination of brokerage commissions, transfer fees, taxes, if any, and any other selling costs may exceed the selling price. Further, many lending institutions will not permit the use of such ordinary shares as collateral for any loans.
You may not receive dividends or other distributions on our ordinary shares and you may not receive any value for them, if it is illegal or impractical to make them available to you.
Under Cayman Islands law, we may only pay dividends out of our profits or share premium account subject to our ability to pay our debts as they fall due in the ordinary course of our business. Our ability to pay dividends will therefore depend on our ability to generate sufficient profits. On July 31, 2020, the Board of the Company declared a special cash dividend of $0.015 per share. The dividend, equal to $375,000 in the aggregate, was fully paid on August 17, 2020. However, we cannot give any assurance that we will declare dividends of any amounts, at any rate or at all in the future. Future dividends, if any, will be paid at the discretion of our board of directors, subject to requirements under Cayman Islands law and our memorandum and articles of association, as amended and restated from time to time, and will depend upon our future operations and earnings, capital expenditure requirements, general financial conditions, legal and contractual restrictions and other factors that our board of directors may deem relevant.
We may be subject to penny stock regulations and restrictions and you may have difficulty selling our ordinary shares.
The SEC has adopted regulations which generally define so-called “penny stocks” to be an equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exemptions. If our ordinary shares become a “penny stock”, we may become subject to Rule 15g-9 under the Exchange Act, or the “Penny Stock Rule”. This rule imposes additional sales practice requirements on broker-dealers that sell such securities to persons other than established customers and “accredited investors” (generally, individuals with a net worth in excess of $1,000,000 or annual incomes exceeding $200,000, or $300,000 together with their spouses). For transactions covered by Rule 15g-9, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s written consent to the transaction prior to sale. As a result, this rule may affect the ability of broker-dealers to sell our securities and may affect the ability of purchasers to sell any of our securities in the secondary market.
For any transaction involving a penny stock, unless exempt, the rules require delivery, prior to any transaction in a penny stock, of a disclosure schedule prepared by the SEC relating to the penny stock market. Disclosure is also required to be made about sales commissions payable to both the broker-dealer and the registered representative and current quotations for the securities. Finally, monthly statements are required to be sent disclosing recent price information for the penny stock held in the account and information on the limited market in penny stock.
There can be no assurance that our ordinary shares will qualify for exemption from the Penny Stock Rule. In any event, even if our ordinary shares were exempt from the Penny Stock Rule, we would remain subject to Section 15(b)(6) of the Exchange Act, which gives the SEC the authority to restrict any person from participating in a distribution of penny stock, if the SEC finds that such a restriction would be in the public interest.
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ITEM 4. INFORMATION ON THE COMPANY
A. | History and development of the company. |
We were formed under the name of “Happiness Biotech Group Limited” on February 9, 2018, under the laws of the Cayman Islands. In October 2022, we changed the name from “Happiness Biotech Group Limited” to “Happiness Development Group Limited”. In March 2023, our registered name was changed to “Paranovus Entertainment Technology Ltd.”
Our registered office is at Harnes Fiduciary (Cayman) Limited, with its offices located at 4th Floor, Harbour Place, 103 South Church Street, P.O. Box 10240, Grand Cayman, KY1-1002M Cayman Islands. Our principal executive offices are located at 1177 6th avenue, floor 5, New York, NY 10036. Our telephone number at that address is + 1-516-951-9074. Our company website is https://pavs.ai.
We own 51% equity interests of Bomie Wookoo LLC (“BW”), which operates through its two wholly owned subsidiaries, Bomie US LLC in New Jersey and WooKoo LLC in Texas. We conduct our business mainly through BW and its subsidiaries, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers.
Our wholly owned subsidiary, Paranovus Entertainment Technology Limited, was incorporated in Hong Kong on May 6, 2024 (“Paranovus Hong Kong”), which is the sole shareholder of Hainan Paranovus Entertainment Technology Co., Ltd (“Paranovus PRC”). Paranovus PRC was incorporated on June 17, 2024 under the laws of the People’s Republic of China, as a wholly-owned subsidiary of Paranovus Hong Kong and a wholly foreign-owned entity under the PRC laws. None of Paranovus, Paranovus Hong Kong and Paranovus PRC engages in any active business other than acting as holding companies currently.
Historically, Paranovus was the sole shareholder of Happiness Hong Kong, incorporated in Hong Kong on March 5, 2018, which was the sole shareholder of Happiness Fuzhou. Happiness Fuzhou was incorporated on June 1, 2018 under the laws of the People’s Republic of China, as a wholly-owned subsidiary of Happiness Hong Kong and a wholly foreign-owned entity under the PRC laws. Neither Paranovus, Happiness Hong Kong nor Happiness Fuzhou was currently engaged in any active business other than acting as holding companies. We conducted our business through Fujian Happiness, a wholly-owned subsidiary of Happiness Fuzhou and incorporated on November 19, 2004 under the PRC laws. Fujian Happiness holds all of the equity or ownership of Shunchang Happiness Nutraceutical Co., Ltd (“Shunchang Happiness”). Through Fujian Happiness and Shunchang Happiness, the Company was a biotech company that specializes in research, development, production and selling of nutraceutical and dietary supplements made of Ganoderma spore powder and others mainly in China.
On October 25, 2019, our ordinary shares commenced trading on Nasdaq under the symbol “HAPP”.
On July 17, 2020, Happy Buy (Fujian) Internet Technology Co., Limited, or “Happy Buy”, was incorporated under the laws of People’s Republic of China and was a wholly owned subsidiary of Happiness Fuzhou. Happy Buy was incorporated in order to develop our e-commerce business. Our e-commerce business focused on providing e-commerce solutions and services for small and medium-sized enterprises. Our mission for the e-commerce business was to enable small and medium-sized enterprises to fully leverage the power of e-commerce to grow rapidly.
On April 27, 2021, Taochejun (Fujian) Auto Sales Co., Limited, “Taochejun”, was incorporated under the laws of People’s Republic of China and 51% of it is owned by Happiness Fuzhou. We launched this B2B (Business-to-Business) platform for sales of automobiles. Our automobile sales business was formerly under the brand name of “Happy Auto”, and was rebranded to “Taochejun” in June 2021. Taochejun mainly focused on building a network among car dealers in China to offer better overall sales experience and services to purchasers, and to streamline the automotive industry transaction. China is one of the world’s largest automobile markets, both in terms of demand and supply. Through Taochejun, we utilized our dealer network to distribute the inventories and used cars from large 4S stores, online car hailing platforms and car makers to third and fourth tier cities, which served as a great solution to the over-supply issues in first tier cities.
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On October 14, 2021, Paranovus and its wholly-owned subsidiary, Fujian Happiness, acquired 70% of the equity interest in Fujian Shennong Jiagu Development Co., Ltd. (“Shennong”) to further strengthen the Company’s industrial integration. The acquisition of Fujian Shennong closed on November 22, 2021.
On March 4, 2022, Paranovus and its wholly-owned subsidiary, Fujian Happiness, acquired 100% of the equity interest in Fuzhou Hekangyuan Trading Co., Ltd. (“Hekangyuan”) to further strengthen the distribution network of the Company.
On March 10, 2023, the Company’s shareholders have approved, via a special resolution, to change our name to “Paranovus Entertainment Technology Ltd.” and the trading symbol to “PAVS”, effective on March 14, 2023, to better reflect the Company’s multiple business lines.
On March 14, 2023, the Company entered into a securities purchase agreement with (i) 2lab3, a Delaware limited liability company; and (ii) the sole member of 2lab3. Pursuant to the acquisition SPA, the Company purchased all the membership interests of 2lab3 from the Seller, and, in exchange, the Company issued an aggregate of 1,375,000 Class A ordinary share to 2lab3 and/or its designees. The parties to the acquisition SPA agreed that valuation of 2lab3 was approximately $6 million. The Class A ordinary shares were issued at a per share price of $4.4, which was equal to the volume-weighted average price of the past five-day of the Class A ordinary shares upon signing. On March 28, 2023, the Company closed this acquisition and became the sole shareholder of 2lab3.
On April 10, 2023, Happiness Shunchang, Fujian Happiness and Fujian Hengda Beverage Co., Ltd. (“Fujian Hengda”) entered into a certain share purchase agreement. Pursuant to this disposition SPA, Fujian Hengda agreed to purchase the Fujian Happiness from Happiness Shunchang in exchange for cash consideration of RMB 78 million (approximately $11.3 million). This transaction was closed on August 7, 2023. Upon closing, Fujian Hengda became the sole shareholder of Fujian Happiness and, as a result, assumed all assets and liabilities of Fujian Happiness and subsidiaries owned or controlled by Fujian Happiness.
On September 3, 2023, the Board of Directors of the Company approved suspension of the Company’s e-commerce and internet information and advertising business conducted through the Company’s indirect subsidiary Happy Buy (Fujian) Internet Technology Co., Limited. As of March 31, 2023, the e-commerce and internet information and advertising business incurred loss of approximately $21.42 million comparing to loss of approximate $7.60 million as of March 31, 2022. Due to the lingering adverse impacts of COVID-19 and sluggish macro-economic condition in China, the management does not expect short-term turn-over of these businesses and therefore the Board decided to suspend these loss-incurring businesses. After disposition of its nutraceutical and dietary supplements business in August 2023 and suspension of the e-commerce and internet information and advertising business expected in September 2023, the Company’s only remaining operating business based in China was the automobile sales business.
On November 12, 2023, the Company entered into a software development agreement with Blueline. Pursuant to the development agreement, Blueline was responsible for developing and delivering certain interactive game application (“10,000 Lives”, formerly known as “Hollywood Sunshine”), including the underlying software, documentation, and technical data, under the terms and conditions of the Development Agreement, and agreed to assign to the Company all the right, title, and interest in 10,000 Lives, excluding any Background Technology (as defined in the development agreement). Blueline would deliver the initial full-featured version for the PC platform (the “PC Release”) six months after the Start Date as defined in the Development Agreement, followed by the delivery of iOS version (the “iOS Release”) three months after the PC Release. In exchange, the Company agreed to pay a total of $1,500,000 development fee to Blueline for the PC Release, and $400,000 development fee for the iOS Release, in accordance with the schedule set forth in the Development Agreement. The decision to develop the iOS Release was at the discretion of the Company. Furthermore, once 10,000 Lives starts generating revenues, the Company agreed to pay Blueline 9% of the net revenue after deducting all the licensing fees owned to all talent partners.
On January 19, 2024, the Company held three extraordinary general meetings of shareholders of Class B Ordinary Shares, shareholders of Class A Ordinary Shares, and shareholders of Class B Ordinary Shares and Class A Ordinary Shares, respectively. The purpose of the meetings are to approve the variation of class rights attached to the Class B Ordinary Shares, as set out in the Company’s fourth amended and restated memorandum and articles of association (effective on March 10, 2023) (the “Fourth M&A”), to terminate certain “sunset provisions” attached to the Class B Ordinary Shares, by the removal of (a) the conversion rights set out in Articles 8(6)(b) and 8(6)(c) of the Fourth M&A (such proposal, the “Variation of Rights of Class B Ordinary Shares Proposal”). Shareholders of Class B Ordinary Shares and shareholders of Class A Ordinary Shares approved such proposal separately, as a special resolutions of shareholders of Class B Ordinary Shares, and an ordinary resolution of shareholders of Class A Ordinary Shares. Then, all the shareholders approved, as a special resolution, to adopt the fifth amended and restated memorandum and articles of association to effect the Variation of Rights of Class B Ordinary Shares Proposal. The fifth amended and restated memorandum and articles of association became effective on January 19, 2024.
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On May 6, 2024, the Company established a wholly owned subsidiary in Hong Kong, Paranovus Entertainment Technology Limited (“Paranovus Hong Kong”).
On June 17, 2024, the Company established a subsidiary in China, Hainan Paranovus Entertainment Technology Limited (“Paranovus PRC”), which is wholly owned by Paranovus Hong Kong. As of the date of this annual report, both Paranovus Hong Kong and Paranovus PRC do not have operating business yet.
On July 5, 2024, the Company has sold 100% equity interests of Happiness Hong Kong to Mr. Yuan Liu, who is not affiliate of the Company or any of its directors or officers, together with Happiness Hong Kong’s direct and indirect subsidiaries of Happiness (Shunchang) E-commerce Co., Ltd., the operating entity of the Company’s e-commerce and internet information and advertising business, and Taochejun (Fujian) Auto Sales Co., Ltd., the operating entity of the Company’s automobile sales business, in China.
On February 28, 2025, the Company, BW, a corporation organized under the laws of New York, and stockholders of BW, entered into a share purchase agreement. Pursuant to the agreement, the Company agreed to acquire 102 shares of common stock of BW, representing 51% equity interest from BW’s stockholders for a total consideration of $22,440,000 in cash. The transaction was closed on March 25, 2025, upon the satisfaction or waiver of customary closing conditions, including the approval of the Company’s shareholders. On March 24, 2025, the Company’s shareholders approved the consummation of the transaction pursuant to the share purchase agreement in a general extraordinary meeting. The Company was granted the right to appoint a majority of the members of BW’s board of directors. BW operates through its two wholly owned subsidiaries, Bomie US LLC in New Jersey and WooKoo LLC in Texas, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers. This acquisition aligns with the Company’s strategy to expand into marketing-commerce field. By securing a majority interest in BW, the Company aims to capitalize on the growing interests demand for TikTok-driven e-commerce and related solutions.
The following chart illustrates our corporate structure as of the date of this annual report, showing the Company’s principal subsidiaries, together with the jurisdiction of incorporation of each company and the percentage of voting securities beneficially owned, controlled or directed, directly or indirectly, by the Company.
* | unless otherwise indicated, the percentage of the voting power is 100% in the chart above. |
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov. You may also visit us at https://pavs.ai. However, information contained on our website does not constitute a part of this annual report.
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B. | Business overview. |
Overview of our Company
We are a holding company incorporated in Cayman Islands with no material operations of our own. Currently, our operation is conducted through our 51% owned subsidiary, BW, in the U.S. Historically, through our operating subsidiaries in the PRC, we engaged in the (i) nutraceutical and dietary supplements business (divested in August 2023), (ii) e-commerce business (suspended in September 2023), (iii) internet information and advertising business (suspended in September 2023) and (iv) automobile sale business (divested in July 2024).
On March 25, 2025, we closed an acquisition transaction of 51% equity interests of BW for a total consideration of $22,440,000 in cash. BW operates through its two wholly owned subsidiaries, Bomie US LLC in New Jersey and WooKoo LLC in Texas, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers. This acquisition aligns with the Company’s strategy to expand into marketing-commerce field. By securing a majority interest in BW, the Company aims to capitalize on the growing interests demand for TikTok-driven e-commerce and related solutions.
As of the date of this annual report, we do not have any business or operations in the PRC.
Products and Services
BW, through its wholly owned subsidiaries, Bomie US LLC (“Bomie US”) and WooKoo LLC (“Wookoo”), engages in product sales through offline and e-commerce channels and provides TikTok-related e-commerce solutions to customers.
Offline Product Sales
Bomie’s offline product sales primarily consist of wholesale sales of footwear, including branded sneakers, and other consumer products acquired in bulk or lot purchases from third-party suppliers. Bomie’s customers are primarily independent wholesalers, distributors and resellers, which resell the products through their own downstream sales channels. Such channels may include e-commerce platforms, physical retail outlets and other distribution channels. Bomie generally does not control the manner or channel through which its customers subsequently resell the products.
Bomie sources products from third-party suppliers based on available inventory and customer demand. Bomie takes title to and obtains control of the products before resale, has discretion in establishing resale prices, and bears inventory, fulfillment and collection risks. Products are received and stored at a warehouse operated by a third-party warehousing service provider under a warehousing services arrangement. The warehouse provider performs storage, handling, packaging and dispatch or drop-shipping services, while Bomie remains responsible for procurement, customer-order fulfillment, logistics coordination and delivery. Revenue is recognized at a point in time when control of the products transfers to the customer upon delivery and acceptance.
Following the end of the fiscal year 2026, in light of the relatively lower profit margins generated by our offline product sales, we determined to place greater strategic emphasis on our e-commerce and e-commerce enablement solutions businesses and to allocate our resources accordingly. While we may continue to engage in offline product sales from time to time based on market opportunities and business considerations, we expect our e-commerce and e-commerce enablement solutions businesses to be the primary focus of our operations going forward.
E-Commerce and E-commerce Enablement Solutions
BW generates revenue through multiple channels, including product sales on its own TikTok Shops, collaborative sales with key opinion leaders (KOLs) often supported by advertising, and direct business-to-consumer (“B2C”) sales. Wookoo’s product sales consist primarily of women’s handbags and gift items sourced from wholesalers and suppliers Wookoo performs its warehousing and order-fulfillment activities on-site at a warehouse located adjacent to its office in Texas. In addition, Wookoo earns service-based fees by providing e-commerce enablement solutions such as livestreaming operations, influencer engagement, and ad placement for third-party merchants.
The Company recently acquired certain trademark associated with athletic wear business and brand “Heyviva” and plan to market and sell products under this brand in the United States through its e-commerce channel. On June 14, 2026, the Company entered into a non-binding letter of intent regarding the proposed acquisition of 100% equity interest of Jabanero Inc., a company incorporated under the laws of New York (“Jabanero”). Following the due diligence conducted by the management and further commercial negotiations between the parties, the Company decided to proceed with a transaction to purchase the assets relating to an athletic wear business and brand “Heyviva” from Jabanero instead. On July 30, 2026, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Jabanero, pursuant to which, the Company agreed to purchase from Seller substantially all of the assets relating to the athletic wear business and brand “Heyviva”, including intellectual property assets (comprising trademark registrations in the United States, trade names, know-how, and trade secrets), internet domain names and associated websites, social media accounts and handles, inventory, customer data and records (to the extent permitted by applicable law), certain assigned contracts, and all books, records, and goodwill associated with the foregoing (collectively, the “Purchased Assets”). The Purchased Assets do not include Seller’s trademarks and trademark applications registered in the European Union or the United Kingdom (the “EU/UK Marks”), which are retained by Seller, subject to certain rights and restrictions as set forth in the Agreement. The Agreement provides the Company with a right of first refusal, for a period of seven years following the Closing, to acquire the EU/UK Marks before Seller may sell, assign, or exclusively license them to a third party, or allow any such registration to lapse or be abandoned. The aggregate purchase price for the Purchased Assets is $33,000,000 in cash. The Company agreed to pay (i) $16,500,000 at the signing of the Asset Purchase Agreement (the “Closing”), (ii) $4,950,000 within five (5) business days following the completion of the transfer and assignment of all the domain name(s) as set forth in the schedules to the Asset Purchase Agreement; (iii) $4,950,000 within five (5) business days after the Company has been recorded as the registered owner of all the U.S. trademark registrations and any pending applications as set forth in schedules to the Asset Purchase Agreement in the records of the United States Patent and Trademark Office; and (iv) $6,600,000 within five (5) business days following the completion of the transfer and assignment of all other Purchased Assets to the Company and the Company’s written confirmation that such transfers have been completed in accordance with the Asset Purchase Agreement. This transaction was closed on August 5, 2026. The Company believes that this transaction will create meaningful synergies with its existing social commerce capabilities and enhance its ability to drive sustainable long-term growth.
AI Entertainment Application
We previously engaged in the AI-powered entertainment industry, aiming to provide users with AI-driven games and applications to deliver immersive and engaging entertainment experiences.
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2Lab3, a Los Angeles-based company and a wholly owned subsidiary of our Company, transitioned its focuse from Web 3.0 to AI-powered applications. 2Lab3 was working on the launch of an AI-powered application called SimTwin. By utilizing AI technology, SimTwin would analyze users’ social interactions and emotional expressions to create digital personas. This would allow users to interact with digital versions of people, including deceased loved ones, and capture significant life moments. The development of SimTwin was outsourced to a third party specialist company. The SimTwin application was initially scheduled for release on the Apple App Store and Google Play Store in the third quarter of 2024. However, internal testing conducted in early 2025 indicated that the application's performance did not meet expectations. As a result, the Company made the decision to discontinue the development of this application. Accordingly, 2Lab3 has not conducted any business operations since March 2025.
In addition, pursuant to the development agreement dated November 12, 2023, Blueline had been developing and delivering certain interactive game application, 10,000 Lives (formerly known as Hollywood Sunshine), and we were entitled to all the right, title, and interest in 10,000 Lives, excluding any background technology (as defined in the development agreement). The game 10,000 Lives was a mobile game where players could pursue various careers and life goals using a board game mechanic. Players could earn dice to move on the board, collect money, participate in mini-games, and upgrade relics to achieve goals such as becoming a basketball player, singer, or doctor. The game integrated AI-generated content to create context for current life goals and stories around player interactions, and features celebrity partnerships for a socially connected experience. Originally planned for PC, Blueline shifted the focus of 10,000 Lives to a mobile-only release. In March 2025, the Company and Blueline postponed the development of the game 10,000 Lives due to insufficient funding available. Following an internal review of the Company’s resources and strategic priorities, the Company had determined not to proceed with 10,000 Lives, and the project had been discontinued since then. As of the date of this report, the Company does not plan to pursue any further AI entertainment initiatives.
Our Legacy Businesses
Automobile Sales
In November 2020, the Company began its automobile sales business. The Company entered into agreements with automobile companies to purchase cars and obtain authorization to distribute the cars in different cities in China including Xiamen, Zhangzhou and Hangzhou. The Company utilized its online platform of “Taochejun” on WeChat, as a WeChat Mini Program, to link comprehensive automobile trade and resource providers, and provided vehicle source solutions for automobile dealers. However, the automobile sales business did not generate any revenue since April 2024 and has been divested in July 2024.
E-Commerce
In 2020, the Company commenced its e-commerce business on several different platforms. The Company focused on providing e-commerce overall services, internet promotion, agency operations, supply chain resources and logistics services for all types of enterprises. The Company’s main business forms were community group buying and cross-border e-commerce. The Company had a delivery and optimization department, a procurement department, and a live streaming team, and has established a comprehensive business support center and management team. In September 2023, the Company decided to suspend the operation of its e-commerce business as it had incurred losses and the management did not expect short-tern turnover of this business.
Internet Information and Advertising Service
In 2021, the Company began to provide internet information and advertising service to small online stores or small manufacturers in China. In September 2023, the Company decided to suspend the operation of its e-commerce business as it had incurred losses and the management did not expect short-tern turnover of this business.
Nutraceutical and dietary supplements
As of March 31, 2023, we had a diverse portfolio of approximately 15 kinds of nutraceutical and dietary supplements products marketed and sold through over 50 distributors in 15 different provinces in China. We categorized our products into six groups: Lucidum spore powder products, Cordyceps mycelia products, Ejiao solution products, vitamins and dietary supplements products, American ginseng products, and others. For the years ended March 31, 2023 and 2022, our sales from Lucidum spore powder products, Cordyceps mycelia products and Ejiao solution products, approximately amounted approximately 5.35% and 16.65% of our gross sales, respectively.
As in Administrative Measures for Nutraceutical Products promulgated by National Health Commission of PRC, nutraceutical and dietary supplements products are a category of food targeted to specific population with general health benefits for daily wellness. Nutraceutical and dietary supplements products are not intended to treat any specific diseases and must not cause any acute, subacute or chronic harm to the human body. With the requirements of nutraceutical and dietary supplements being met and approved by the CFDA, the predecessor of the NMPA, under regulations for nutraceutical and dietary supplements, herbal and animal extracts used as both nourishment food and traditional Chinese medicine can be included into raw materials of nutraceutical and dietary supplements products.
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We mainly used herbal and animal extracts as raw materials of our Lucidum spore powder products, Cordyceps mycelia products, Ejiao solution products and others. These herbal and animal extracts have been used as both daily nourishment food and traditional Chinese medicine in China for a long time. Approved by CFDA under regulations for nutraceutical and dietary supplements, 26 kinds of our products were nutraceutical and dietary supplements products labeled with “Blue Caps.” All our products were produced in compliance with the regulations of food industry.
In August 2023, we consummated the transaction of selling 100% equity interests in Fujian Happiness, the operating entity of our nutraceutical and dietary supplements business, to Fujian Hengda Beverage Co., Ltd. (“Fujian Hengda”), a PRC company which is not affiliate of the Company or any of its directors or officers for cash consideration of RMB 78 million.
Vendors
We considered our vendors whose sales to us accounted for more than 10% of our overall purchases in any given period to be our major vendors of such period. We had no such vendors of our advertising services during the last three fiscal years.
Sales and Marketing
Offline Product Sales
Bomie marketed and sold footwear, including branded sneakers, and other consumer products acquired in bulk or lot purchases from third-party suppliers through its offline sale channel. Bomie’s sales activities primarily focused on sourcing competitively priced footwear and fashion merchandise through bulk purchasing opportunities and reselling such inventory to wholesale customers. It emphasized efficient inventory turnover and long-term customer relationships. Sourcing opportunities and customer relationships were developed primarily through industry contacts, referrals and repeat business.
E-commerce and E-commerce Enablement Solutions
BW’s sales and marketing strategy focuses on leveraging short-form video, livestreaming, and influencer (KOL) engagement to drive product discovery, consumer engagement, and conversion across social commerce platforms.
AI Entertainment
We previously engaged in the AI-powered entertainment industry, aiming to provide users with AI-driven games and applications to deliver immersive and engaging entertainment experiences. Through 2Lab3 and the 10,000 Lives project being developed by Blueline. However, in March 2025, the Company discontinued development of its AI-powered entertainment initiatives, including SimTwin and 10,000 Lives, and 2Lab3 has not conducted any business operations since March 2025. As a result, the Company no longer operates the AI-powered entertainment business and does not currently plan to pursue further AI entertainment initiatives.
Prior to the discontinuation of our AI entertainment initiatives, we planned to leverage a multifaceted digital approach to reach and engage our target audience. We planned to utilize social media platforms like Facebook, Instagram, Twitter, and TikTok to share engaging content, conduct live demos, and collaborate with influencers. Search Engine Marketing (SEM) through Google Ads and Bing Ads would drive traffic to our website, while content marketing would feature blog posts, videos, and guest articles on AI in entertainment. Email marketing were employed to deliver newsletters, special offers, and product launch updates tailored to user preferences.
Sales efforts was expected to focus on direct sales via our website and mobile app, supported by attractive launch promotions and discounts. Promotions would include seasonal campaigns, referral programs, and loyalty rewards. We was going to measure success through key performance indicators such as sales growth, customer acquisition cost, and conversion rates, using tools like Google Analytics, CRM software, and social media analytics to continuously refine our strategies.
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Competition
E-commerce and E-commerce Enablement Solutions
The rise of social commerce has transformed digital marketing and e-commerce, with platforms such as TikTok becoming leading sales channels for brands targeting younger consumers. The U.S. TikTok Shop market has experienced rapid growth, driven by influencer marketing, short-form video engagement, and AI-powered content recommendations. BW aims to position itself to capitalize on these industry trends by continuously enhancing its e-commerce capabilities, expanding its product offerings, and strengthening its operational infrastructure.
Key industry trends include the continued growth of live-stream commerce, influencer marketing, and social shopping. At the same time, social commerce platforms are increasingly integrating payment processing, fulfillment, logistics, and promotional tools into their ecosystems, enabling merchants to streamline operations, improve customer engagement, and scale their businesses more efficiently.
Geographically, we are aiming to establish a strong presence in North America.
Intellectual Property
Our intellectual property includes our domain name of https://pavs.ai.
In addition, in August 2026, we acquired the domain name heyviva.com and certain intellectual property rights associated with the “Heyviva” brand, including rights in the U.S.-registered trademark “HEYVIVA” (U.S. Registration No. 7091513). On August 5, 2026, the assignment has been submitted for recordation with the U.S. Patent and Trademark Office (“USPTO”). As of the date of this annual report, the recordation of the assignment remains pending. We expect the USPTO’s records to be updated to reflect us as the owner following completion of the recordation process.
Insurance
As required by applicable laws and regulations in the United States, we maintain workers ’ compensation insurance for our eligible employees. We believe we are in compliance with applicable federal and state laws relating to such insurance coverage and have made appropriate provision for the related costs in our financial statements. However, any failure to maintain the required insurance coverage or to comply with applicable legal and regulatory requirements could result in fines, penalties, increased costs, or other liabilities imposed by the relevant governmental authorities, which could adversely affect our business, financial condition, and results of operations.
Seasonality
Our business is subject to some seasonal influences. Historically, our revenue is typically highest in the fourth quarter of the calendar year due to increased advertisement spending and revenue by multinational advertisers and e-commerce clients benefiting from holiday spending at the end of the calendar year. We expect this seasonality trend to continue.
Employees
We currently have 29 full-time employees of BW, based in the U.S. We have employment contracts with all of our employees in accordance with relevant U.S. laws. Our employees are not represented by a labor organization or covered by a collective bargaining agreement. We have not experienced any work stoppages.
Competitive Advantage
For our e-commerce and e-commerce enablement solutions business, we believe our competitive advantages are as follows:
Specialized TikTok Commerce Expertise
BW has developed specialized operational expertise within the TikTok ecosystem, including TikTok Shop operations, content strategy, livestream commerce, digital advertising, and store management. By maintaining a focused operating model, BW has accumulated experience in adapting to evolving platform policies, algorithms, and consumer purchasing behaviors, enabling it to optimize both its own e-commerce operations and the services it provides to third-party merchants.
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Integrated E-commerce Enablement Solutions
BW provides end-to-end e-commerce enablement services designed to help merchants establish, operate, and expand their TikTok-based businesses. Its services include store setup and management, livestream operations, influencer marketing, digital advertising, campaign execution, and operational support. This integrated service offering enables merchants to streamline operations while leveraging BW’s platform-specific experience.
Established Creator and Marketing Network
WooKoo works with independent influencers on a project-by-project basis and has developed its network of influencers, content creators, and marketing professionals across multiple consumer product categories. Through these relationships, BW assists brands in identifying appropriate content partners and executing livestream and short-form video marketing campaigns designed to increase brand awareness, customer engagement, and product sales.
Diversified Business Model
BW operates both self-owned TikTok Shops, provides e-commerce enablement services to third-party merchants, and sells products through offline channels. This diversified business model allows BW to leverage operational experience gained from its own product sales and e-commerce activities to improve its service offerings while generating revenue from multiple business channels, including online and offline product sales and service-based fees. The products sold through BW’s self-owned TikTok Shops do not overlap with the products sold by the third-party merchants to which BW provides e-commerce enablement services, which allows BW to operate its self-owned shops while providing services to third-party merchants without directly competing with such merchants in the sale of their products.
Regulations
BW is subject to a variety of domestic and foreign laws and regulations in the United States and abroad involving matters that are important to, or may otherwise impact our live-stream sales and e-commerce solution service business. These include laws related to advertising and marketing practices, consumer protection, intellectual property protection and infringement prevention, privacy and data security, intermediary liability, and taxation. Many of these legal frameworks can be enforced not only by government authorities but also by private parties. These laws and regulations continue to evolve and may change significantly over time. Consequently, the application, interpretation, and enforcement of these regulatory frameworks—whether existing, newly proposed, or amended—remain uncertain and may vary by jurisdiction and over time, particularly as they pertain to the rapidly evolving digital commerce and live-streaming landscape.
Federal Trade Commission Act (15 U.S.C. § 45), particularly Section 5, prohibits “unfair or deceptive acts or practices in or affecting commerce.” This includes false advertising, misleading pricing claims, and failure to honor stated return or refund policies. The FTC enforces this provision against companies that engage in conduct likely to mislead consumers acting reasonably under the circumstances. In addition, Federal Trade Commission’s (FTC) Endorsement Guides (16 CFR Part 255) are designed to ensure that endorsements and testimonials used in marketing communications are truthful, not misleading, and include clear disclosure of any material connection between the endorser and the sponsoring brand. These obligations apply to all formats of promotional content, including short-form videos and live-streams on social media platforms such as TikTok and Instagram. Disclosures must be made in a manner that is both clear and conspicuous to consumers, regardless of the informal or real-time nature of the content.
Because BW’s marketing activities may reach younger audiences, BW may be subject to the Children’s Online Privacy Protection Act (COPPA). COPPA imposes specific obligations on operators of websites, applications, and online services that are either directed toward children under the age of 13 or that knowingly collect personal information from such children. These obligations include obtaining verifiable parental consent prior to collecting, using, or disclosing personal information, providing a publicly accessible privacy policy, offering parents the ability to review and delete their child’s data, and maintaining reasonable safeguards for protecting children’s information. These requirements are particularly relevant to its use of platforms such as TikTok and YouTube, where underage users may be part of the viewing audience.
Furthermore, BW needs to comply with the Restore Online Shoppers’ Confidence Act (ROSCA), a federal law that aims to prevent deceptive online sales practices, especially in the context of free trials, negative option billing, and subscription-based models. Under ROSCA, all material terms of a transaction—including total cost, trial period duration, and cancellation procedures—must be clearly disclosed prior to the completion of a purchase. Express informed consent must be obtained from the consumer before any credit card is charged, and a simple, transparent mechanism for canceling recurring charges must be provided. These provisions are intended to promote transparency and protect consumers from unauthorized or unintended purchases.
In terms of consumer protection, BW must also comply with various state-level laws, most notably the Unfair or Deceptive Acts and Practices (UDAP) statutes. While these laws generally align with federal standards, they may impose additional obligations or establish separate enforcement mechanisms. UDAP laws prohibit deceptive, fraudulent, or unfair marketing and sales practices and are enforced by state Attorneys General as well as, in some jurisdictions, private litigants.
INFORM Consumers Act, which became effective in June 2023, is intended to enhance transparency and accountability in online marketplaces by imposing specific obligations on platforms and third-party sellers engaged in high-volume sales. Although the primary regulatory burden falls on the platform operators, the law requires high-volume third-party sellers, who conduct 200 or more transactions totaling at least $5,000 in a 12-month period, to provide verified information such as their full name, physical address, bank account, and tax identification number. This data must be periodically updated and may be disclosed to consumers under certain conditions. As a seller operating on platforms covered by this law, BW is responsible for cooperating with identity and financial verification requirements, as well as for ensuring the accuracy of information disclosed to consumers. Failure to comply may result in suspension from the platform or civil penalties.
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Moreover, BW’s live-streaming and marketing operations require careful adherence to intellectual property laws, including the Copyright Act of 1976, the Digital Millennium Copyright Act (DMCA), and the Lanham Act. These laws regulate BW’s use of third-party music, video content, logos, trademarks, and other protected intellectual property during live-streamed events. Unauthorized use of such materials may result in takedown notices, financial liability, platform penalties, or reputational damage. In particular, BW may face liability under trademark law if it is alleged to have used another party’s brand name, logo, or trade dress in a misleading or unauthorized manner.
BW’s operations are also governed by laws and regulations specific to the product categories we offer for sale, including leather goods and sportswear. For example, the FTC’s Textile and Wool Acts require accurate labeling of fiber content, country of origin, and care instructions for apparel and textile items. Leather products are also subject to labeling standards that prohibit misrepresentation of material content, such as using the terms “genuine leather” or “full-grain” without meeting established definitions and industry norms. In addition, BW may be subject to safety regulations enforced by the Consumer Product Safety Commission (CPSC), especially when its products involve materials, components, or design elements that could present risks related to flammability, chemical exposure, or choking hazards.
As an online retailer that sources products from wholesalers, manufacturers, or other sellers, we must also consider potential exposure to intermediary liability—legal responsibility that can arise when a seller facilitates the sale of goods that are defective, mislabeled, counterfeit, or otherwise non-compliant with applicable law. Although primary liability may rest with the original manufacturer or importer, U.S. law permits enforcement actions and private claims to be brought against downstream sellers in certain situations.
Additionally, BW is subject to a complex framework of state and local sales and use tax laws that govern our sale of goods via live-stream and e-commerce platforms. Following the U.S. Supreme Court’s decision in South Dakota v. Wayfair, Inc., states may impose sales tax obligations on remote sellers, including those without a physical presence in the state, once certain economic nexus thresholds are met. In many states, “marketplace facilitator” statutes have shifted the obligation to collect and remit taxes to platforms such as TikTok Shop, Shopify, and Amazon. However, even when these platforms assist in tax collection, BW remains ultimately responsible for ensuring compliance with applicable tax reporting, registration, and remittance requirements. Non-compliance with such obligations may subject it to audits, penalties, interest, and reputational harm.
PRC Laws and Regulations Relating to Our Business
Regulation on Foreign Exchange Control
Foreign exchange in China is primarily regulated by:
| · | The Foreign Currency Administration Regulations (1996), as amended on January 14, 1997 and August 5, 2008; and |
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| · | The Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
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| · | The Value-Added Tax Law of the People's Republic of China (effective January 1, 2026), together with its Implementation Regulations (effective January 1, 2026) |
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| · | Catalogue of Encouraged Industries for Foreign Investment (2025 Version) (effective February 1, 2026) |
Under the Foreign Currency Administration Regulations, the Renminbi is convertible for current account items, including the distribution of dividends, interest payments and trade and service-related foreign exchange transactions. Conversion of Renminbi into foreign currency for capital account items, such as, loans, investment in securities and repatriation of investments, however, remains subject to the registration of the SAFE or its local counterparts as required by law. Under the Administration Rules, foreign-invested enterprises may buy, sell and remit foreign currencies at banks authorized to conduct foreign exchange transactions for settlement of current account transactions after providing valid commercial documents and, in the case of capital account item transactions, only after registration with the SAFE and, as the case may be, other relevant PRC government authorities as required by law. Capital investments directed outside of China by foreign-invested enterprises are also subject to restrictions, which include registration filing with MOFCOM. If the investment is made to the sensitive countries, districts, or industries, it needs to be approved by MOFCOM. Enterprises investing in industries listed in the Catalogue of Encouraged Industries for Foreign Investment (2025 Version) are eligible for the foreign exchange facilitation measures and import tariff exemptions on self-use equipment that have long been available to encouraged-category projects under successive versions of the Catalogue; the 2025 Version does not introduce new incentives but updates the scope of covered industries.
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The value of the Renminbi against the U.S. dollar and other currencies may fluctuate and is affected by, among other things, changes in China’s political and economic conditions. The conversion of Renminbi into foreign currencies, including U.S. dollars, has been based on rates set by the People’s Bank of China. On July 21, 2005, the PRC government changed its policy of pegging the value of the Renminbi to the U.S. dollar. Under the new policy, the Renminbi will be permitted to fluctuate within a band against a basket of certain foreign currencies. We receive a significant portion of our revenue in Renminbi, which is not a freely convertible currency. Under our current structure, our income will be primarily derived from dividend payments from our subsidiaries in China. Even though we may remit the income from China to anywhere we want, the fluctuation of exchange rate may be a disadvantage to us if Renminbi depreciated. Cross-border tax treatment of such remittances is governed by the Value-Added Tax Law effective January 1, 2026. Pure dividend distributions are not subject to VAT. Cross-border service fees, royalties and offshore loan interest paid to non-PRC recipients remain subject to withholding VAT (generally at 6%), and the long-standing rule allowing the withheld VAT to be credited as input VAT by the PRC payer continues to apply under the new law.
In November 2012, SAFE promulgated the Circular of Further Improving and Adjusting Foreign Exchange Administration Policies on Foreign Direct Investment, as amended on May 4, 2015, which substantially amends and simplifies the current foreign exchange procedure. Pursuant to this circular, the opening of various special purpose foreign exchange accounts, such as pre-establishment expenses accounts, foreign exchange capital accounts and guarantee accounts, the reinvestment of Renminbi proceeds derived by foreign investors in China, and remittance of foreign exchange profits and dividends by a foreign-invested enterprise to its foreign shareholders no longer require the approval or verification of SAFE, and multiple capital accounts for the same entity may be opened in different provinces, which was not possible previously. Pursuant to Hui Fa [2018] No.17, pre-establishment expense accounts are no longer subject to the original USD 300,000 ceiling and 6-month validity period limits. Further, pursuant to Hui Fa [2025] No. 43 effective September 12, 2025, pre-registration for opening pre-establishment expense accounts is cancelled; meanwhile, foreign exchange registration formalities for domestic reinvestment using foreign exchange capital, RMB proceeds from capital settlement and FDI profits are eliminated to streamline procedures. Profit domestic reinvestment itself has always been permitted. IIn addition, SAFE promulgated the Provisions on Foreign Exchange Administration over Direct Investment Made by Foreign Investors in China in May 2013, which specifies that the administration by SAFE or its local branches over direct investment by foreign investors in China must be conducted by way of registration and banks must process foreign exchange business relating to the direct investment in China based on the registration information provided by SAFE and its branches. On February 28, 2015, SAFE promulgated the Notice on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Notice 13. After SAFE Notice 13 became effective on June 1, 2015, instead of applying for approvals regarding foreign exchange registrations of foreign direct investment and overseas direct investment from SAFE, entities and individuals may apply for such foreign exchange registrations from qualified banks. The qualified banks, under the supervision of SAFE, may directly review the applications and conduct the registration. Separately, pursuant to the Circular on Further Improving the Foreign Exchange Administration of Domestic Foreign Exchange Loans issued by SAFE, effective October 1, 2026, the requirement for administrative approval to purchase foreign exchange to repay domestic foreign exchange loans has been cancelled; borrowers may instead complete such foreign exchange purchase and repayment directly at a bank upon presentation of documents evidencing the authenticity of the underlying transaction.
On March 30, 2015, SAFE promulgated the Circular of the SAFE on Reforming the Management Approach regarding the Settlement of Foreign Capital of Foreign-invested Enterprise, or Circular 19, which expands a pilot reform of the administration of the settlement of the foreign exchange capitals of foreign-invested enterprises nationwide. Circular 19 came into force and replaced both the Circular of the State Administration of Foreign Exchange on Issues Relating to the Improvement of Business Operations with Respect to the Administration of Foreign Exchange Capital Payment and Settlement of Foreign-invested Enterprises, or Circular 142 and the Circular of the State Administration of Foreign Exchange on Issues concerning the Pilot Reform of the Administrative Approach Regarding the Settlement of the Foreign Exchange Capitals of Foreign-invested Enterprises in Certain Areas, or Circular 36 on June 1, 2015. Circular 19 allows foreign-invested enterprises established in China whose main business is investment to use their foreign exchange capitals to make equity investment and removes certain other restrictions under Circular 142. However, Circular 19 continues to prohibit foreign-invested enterprises from, among other things, using Renminbi fund converted from its foreign exchange capitals for expenditure beyond its business scope and providing entrusted loans or repaying loans between non-financial enterprises.
SAFE promulgated the Notice of the State Administration of Foreign Exchange on Reforming and Standardizing the Foreign Exchange Settlement Management Policy of Capital Account, or Circular 16, effective in June 2016, which reiterates some of the rules set forth in Circular 19, but compared to Circular 19, Circular 16 provides that discretionary foreign exchange settlement applies to foreign exchange capital, foreign debt offering proceeds and remitted foreign listing proceeds, and the corresponding Renminbi capital converted from foreign exchange are not restricted from extending loans to related parties or repaying the intercompany loans (including advances by third parties).
SAFE further promulgated Notice of the State Administration of Foreign Exchange on Further Facilitating Cross-border Trade and Investment, or Circular 28, effective from January 2020, which allows all foreign-invested enterprises to make domestic equity investments using their foreign exchange capitals or Renminbi fund converted from its foreign exchange capitals with limited preconditions. However, there exist substantial uncertainties with respect to the interpretation and implementation in practice with respect to the Circular 28, Circular 16 and other laws and regulations related to foreign currency exchange.
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Regulation on Foreign Exchange Registration of Offshore Investment by PRC Residents
SAFE Circular on Relevant Issues Relating to Domestic Resident’s Investment and Financing and Roundtrip Investment through Special Purpose Vehicles, or SAFE Circular 37, issued by SAFE and effective on July 4, 2014, regulates foreign exchange matters in relation to the use of special purpose vehicles, or SPVs, by PRC residents or entities to seek offshore investment and financing and conduct round trip investment in China. Under SAFE Circular 37, an SPV refers to an offshore entity established or controlled, directly or indirectly, by PRC residents or entities for the purpose of seeking offshore financing or making offshore investment, using legitimate domestic or offshore assets or interests, while “round trip investment” refers to the direct investment in China by PRC residents or entities through SPVs, namely, establishing foreign-invested enterprises to obtain the ownership, control rights and management rights. SAFE Circular 37 requires that, before making contribution into an SPV, PRC residents or entities are required to complete foreign exchange registration with SAFE or its local branch. In the event of change of basic information such as the individual shareholder, name, operation term, etc., or if there is a capital increase, decrease, equity transfer or swap, merge, spin-off or other amendment of the material items, the PRC residents or entities shall complete foreign exchange alteration registration formality for offshore investment. The SAFE Circular 37 further provides that option or share-based incentive tool holders of a non-listed SPV can exercise the options or share incentive tools to become a shareholder of such non-listed SPV, subject to registration with SAFE or its local branch. In addition, according to the procedural guidelines as attached to SAFE Circular 37, PRC residents or entities are only required to register the SPV directly established or controlled (first level).
On February 13, 2015, SAFE further promulgated the Circular on Further Simplifying and Improving the Administration of the Foreign Exchange Concerning Direct Investment, or SAFE Circular 13, which took effect on June 1, 2015. SAFE Circular 13 has amended SAFE Circular 37 by requiring PRC residents or entities to register with qualified banks rather than SAFE or its local branch in connection with their establishment or control of an offshore entity established for the purpose of overseas investment or financing.
Regulation on Dividend Distributions
The principal regulations governing the distribution of dividends paid by wholly foreign-owned enterprises include:
| · | Corporate Law (1993) as amended in 2005 and 2013; |
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| · | The Wholly Foreign-Owned Enterprise Law (1986), as amended in 2000; |
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| · | The Wholly Foreign-Owned Enterprise Law Implementation Regulations (1990), as amended in 2001; and |
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| · | The Enterprise Income Tax Law (2007) and its Implementation Regulations (2007). |
Under these regulations, wholly foreign-owned enterprises in China may pay dividends only out of their accumulated profits, if any, as determined in accordance with PRC accounting standards and regulations. In addition, an 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 its cumulative total reserve funds reaches 50% of its registered capital. Our Company’s reserve fund has not yet reached this level. The board of directors of a wholly foreign-owned enterprise has the discretion to allocate a portion of its after-tax profits to its employee welfare and bonus funds. These reserve funds, however, may not be distributed as cash dividends.
On March 16, 2007, the National People’s Congress enacted the Enterprise Income Tax Law, and on December 6, 2007, the State Council issued the Implementation Regulations on the Enterprise Income Tax Law, both of which became effective on January 1, 2008. Under this law and its implementation regulations, dividends payable by a foreign-invested enterprise in the PRC to its foreign investor who is a non-resident enterprise will be subject to a 10% withholding tax, unless any such foreign investor’s jurisdiction of incorporation has a tax treaty with the PRC that provides for a lower withholding tax rate.
M&A Rules and Regulation on Overseas Listings
On August 8, 2006, six PRC regulatory agencies, MOFCOM, the State Assets Supervision and Administration Commission, the State Administration for Taxation, the State Administration for Industry and Commerce, CSRC and SAFE, jointly adopted the Regulation on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, which became effective on September 8, 2006, and were later amended on June 22, 2009. The M&A Rules purport, among other things, to require that offshore SPVs that are controlled by PRC companies or individuals and that have been formed for overseas listing purposes through acquisitions of PRC domestic interests held by such PRC companies or individuals, obtain the approval of the CSRC prior to publicly listing their securities on an overseas stock exchange.
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On July 6, 2021, the relevant PRC government authorities issued Opinions on Strictly Cracking Down Illegal Securities Activities in Accordance with the Law, or the Opinions on Security Activities, which calls for the need to strengthen the administration over illegal securities activities and the supervision on overseas listings by China-based companies and proposed to take effective measures, such as promoting the construction of relevant regulatory systems to deal with the risks and incidents faced by China-based overseas-listed companies. On December 24, 2021, the State Council issued a draft Regulations of the State Council on the Administration of Overseas Issuance and Listing of Securities by Domestic Companies (Draft for Comments), or the Draft Provisions, and the CSRC issued a draft Measures for the Record-Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments), or the Draft Administration Measures, for public comments. On February 17, 2023, the CSRC promulgated the Trial Administrative Measures of Overseas Securities Offering and Listing by Domestic Companies (the “Trial Measures”), which will take effect on March 31, 2023. The Trial Measures clarified and emphasized several aspects, which include but are not limited to: (1) comprehensive determination of the “indirect overseas offering and listing by PRC domestic companies” in compliance with the principle of “substance over form” and particularly, an issuer will be required to go through the filing procedures under the Trial Measures if the following criteria are met at the same time: a) 50% or more of the issuer’s operating revenue, total profit, total assets or net assets as documented in its audited consolidated financial statements for the most recent accounting year is accounted for by PRC domestic companies, and b) the main parts of the issuer’s business activities are conducted in mainland China, or its main places of business are located in mainland China, or the senior managers in charge of its business operation and management are mostly Chinese citizens or domiciled in mainland China; (2) exemptions from immediate filing requirements for issuers that a) have already been listed or registered but not yet listed in foreign securities markets, including U.S. markets, prior to the effective date of the Trial Measures, and b) are not required to re-perform the regulatory procedures with the relevant overseas regulatory authority or the overseas stock exchange, c) whose such overseas securities offering or listing shall be completed before September 30, 2023, provided however that such issuers shall carry out filing procedures as required if they conduct refinancing or are involved in other circumstances that require filing with the CSRC; (3) a negative list of types of issuers banned from listing or offering overseas, such as (a) issuers whose listing or offering overseas have been recognized by the State Council of the PRC as possible threats to national security, (b) issuers whose affiliates have been recently convicted of bribery and corruption, (c) issuers under ongoing criminal investigations, and (d) issuers under major disputes regarding equity ownership; (4) issuers’ compliance with web security, data security, and other national security laws and regulations; (5) issuers’ filing and reporting obligations, such as obligation to file with the CSRC after it submits an application for initial public offering to overseas regulators, and obligation after offering or listing overseas to report to the CSRC material events including change of control or voluntary or forced delisting of the issuer; and (6) the CSRC’s authority to fine both issuers and their shareholders between 1 and 10 million RMB for failure to comply with the Trial Measures, including failure to comply with filing obligations or committing fraud and misrepresentation.
On September 6, 2024, the NDRC and the Ministry of Commerce, jointly issued the 2024 Negative List, which became effective on November 1, 2024. Pursuant to the 2024 Negative List, if a domestic company engaging in the prohibited business stipulated in the 2024 Negative List seeks an overseas offering and listing, it shall obtain the approval from the competent governmental authorities. Besides, the foreign investors of the company shall not be involved in the company’s operation and management, and their shareholding percentages shall be subject, mutatis mutandis, to the relevant regulations on the domestic securities investments by foreign investors. As the 2024 Negative List is relatively new, there remain substantial uncertainties as to the interpretation and implementation of these new requirements, and it is unclear as to whether and to what extent listed companies like us will be subject to these new requirements.
On February 24, 2023, the CSRC, together with Ministry of Finance of the PRC, National Administration of State Secrets Protection and National Archives Administration of China, revised the Provisions on Strengthening Confidentiality and Archives Administration for Overseas Securities Offering and Listing, which were issued by the CSRC, National Administration of State Secrets Protection and National Archives Administration of China in 2009, or the Provisions. The revised Provisions were issued under the title the “Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies” and came into effect on March 31, 2023 together with the Trial Measures. One of the major revisions to the revised Provisions is expanding their application to cover indirect overseas offering and listing, as is consistent with the Trial Measures. The revised Provisions require that, including, but not limited to, (a) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals or entities, including securities companies, securities service providers and overseas regulators, any documents and materials that contain state secrets or working secrets of government agencies, shall first obtain approval from competent authorities according to law, and file with the secrecy administrative department at the same level; and (b) a domestic company that plans to, either directly or indirectly through its overseas listed entity, publicly disclose or provide to relevant individuals and entities including securities companies, securities service providers and overseas regulators, any other documents and materials that, if leaked, will be detrimental to national security or public interest, shall strictly fulfill relevant procedures stipulated by applicable national regulations.
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Restriction on Foreign Ownership
Pursuant to the Foreign Investment Industries Guidance Catalog (2017 Revision), or the 2017 Catalogue, which was amended by the NDRC and the MOFCOM, and became effective on July 28, 2017 replacing the Foreign Investment Industries Guidance Catalog (2015 Revision). The 2017 Catalogue classifies the various industries into three categories: encouraged, restricted and prohibited. Our company’s primary products, nutraceutical products, are encouraged industries for foreign investors.
The Special Administrative Measures for Access of Foreign Investment (Foreign Investment Access Negative List) set forth in the 2017 Catalogue was replaced by the Special Administrative Measures for Access of Foreign Investment (Negative List) (2018 Version), or the 2018 Negative List, promulgated on June 28, 2018 with effect on July 28, 2018, which imposes the same restriction and prohibition on foreign investors. On June 30, 2019, the MOFCOM and the NDRC jointly released the Catalog of Industries Encouraging Foreign Investment (2019 Version), or the 2019 Encouraged Catalog, which became effective on July 30, 2019 and replaced the previous list of the industries in which foreign investment is encouraged to invest under the 2017 Catalogue, and the Special Administrative Measures for Access of Foreign Investment (Negative List) (2019 Version), or the 2019 Negative List, which became effective on July 30, 2019 and replaced the 2018 Negative List. On June 23, 2020, the MOFCOM and the NDRC jointly released the Special Administrative Measures for Access of Foreign Investment (Negative List) (2020 Version), or the 2020 Negative List, which superseded the 2019 Negative List on July 23, 2020. On December 27, 2021, the NDRC and the MOFCOM jointly released the Special Administrative Measures for Access of Foreign Investment (Negative List) (2021 Version), or the 2021 Negative List which came into effect on January 1, 2022 and replaced the 2020 Negative List. Then, on September 6, 2024, the NDRC and the MOFCOM promulgated the Special Management Measures (Negative List) for the Access of Foreign Investment (2024 Version), or the Negative List, which became effective on November 1, 2024, replacing previous negative list.
Regulations on Offshore Parent Holding Companies’ Direct Investment in and Loans to Their PRC Subsidiaries
An offshore company may invest equity in a PRC company, which will become the PRC subsidiary of the offshore holding company after investment. Such equity investment is subject to a series of laws and regulations generally applicable to any foreign-invested enterprise in China, which include the Wholly Foreign Owned Enterprise Law, the Sino-foreign Equity Joint Venture Enterprise Law, the Sino-foreign Contractual Joint Venture Enterprise Law, all as amended from time to time, and their respective implementing rules; the Tentative Provisions on the Foreign Exchange Registration Administration of Foreign-Invested Enterprise; and the Notice on Certain Matters Relating to the Change of Registered Capital of Foreign-Invested Enterprises.
Under the aforesaid laws and regulations, the increase of the registered capital of a foreign-invested enterprise is subject to the prior approval by or registration with the original approval authority of its establishment. In addition, the increase of registered capital and total investment amount shall both be registered with SAIC.
Shareholder loans made by offshore parent holding companies to their PRC subsidiaries are regarded as foreign debts in China for regulatory purposes, which debts are subject to a number of PRC laws and regulations, including the PRC Foreign Exchange Administration Regulations, the Interim Measures on Administration on Foreign Debts, the Tentative Provisions on the Statistics Monitoring of Foreign Debts and its implementation rules, and the Administration Rules on the Settlement, Sale and Payment of Foreign Exchange.
Under these regulations, the shareholder loans made by offshore parent holding companies to their PRC subsidiaries shall be registered with SAFE. Furthermore, the total amount of foreign debts that can be incurred by such PRC subsidiaries, including any shareholder loans, shall not exceed the difference between the total investment amount and the registered capital amount of the PRC subsidiaries, both of which are subject to governmental approval.
PRC Enterprise Income Tax Law and Individual Income Tax Law
Under the Enterprise Income Tax Law or EIT Law, enterprises are classified as resident enterprises and non-resident enterprises. PRC resident enterprises typically pay an enterprise income tax at the rate of 25%. An enterprise established outside of the PRC with its “de facto management bodies” located within the PRC is considered a “resident enterprise,” meaning that it can be treated in a manner similar to a PRC domestic enterprise for enterprise income tax purposes. The implementation rules of the EIT Law define “de facto management body” as a managing body that in practice exercises “substantial and overall management and control over the production and operations, personnel, accounting, and properties” of the enterprise.
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The SAT Circular 82 issued by the SAT in April 2009 provides certain specific criteria for determining whether the “de facto management body” of a PRC-controlled offshore incorporated enterprise is located in China. Pursuant to the SAT Circular 82, a PRC-controlled offshore incorporated enterprise has its “de facto management body” in China only if all of the following conditions are met: (a) the senior management and core management departments in charge of its daily operations function have their presence mainly in the PRC; (b) its financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) its major assets, accounting books, company seals, and minutes and files of its board and shareholders’ meetings are located or kept in the PRC; and (d) more than half of the enterprise’s directors or senior management with voting rights habitually reside in the PRC. The SAT Bulletin 45, in effect from September 2011, provides more guidance on the implementation of the SAT Circular 82 and provides for procedures and administration details on determining resident status and administration on post-determination matters. Although the SAT Circular 82 and the SAT Bulletin 45 only apply to offshore enterprises controlled by PRC enterprises or PRC enterprise groups, not those controlled by PRC individuals or foreign individuals, the determining criteria set forth there may reflect the SAT’s general position on how the “de facto management body” test should be applied in determining the tax resident status of offshore enterprises, regardless of whether they are controlled by PRC enterprises or PRC enterprise groups or by PRC or foreign individuals.
Due to the lack of applicable legal precedents, it remains unclear how the PRC tax authorities will determine the PRC tax resident treatment of a foreign company controlled by individuals. We may be classified as a PRC “resident enterprise” for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC shareholders and have a material adverse effect on our results of operations and the value of your investment.
Taxation
Tax on Dividends from PRC Enterprise with Foreign Investment
According to the New Income Tax Law and the Implementation Rules, income such as dividends and profits distribution from the PRC derived from a foreign enterprise which has no establishment in the PRC is subject to a 10% withholding tax, subject to reduction as provided by any applicable double taxation treaty.
Stamp Duty
Under the PRC Interim Regulations on Stamp Duty promulgated by the State Council on August 6, 1988 and amended in January 6, 2011, for building property transfer instruments, including those in respect of property ownership transfer, the duty rate shall be 0.03% of the amount stated therein; for permits and certificates relating to rights, including real estate title certificates and land use right certificates, stamp duty shall be levied on an item basis at an annual rate of RMB5 per item.
Wholly Foreign-Owned Enterprise
WFOE is governed by the Law of the People’s Republic of China Concerning Enterprises with Sole Foreign Investments, which was promulgated on April 12, 1986 and was subsequently amended on October 31, 2000, and its Implementation Regulations promulgated on December 12, 1990 and was subsequently amended on April 12, 2001 (together the “Foreign Enterprises Law”).
Procedures for Establishment of a WFOE
The establishment of a WFOE will have to be approved by Ministry of Commerce (or its delegated authorities) (the “MOC”). If two or more foreign investors jointly apply for the establishment of a WFOE, a copy of the contract between the parties must also be submitted to MOC (or its delegated authorities) for its record. A WFOE must also obtain a business license from the State Administration of Industry and Commerce (or its delegated authorities) before it can commence business.
Nature
A WFOE is a limited liability company under the Foreign Enterprise Law. It is a legal entity which may independently assume civil obligations, enjoy civil rights and has the right to own, use and dispose of property. It is required to have a registered capital contributed by the foreign investor(s). The liability of the foreign investor(s) is limited to the amount of registered capital contributed. The foreign investor may make its contributions by installments and the registered capital must be contributed within the period as approved by the MOC (or its delegated authorities) in accordance with relevant regulations.
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Profit Distribution
The Foreign Enterprise Law provides that after payment of taxes, a WFOE must make contributions to a reserve fund and at least 10% of the after-tax profits must be allocated to the reserve fund. If the accumulative amount of allocated reserve funds reaches 50% of an enterprise’s registered capital, the WFOE will not be required to make any additional contribution. The WFOE is prohibited from distributing dividends unless the losses (if any) of previous years have been made up.
In accordance with the Notice of the Ministry of Finance on the Issue of Handling Financial Issues by Relevant Enterprises after the Implementation of the Company Law promulgated by the Ministry of Finance on March 15, 2006 and effective April 1, 2006, from January 1, 2006 on, enterprises established in accordance with the Company Law shall distribute profits pursuant to Article 167 of the Company Law and shall no longer make contributions to the reserve fund. After an enterprise ceases to make contributions to the reserve fund, it may continue to make contributions to the employee bonus and welfare fund as decided by the board of directors if the purpose, use conditions, and procedures thereof shall be made clear, and such funds shall be manage as debts.
Company Law
The establishment and operation of corporate entities in China is governed by the PRC Company Law, which was promulgated by the Standing Committee of the NPC on December 29, 1993 and became effective on July 1, 1994 (“1993 PRC Company Law”). It was subsequently amended on December 25, 1999, August 28, 2004, October 27, 2005, December 28, 2013, October 26, 2018 and July 1, 2024.
The PRC Company Law generally governs 2 types of companies — limited liability companies and joint stock limited companies. Both types of companies have the status of legal persons, and the liability of a company to its debtors is limited to the value of assets owned by the company. Liabilities of shareholders of a limited liability company are limited to the amount of registered capital they have contributed.
The amendments to the PRC Company Law adopted in October 2005 seek to reform various aspects of the 1993 PRC Company Law and simplify the establishment and operation of companies incorporated in China by lowering capitalization requirements, increasing shareholder and creditor protection, improving corporate governance, and relaxing rules regarding the establishment of subsidiaries. Further, the restriction relating to the total investment of a company in other entities exceeding 50% of its net assets has been removed, the incorporation of one shareholder limited liability companies in addition to wholly State-owned enterprises is permitted, and the Chinese Company Law shall apply to foreign invested limited liability companies. Where laws on foreign investment have other stipulations, such stipulations shall apply.
The amendments to the PRC Company Law adopted in December 2013 took effect on March 1, 2014. These amendments cover three aspects: (a) replacing the paid-up capital registration system by subscribed capital registration system; (b) relaxing the requirements for registered capital registration; and (c) streamlining the registration items and requirements for registration documents.
PRC Laws and Regulations Relating to Foreign Investment
With respect to the establishment and operation of wholly foreign-owned projects, or WFOE, the MOFCOM and NDRC, promulgated the Special Administrative Measures for the Access of Foreign Investment (Negative List) (2024 Version) (the “2024 Negative List”) on September 6, 2024, which became effective on November 1, 2024. The 2024 Negative List will replace the Special Administrative Measures for the Access of Foreign Investment (2021 Version) (the “2021 Negative List”) and serve as the main basis for management and guidance for the MOFCOM to manage and supervise foreign investments. Those industries not set out on the 2024 Negative List shall be classified as industries permitted for foreign investment. None of our Group’s business activities are listed on the 2024 Negative List, nor on the 2021 Negative List. Therefore, the Company is able to conduct its business through its wholly owned PRC Subsidiaries without being subject to restrictions imposed by the foreign investment laws and regulations of the PRC.
The Foreign Investment Law of the People’s Republic of China (the “Foreign Investment Law”) was adopted by the second meeting of the 13th National People’s Congress on March 15, 2019, which became effective on January 1, 2020. On December 26,2019, the State Council promulgated Regulation for Implementing the Foreign Investment Law of the People’s Republic of China (the “Regulation”), which became effective on January 1, 2020.
The Foreign Investment Law and the Regulation apply the administrative system of pre-establishment national treatment plus negative list to foreign investment and clarify the state shall develop a catalogue of industries for encouraging foreign investment to specify the industries, fields, and regions where foreign investors are encouraged and directed to invest, which refers to the Catalogue of Industries for Guiding Foreign Investment Industries (amended in 2020) (the “Catalogue”). Specifically, the special administrative measures to be implemented are the restricted and prohibited industry categories as well as encouraged industry categories having shareholding and executive management requirements prescribed in the Catalogue (the Special Administrative Measures for the Access of Foreign Investment specified in the Catalogue was replaced by the 2020 Negative List, and the Catalogue of Industries for Encouraged Foreign Investment specified in the Catalogue was replaced by the Catalogue of Industries for Encouraged Foreign Investment (2020 Version).
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Corporate Information
Our principal executive offices are located at 1177 6th Avenue, Floor 5, New York, NY 10036. Our telephone number at that address is +1 929-215-4832. Our company website is https://pavs.ai.
C. Organizational structure
See “Item 4. A. History and Development of the Company.”
D. Property, Plants and Equipment
Information regarding our property, plants and equipment is described under the caption “Item 4. B. Business Overview.”
ITEM 4A. UNRESOLVED STAFF COMMENTS
Not required.
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ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS
All amounts included herein with respect to the fiscal years ended March 31, 2026, 2025 and 2024 are derived from our audited consolidated financial statements included elsewhere in this annual report. The consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP.
Overview
We are a holding company incorporated in the Cayman Islands with no material operations of our own. Our current operations are conducted principally through our 51%-owned subsidiary, Bomie Wookoo Inc. (“BW”), and BW’s operating subsidiaries in the United States. Historically, through our former operating subsidiaries in the PRC, we engaged in the nutraceutical and dietary supplements business, e-commerce business, internet information and advertising business, and automobile sales business, all of which were disposed of or suspended before the fiscal year ended March 31, 2026.
On March 25, 2025, we completed the acquisition of 51% equity interests of BW. Through BW, we engage in offline product sales, online store sales and e-commerce solution services. BW sells products through TikTok Shops and to business customers and provides training, consulting, brand design, advertising and content-production, livestreaming and related e-commerce enablement services.
For the year ended March 31, 2026, we generated revenue of $14,602,369 and incurred a net loss of $15,715,049, compared with revenue of $71,542 and a net loss of $8,305,429 for the year ended March 31, 2025. The increase in revenue primarily reflected the first full fiscal year of BW’s operations. The increase in net loss primarily reflected goodwill impairment of $6,563,746, asset impairment of $4,725,428 and income tax expense of $1,238,844, partially offset by gross profit from BW. Net loss from discontinued operations was nil in the year ended March 31, 2026, compared with $1,302,782 in the year ended March 31, 2025.
Critical Accounting Policies
We believe it is helpful for investors to understand the critical accounting policies underlying our financial statements and the following discussion of our company’s financial condition and results of operations.
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, plant and equipment, net 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.
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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.
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.
The Company initially recognized goodwill of $5,184,036 in connection with the acquisition of 2Lab3 and $17,500,601 in connection with the acquisition of BW. The Company recorded impairment of the 2Lab3 goodwill of $1,807,848 in the fiscal year ended March 31, 2024 and $3,376,186 in the fiscal year ended March 31, 2025, reducing the net carrying amount of 2Lab3 goodwill to nil. In the fiscal year ended 2026, the Company recorded goodwill impairment of $6,563,746 related to BW. As of March 31, 2026, the net carrying amount of goodwill related to BW was $10,936,855; as the carrying amount of 2Lab3 goodwill was nil, this amount also represented the Company’s consolidated net goodwill.
Impairment of Long-lived Assets other than goodwill
The Company recorded impairment of intangible assets of $3,225,428 for the year ended March 31, 2026, compared with $1,108,333 for the year ended March 31, 2025. The fiscal year 2026 impairment related to customer-relationship intangible assets associated with BW. The recoverability assessment requires management to estimate undiscounted cash flows and, when impairment is indicated, the fair value of the asset group.
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Discontinued operations
In accordance with ASC 205-20, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
Revenue Recognition
The Company’s current revenue is generated from three principal streams: offline product sales, online store sales and e-commerce solution services. Revenue from legacy internet information and advertising services in the comparative period is included in service revenue.
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
The Company recognizes revenue when control of the promised goods or services is transferred to a customer in an amount that reflects the consideration to which the Company expects to be entitled. The revenue-recognition policies for the Company’s principal revenue streams are as follows:
Offline product sales
Offline product sales primarily consist of wholesale product sales by Bomie. The Company is the principal because it controls the products before transfer, establishes pricing and bears inventory and collection risk. Revenue is recognized at a point in time when control transfers upon delivery to, and acceptance by, the customer, as supported by purchase orders, invoices and delivery documentation.
Online store sales
Online store sales primarily consist of products sold by Wookoo through third-party e-commerce platforms. The Company is the principal because it controls the products before transfer and bears inventory risk. Revenue is recognized at a point in time upon delivery to and acceptance by the customer, net of returns, discounts and platform adjustments. Amounts collected by the platform are remitted to the Company in accordance with the platform’s settlement terms.
E-commerce solution services
E-commerce solution services provided by Wookoo and Bomie include training, consulting, brand design, advertising and content production, livestreaming operations and related TikTok-based enablement services. Revenue from stand-ready, training and consulting services is recognized over time as the customer simultaneously receives and consumes the benefits. Revenue from distinct brand-design, advertising-production and similar deliverables is recognized at a point in time when the completed deliverable is transferred to and accepted by the customer.
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The following table presents an overview of our sales from our product lines for the years ended March 31, 2026, 2025 and 2024:
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Offline product sales |
| $ | 9,238,266 |
|
| $ | - |
|
| $ | - |
|
Online store sales |
| $ | 2,743,795 |
|
| $ | - |
|
| $ | - |
|
Service revenue |
| $ | 2,620,308 |
|
| $ | 71,542 |
|
| $ | - |
|
Revenue |
| $ | 14,602,369 |
|
| $ | 71,542 |
|
| $ | - |
|
A. Operating Results
Comparison of Fiscal Years Ended March 31, 2026, 2025, and 2024
The following table presents an overview of our results of operations for the years ended March 31, 2026, 2025 and 2024:
(All amounts, other than percentages, in U.S. dollars)
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Revenues |
| $ | 14,602,369 |
|
| $ | 71,542 |
|
| $ | - |
|
Cost of revenues |
|
| (12,187,693 | ) |
|
| (62,526 | ) |
|
| - |
|
Gross profit |
|
| 2,414,676 |
|
|
| 9,016 |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
Selling and marketing |
|
| (883,897 | ) |
|
| (1,445 | ) |
|
| (94 | ) |
General and administrative |
|
| (4,905,679 | ) |
|
| (2,306,613 | ) |
|
| (2,462,001 | ) |
Goodwill impairment |
|
| (6,563,746 | ) |
|
| (3,376,186 | ) |
|
| (1,807,848 | ) |
Asset impairment |
|
| (4,725,428 | ) |
|
| (1,108,333 | ) |
|
| - |
|
Total operating expenses |
|
| (17,078,750 | ) |
|
| (6,792,577 | ) |
|
| (4,269,943 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss |
|
| (14,664,074 | ) |
|
| (6,783,561 | ) |
|
| (4,269,943 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses): |
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| 216,758 |
|
|
| 156 |
|
|
| - |
|
Interest expense |
|
| (262,514 | ) |
|
| (261,854 | ) |
|
| (39,167 | ) |
Other income, net |
|
| 233,625 |
|
|
| 42,612 |
|
|
| 19,915 |
|
Total other income (expenses), net |
|
| 187,869 |
|
|
| (219,086 | ) |
|
| (19,252 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before income taxes |
|
| (14,476,205 | ) |
|
| (7,002,647 | ) |
|
| (4,289,195 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses |
|
| (1,238,844 | ) |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
| $ | (15,715,049 | ) |
| $ | (7,002,647 | ) |
| $ | (4,289,195 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations before tax |
|
| - |
|
|
| (935,559 | ) |
|
| (13,185,557 | ) |
(Loss) Gain on disposal of discontinued operations |
|
| - |
|
|
| (367,223 | ) |
|
| 7,547,428 |
|
Net loss from discontinued operations |
|
| - |
|
|
| (1,302,782 | ) |
|
| (5,638,129 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| (15,715,049 | ) |
|
| (8,305,429 | ) |
|
| (9,927,324 | ) |
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Year Ended March 31, 2026 Compared to Year Ended March 31, 2025
Revenues
We generated $14,602,369 in revenue for the fiscal year ended March 31, 2026, an increase of $14,530,827 from $71,542 for the fiscal year ended March 31, 2025. The fiscal year 2026 revenue consisted of $9,238,266 from offline product sales, $2,743,795 from online store sales and $2,620,308 from service revenue. The increase primarily reflected the first full fiscal year of BW’s operations following its acquisition on March 25, 2025.
The fiscal year 2025 revenue of $71,542 consisted of legacy internet information and advertising services and is included in service revenue for comparative presentation. The Company did not recognize revenue from discontinued operations in the fiscal year ended March 31, 2026.
Offline product sales represented 63.3% of revenue for the fiscal year ended March 31, 2026, online store sales represented 18.8%, and service revenue represented 17.9%.
Cost of Revenues
Cost of revenues was $12,187,693 for the fiscal year ended March 31, 2026, compared with $62,526 for the fiscal year ended March 31, 2025. The fiscal year 2026 cost of revenues consisted of $8,915,972 for offline product sales, $2,339,408 for online store sales and $932,313 for service revenue. The increase reflected the first full fiscal year of BW’s product purchases, freight, fulfillment, platform-related costs, payroll and contract-labor costs.
Gross Profit
Gross profit was $2,414,676 and gross margin was 16.5% for the fiscal year ended March 31, 2026, compared with gross profit of $9,016 and gross margin of 12.6% for the fiscal year ended March 31, 2025. The fiscal year 2026 gross profit was $322,294 for offline product sales, $404,387 for online store sales and $1,687,995 for service revenue, representing gross margins of approximately 3.5%, 14.7% and 64.4%, respectively. The higher margin on service revenue reflected its lower direct product and fulfillment costs.
Selling and Marketing Expenses
Selling and marketing expenses were $883,897 for the fiscal year ended March 31, 2026, an increase of $882,452 from $1,445 for the fiscal year ended March 31, 2025. The increase primarily reflected advertising, platform promotion and marketing activities supporting the expanded e-commerce operations.
General and Administrative Expenses
General and administrative expenses were $4,905,679 for the fiscal year ended March 31, 2026, an increase of $2,599,066, or approximately 112.7%, from $2,306,613 for the fiscal year ended March 31, 2025. The increase primarily reflected a full year of BW-related personnel and professional costs, public-company costs and other administrative expenses associated with the expanded operations.
Goodwill impairment
Goodwill impairment charges were $6,563,746 for the fiscal year ended March 31, 2026, compared with $3,376,186 for the fiscal year ended March 31, 2025. The fiscal 2026 impairment charge related to goodwill allocated to the Bomie reporting unit within BW. Bomie’s core distribution business ceased generating revenue beginning in February 2026, and the timing and prospects of its proposed business transformation remained uncertain, significantly reducing its expected future cash flows and supporting a full impairment of the related goodwill. The impairment charge for the year ended March 31, 2026 charge related to BW. The fiscal year 2025 charge related to 2Lab3 and, together with the $1,807,848 charge recorded in the fiscal year ended March 31, 2024, reduced 2Lab3 goodwill to nil. The fiscal 2026 impairment charge related to goodwill allocated to the Bomie reporting unit within BW. Bomie’s core distribution business ceased generating revenue beginning in February 2026, and the timing and prospects of its proposed business transformation remained uncertain, significantly reducing its expected future cash flows and supporting a full impairment of the related goodwill.
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Asset impairment
Asset impairment expense was $4,725,428 for the fiscal year ended March 31, 2026, compared with $1,108,333 for the fiscal year ended March 31, 2025. The fiscal year 2026 amount comprised $3,225,428 of impairment of the customer-relationship intangible asset and a $1,500,000 write-off of an advance for an application-development project. The fiscal year 2026 intangible-asset impairment and the $6,563,746 goodwill impairment both related to BW. The intangible asset impairment and the $6,563,746 goodwill impairment both related to the Bomie reporting unit within BW. The impairment was primarily attributable to the cessation of revenue-generating activities in Bomie’s core distribution business beginning in February 2026 and the uncertainty surrounding its proposed business transformation, which significantly reduced the expected future cash flows and recoverable amount of the related customer-relationship intangible asset.
Operating loss
As a result of the factors described above, operating loss increased by $7,880,513, or approximately 116.2%, to $14,664,074 for the fiscal year ended March 31, 2026 from $6,783,561 for the fiscal year ended March 31, 2025. The increase primarily reflected higher goodwill and asset impairment charges and the increase in general and administrative and selling and marketing expenses, partially offset by gross profit generated by the e-commerce operations.
Interest income
Interest income increased to $216,758 for the fiscal year ended March 31, 2026 from $156 for the fiscal year ended March 31, 2025, primarily due to interest earned on short-term investments.
Interest expense
Interest expense was $262,514 for the fiscal year ended March 31, 2026, compared with $261,854 for the fiscal year ended March 31, 2025. Interest expense remained substantially consistent and primarily related to interest-bearing borrowings, including related-party and third-party notes.
Other Income
Other income, net increased by $191,013 to $233,625 for the fiscal year ended March 31, 2026 from $42,612 for the fiscal year ended March 31, 2025, primarily due to non-operating income and foreign-currency effects.
Net loss from continuing operations
Net loss from continuing operations was $15,715,049 for the fiscal year ended March 31, 2026, compared with $7,002,647 for the fiscal year ended March 31, 2025. The increase primarily reflected higher impairment charges and operating expenses, as well as income tax expense of $1,238,844, partially offset by the gross profit generated by BW.
Net loss from discontinued operations
Net loss from discontinued operations was nil for the fiscal year ended March 31, 2026, compared with $1,302,782 for the fiscal year ended March 31, 2025, because the disposal of the automobile sales business was completed in July 2024 and no discontinued operations remained in the fiscal year ended March 31, 2026.
On July 5, 2024, we sold all of the equity interests of Happiness Hong Kong with its automobile sales business for approximately HK$10,000 as consideration. Beginning on July 7, 2024, we no longer retained any financial interest over automobile sales business and accordingly deconsolidated automobile sales business’ financial statements from our consolidated financial statements.
Net loss
As a result of the factors described above, net loss increased by $7,409,620, or approximately 89.2%, to $15,715,049 for the fiscal year ended March 31, 2026 from $8,305,429 for the fiscal year ended March 31, 2025.
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Year Ended March 31, 2025 Compared to Year Ended March 31, 2024
Revenues
We generated $71,542 in revenue for the fiscal year ended March 31, 2025, compared with nil for the fiscal year ended March 31, 2024, primarily from legacy internet information and advertising services.
Cost of Revenues
Cost of revenues was $62,526 for the fiscal year ended March 31, 2025, compared with nil for the fiscal year ended March 31, 2024. Gross profit was $9,016 and gross margin was 12.6% for the fiscal year ended March 31, 2025.
Selling and Marketing Expenses
We incurred $1,445 in selling and marketing expenses for the fiscal year ended March 31, 2025, compared with $94 for the fiscal year ended March 31, 2024. The increase primarily reflected limited marketing activity associated with the transition to the Company’s new operating strategy.
General and Administrative Expenses
We incurred $2,306,613 in general and administrative expenses for the fiscal year ended March 31, 2025, a decrease of $155,388, or approximately 6.3%, from $2,462,001 for the fiscal year ended March 31, 2024, primarily due to lower headcount and service fees following business restructuring.
Goodwill impairment
We recognized goodwill impairment of $3,376,186 for the fiscal year ended March 31, 2025, compared with $1,807,848 for the fiscal year ended March 31, 2024, reflecting updated expectations for the 2Lab3 reporting unit.
Intangible Asset Impairment
We recognized intangible asset impairment of $1,108,333 in the fiscal year ended March 31, 2025, compared with nil in the fiscal year ended March 31, 2024, related to the 2Lab3 proprietary technology.
Operating loss
Operating loss was $6,783,561 for the fiscal year ended March 31, 2025, compared with $4,269,943 for the fiscal year ended March 31, 2024, primarily due to higher goodwill and intangible asset impairment charges.
Interest Income
Interest income was $156 in the fiscal year ended March 31, 2025, compared with nil in the fiscal year ended March 31, 2024.
Interest expense
Interest expense increased to $261,854 for the fiscal year ended March 31, 2025 from $39,167 for the fiscal year ended March 31, 2024, primarily due to additional interest-bearing related-party and third-party borrowings.
Other Income, net
Other income, net was $42,612 for the fiscal year ended March 31, 2025, compared with $19,915 for the fiscal year ended March 31, 2024.
Net loss from continuing operations
Net loss from continuing operations was $7,002,647 for the fiscal year ended March 31, 2025, compared with $4,289,195 for the fiscal year ended March 31, 2024, primarily due to higher impairment charges and interest expense.
Net loss from discontinued operations
Net loss from discontinued operations was $1,302,782 for the fiscal year ended March 31, 2025, compared with $5,638,129 for the fiscal year ended March 31, 2024. The decrease reflected completion of the disposal of the automobile sales business and the absence of losses from other previously disposed businesses.
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Net loss
Net loss was $8,305,429 for the fiscal year ended March 31, 2025, compared with $9,927,324 for the fiscal year ended March 31, 2024, primarily due to the decrease in loss from discontinued operations, partially offset by higher loss from continuing operations.
B. Liquidity and Capital Resources
The following table presents an overview of cash flows for the periods indicated:
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Net cash used in operating activities |
| $ | (1,400,031 | ) |
| $ | (2,669,456 | ) |
| $ | (13,105,978 | ) |
Net cash (used in) provided by investing activities |
|
| (3,863,550 | ) |
|
| (27,046,341 | ) |
|
| 11,698,379 |
|
Net cash provided by financing activities |
|
| 15,603,387 |
|
|
| 29,006,249 |
|
|
| - |
|
Effect of exchange rate changes on cash and cash equivalents |
|
| (303,462 | ) |
|
| 26,661 |
|
|
| (1,003,646 | ) |
Net increase (decrease) in cash and cash equivalents |
|
| 10,036,344 |
|
| $ | (682,887 | ) |
| $ | (2,411,245 | ) |
As of March 31, 2026, 2025 and 2024, we had cash and cash equivalents of approximately $10.30 million, $0.26 million and $0.34 million, respectively. Short-term investments were approximately $4.95 million and $4.76 million as of March 31, 2026 and 2025, respectively. Current assets were approximately $20.22 million and $7.19 million as of March 31, 2026 and 2025, respectively, while current liabilities were approximately $2.47 million and $6.40 million, respectively.
Operating Activities
Net cash used in operating activities was approximately $1.40 million for the fiscal year ended March 31, 2026. The operating cash outflow reflected net loss of approximately $15.72 million, adjusted principally for depreciation and amortization of approximately$2.07 million, impairment of the customer-relationship intangible asset of approximately $3.23 million, a write-off of an advance for an application-development project of approximately $1.50 million, right-of-use asset amortization of approximately $0.19 million, goodwill impairment of approximately $6.56 million, an increase in deferred tax liabilities of approximately $1.13 million, interest expense of approximately $0.26 million and interest income of approximately $0.23 million. Working-capital changes included cash provided by decreases in inventories of approximately $0.53 million and prepaid expenses and other current assets of approximately $1.24 million, partially offset by increases in accounts receivable and amounts due from related parties and decreases in accounts payable and operating lease liabilities.
Net cash used in operating activities was approximately $2.67 million for the fiscal year ended March 31, 2025. The cash outflow reflected net loss of approximately $8.31 million, adjusted principally for goodwill impairment of approximately $3.38 million, intangible asset impairment of approximately $1.11 million, depreciation and amortization of approximately $0.38 million and a disposal-related adjustment of approximately $0.37 million, together with changes in operating assets and liabilities and cash provided by discontinued operations.
Net cash used in operating activities was approximately $13.11 million for the fiscal year ended March 31, 2024. The cash outflow reflected net loss of approximately $9.93 million, adjusted principally for goodwill impairment of approximately $1.81 million, the approximately $7.47 million gain on disposal of discontinued operations, changes in prepaid expenses and other current assets and other payables, and cash provided by discontinued operations.
Investing Activities
Net cash used in investing activities was approximately $3.86 million for the fiscal year ended March 31, 2026, consisting of loans to third parties. Net cash used in investing activities was approximately $27.05 million for the fiscal year ended March 31, 2025, consisting of approximately $22.29 million paid for the acquisition of BW, net of cash acquired, and approximately $4.76 million used to purchase short-term investments. Net cash provided by investing activities was approximately $11.70 million for the fiscal year ended March 31, 2024, consisting primarily of proceeds from the disposal of discontinued operations.
| 38 |
| Table of Contents |
Financing Activities
Net cash provided by financing activities was approximately $15.60 million for the fiscal year ended March 31, 2026, consisting principally of approximately $19.86 million of proceeds from ordinary share issuances and approximately $0.95 million of proceeds from third-party borrowings, partially offset by approximately $3.32 million of repayments of third-party borrowings and approximately $1.89 million of net repayments to related parties. Net cash provided by financing activities was approximately $29.01 million for the fiscal year ended March 31, 2025, consisting of $27.00 million of proceeds from ordinary share issuances, approximately $1.85 million of net advances from related parties and approximately $0.16 million of third-party borrowings. Net cash provided by financing activities was nil for the fiscal year ended March 31, 2024.
Capital Expenditures
No cash capital expenditures were incurred for the years ended March 31, 2026, 2025 and 2024.
Holding Company Structure
We are a holding company with no material operations of our own. We used to conduct our operations through our subsidiaries in China. As a result, our ability to pay dividends depended upon dividends paid by our PRC subsidiaries in previous years.
Currently, our operations are conducted principally through our 51%-owned subsidiary, BW, and BW’s operating subsidiaries in the United States.
C. Research and development, patents, and licenses, etc.
Please refer to Item 4 Subparagraph B “Information on the Company—Business Overview—Research and Development”, “Information on the Company—Business Overview— Trademarks, Copyrights, Patents and Domain Names” and “Information on the Company—Business Overview—Licenses, Permits and Government Regulations.”
D. Trend Information
Other than as disclosed elsewhere in this annual report, we are not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on our net revenues, income from continuing operations, profitability, liquidity or capital resources, or that would cause reported financial information not necessarily to be indicative of future operating results or financial condition.
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| Table of Contents |
ITEM 6. DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES
A. Directors and Senior Management
As of the date of this annual report, our directors and executive officers are as follows:
Name |
| Age |
| Position |
Xiaoyue Zhang |
| 38 |
| Chief Executive Officer, Director |
Ling Guo |
| 47 |
| Chief Financial Officer |
Minzhu Xu |
| 45 |
| Chairperson of the Board |
David Sean Lu |
| 34 |
| Director |
Alex Lightman |
| 66 |
| Director |
Yijian Xu |
| 62 |
| Director |
Below is a summary of the business experience of each of our executive officers and directors:
Xiaoyue Zhang
Ms. Xiaoyue Zhang has extensive experience in management. She is the founder of Zeo Creation LLC and has been in charge of its management since January 2019. From July 2019 to December 2023, she was the assistant to the chairman of PX Global Advisors, LLC, where she was responsible for the project management. From August 2020 to January 2022, Ms. Zhang served as a director at Hudson Capital Inc. (now known as Freight Technologies, Inc.). From March 2022 to December 2023, she was the vice president of NY Swap Holding Ltd., where she focused on office management. Ms. Zhang obtained her bachelor’s degree in business Japanese from Zhengzhou University in 2011, and her master’s degree in marketing from Pace University in 2016.
Ling Guo
Ms. Ling Guo was the chief operating officer and a director of Weilock Group Inc. from February 2021 to April 2024. From June 2017 to February 2021, Ms. Guo was the CEO of Shanghai Welive Business Management Consulting Ltd. (“Welive”). From February 2021 to April 2024, she was the CFO and director of Welive. She is experienced in business consulting and management. Ms. Guo obtained her bachelor’s degree in telecommunication engineering from University of Science and Technology, Beijing, in May 2002 and her MBA degree from Baruch College of The City University of New York in May 2009, where she pursued a double major in financial investment and public accounting.
| 40 |
| Table of Contents |
Minzhu Xu
Ms. Minzhu Xu has extensive experience in advertising, marketing and public relations. She has been a retail investor since November 2022, researching and analyzing market trends and economic indicators to secure investment opportunities to realize financial growth. From April 2018 to October 2022, Ms. Xu was the private equity partner of Hanfor Capital Management Ltd., where she was responsible for identifying and assessing potential investment opportunities. From November 2011 to March 2018, she was the PR director at Fleishman Hillard PR Agency, where she designed annual public relations and communication plan, developed business overview, and controlled the overall progress of projects. From October 2007 to October 2012, she was the PR director at Ogilby and Mather, where she led proposals for new clients’ brand promotions, integrated and managed resources to analyze project objective. Ms. Xu obtained her bachelor’s degree in history from Nanjing Normal University in 2003. Ms. Xu obtained her master’s degree in communication from Peking University in September 2007.
David Sean Lu
Mr. David Sean Lu joined our board on October 30, 2022. Mr. David Sean Lu has served as an advisor of Opulous USA LLC since January 2021. Mr. Lu has been the chief strategy officer of OMNYS Pte. Ltd. since April 2020. From July 2016 to July 2021, Mr. Lu was the Partner of Hamilton Pro Management Inc. From April 2018 to October 2020, Mr. Lu was a managing partner at New York- based LYJ Vernon Blvd LLC. From March 2018 to June 2018, Mr. Lu was a partner at Australian blockchain company Block Capital Pte. Ltd. From August 2017 to December 2017, Mr. Lu served as a listing agent for New York City-based apartment rental company Roomeze LLC. Mr. Lu obtained a Bachelor of Business Administration in Finance and Economics from the Pace University Lubin School of Business in December, 2016.
Alex Lightman
Mr. Alex Lightman has served as our independent director since December 15, 2022. Mr. Lightman is an award winning writer, entrepreneur, board member, inventor, and advisor to governments, corporations, and NGOs. Mr. Lightman was the recipient of the first Economist magazine Reader’s Award for “the innovation that will most radically change the world in the 2010s” on behalf of 4G wireless broadband. From August 2021 to March 2022, Mr. Lightman served as a director of the board of Tingo, Inc. (OTC Markets: TMNA). Mr. Lightman is the founder of Keemoji Inc. and served as chief executive officer of Keemoji Inc. from 2017 to 2022. Mr. Lightman earned his bachelor’s degree in enterprise engineering from the Massachusetts Institute of Technology in 1982 and attended Harvard University with a major in business management from 1982 to 1983.
George Yijian Xu
Mr. George Yijian Xu is a certified public accountant licensed in the State of New York. He has been practicing certified public accounting for over 30 years. He has led his accounting firm, George Xu, C.P.A., P.C., to provide financial accounting, audit and tax services to companies in a variety of industries since June 2000. From September 1996 to June 2000, he worked as an accountant and manager at Gobstein, Weigarten & Goldfarb CPA LLP. From September 1992 to August 1996, he worked as an accountant and advisor at Arthur Andersen LLP. He obtained his master’s degree in accountancy from The State University of New York at Albany in September 1992. He obtained his bachelor’s degree in industrial management from Shanghai University of Engineering Science in 1986 in China.
Board Diversity
Board Diversity Matrix | ||||
Country of Principal Executive Offices: | United States | |||
Foreign Private Issuer | Yes | |||
Disclosure Prohibited under Home Country Law | No | |||
Total Number of Directors | 5 | |||
| Female | Male | Non- Binary | Did Not Disclose Gender |
Part I: Gender Identity |
| |||
Directors | 2 | 3 | 0 | 0 |
Part II: Demographic Background |
| |||
Underrepresented Individual in Home Country Jurisdiction | 0 | |||
LGBTQ+ | 0 | |||
Did Not Disclose Demographic Background | 0 | |||
| 41 |
| Table of Contents |
Employment Agreements with Senior Management
On April 29, 2024, we entered into an employment agreement with our CEO, Xiaoyue Zhang, effective on the same day. Pursuant to such agreement, Ms. Zhang shall receive an annual base salary of $150,000 in cash, paid in periodic installments in accordance with the Company’s regular payroll practices, and $150,000 worth of Class A ordinary shares of the Company, par value $0.01 per share pro-rated over twelve (12)-month period , payable on December 31 each year. Such compensation is subject to annual review and adjustment by the Board . Ms. Zhang is also eligible for bonus, benefits and reasonable expenses reimbursement.
Under this employment agreement, Ms. Zhang is employed as our CEO for a term of one year, which automatically renews for additional one-year terms unless terminated earlier pursuant to the terms of the employment agreement. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and the executive officer’s right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officer’s employment without cause upon one-month advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including (1) a lump sum cash payment equal to 1 months of the Ms. Zhang’s base salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of her target annual bonus for the year immediately preceding the termination, if any; (3) payment of premiums for continued health benefits under the Company’s health plans for 12 months fo1lowing the termination, if any; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by Ms. Zhang.
On February 14, 2026, the compensation committee recommended the Board to approve, and the Board approved on the same date, an adjustment to Ms. Minzhu Xu’s compensation for her services as the chairwoman of the board of the Company, given the increased scale and complexity of the Company’s operation and Ms. Xu’s expanded responsibilities and increased involvement in the strategic direction and oversight of the Company. As a result, effective on February 15, 2026, Ms. Xu’s annual compensation was increased from $50,000 in cash to $290,000 in cash, to be paid in periodic installments in accordance with the Company’s regular payroll practices.
Employment Agreement with Ling Guo
On April 29, 2024, we entered into an employment agreement with our CFO, Ms. Ling Guo, effective on the same day. Pursuant to such agreement, she shall receive an annual base salary of $27,000 in cash, paid in periodic installments in accordance with the Company’s regular payroll practices, and $27,000 worth of Class A ordinary shares of the Company, par value $0.01 per share pro-rated over twelve (12)-month period, payable on December 31 each year. Such compensation is subject to annual review and adjustment by the Board. Ms. Guo is also eligible for bonus, benefits and reasonable expenses reimbursement.
Under this employment agreement, Ms. Guo is employed as our CFO for a term of one year, which automatically renews for additional one year terms unless terminated earlier pursuant to the terms of this Agreement. We may terminate the employment for cause, at any time, without notice or remuneration, for certain acts of the executive officer, such as conviction or plea of guilty to a felony or grossly negligent or dishonest acts to our detriment, or misconduct or a failure to perform agreed duties. In such case, the executive officer will not be entitled to receive payment of any severance benefits or other amounts by reason of the termination, and the executive officer’s right to all other benefits will terminate, except as required by any applicable law. We may also terminate an executive officer’s employment without cause upon one-month advance written notice. In such case of termination by us, we are required to provide compensation to the executive officer, including (1) a lump sum cash payment equal to 1 months of the Ms. Guo’s base salary as of the date of such termination; (2) a lump sum cash payment equal to a pro-rated amount of her target annual bonus for the year immediately preceding the termination, if any; (3) payment of premiums for continued health benefits under the Company’s health plans for 12 months fo1lowing the termination, if any; and (4) immediate vesting of 100% of the then-unvested portion of any outstanding equity awards held by Ms. Guo.
On May 1, 2025, compensation committee of the board of the Company proposed, approved and ratified an adjustment to Ms. Guo’s compensation for her services as the CFO of the Company. As a result, effective on May 1, 2025, Ms. Guo’s annual base salary was increased from $27,000 in cash and $27,000 in Class A ordinary shares of the Company, par value $0.01 per share to $150,000 in cash, to be paid in periodic installments in accordance with the Company’s regular payroll practices, and $50,000 in Class A ordinary shares, pro-rated over twelve (12)-month period. Such compensation of shares will be payable on December 31 each year.
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| Table of Contents |
B. Compensation
Directors and Executive Compensation
The following table represents compensation earned by our executive officers in the fiscal year ended March 31, 2026:
Name and Principal Position |
| Salary ($) |
|
| Bonus ($) |
|
| Stock Awards ($) |
|
| Option Award ($) |
|
| Other Compensation ($) |
|
| Total ($) |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Xiaoyue Zhang (CEO and Director) |
|
| 150,000 |
|
|
| 40,000 |
|
|
| - |
|
|
| - |
|
|
| 100,000 |
|
|
| 290,000 |
|
Ling Guo (CFO) |
|
| 139,750 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 60,350 |
|
|
| 200,100 |
|
Minzhu Xu (Chairperson) |
|
| 70,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 70,000 |
|
David Sean Lu (Director) |
|
| 50,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
Alex Lightman (Director) |
|
| 50,000 |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| 50,000 |
|
Yijian Xu (Director) |
|
| 50,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 50,000 |
|
On March 10, 2026, the compensation committee recommended the Board to approve, and the Board approved on the same date, in recognition of the Company’s operating results and performance and the leadership of Ms. Xiaoyue Zhang, Chief Executive Officer of the Company, for the fiscal year ended March 31, 2025, to award Ms. Zhang a one-time year-end cash bonus in the amount of $40,000.
Grants of Plan Based Awards
From April 1, 2025 through the date of this annual report, we have not issued any Class A Ordinary Shares to employees, directors and consultants.
Pension Benefits
None of the named executives currently participates in or has account balances in qualified or nonqualified defined benefit plans sponsored by us.
Nonqualified Deferred Compensation
None of the named executives currently participates in or has account balances in nonqualified defined contribution plans or other deferred compensation plans maintained by us.
Other than as disclosed above, we have not entered into any agreements or arrangements with our executive officers or directors, and have not made any agreements to provide benefits upon termination of employment.
C. Board Practices
Committees of the Board of Directors
We have established an audit committee, a compensation committee and a nominating and governance committee. As of the date of this annual report, each of the committees of the Board has the composition and responsibilities described below.
Audit Committee
David Sean Lu, Alex Lightman and George Yijian Xu are members of our Audit Committee, where George Yijian Xu, serves as the chairman. All members of our Audit Committee satisfy the independence standards promulgated by the SEC and by NASDAQ as such standards apply specifically to members of audit committees.
| 43 |
| Table of Contents |
We have adopted and approved a charter for the Audit Committee prior to consummation of our initial public offering. In accordance with our Audit Committee Charter, our Audit Committee performs several functions, including:
| · | evaluates the independence and performance of, and assesses the qualifications of, our independent auditor, and engages such independent auditor; |
|
|
|
| · | approves the plan and fees for the annual audit, quarterly reviews, tax and other audit-related services, and approves in advance any non-audit service to be provided by the independent auditor; |
|
|
|
| · | monitors the independence of the independent auditor and the rotation of partners of the independent auditor on our engagement team as required by law; |
|
|
|
| · | reviews the financial statements to be included in our Annual Report on Form 20-F and Quarterly Reports on Form 6-K and reviews with management and the independent auditors the results of the annual audit and reviews of our quarterly financial statements; |
|
|
|
| · | oversees all aspects our systems of internal accounting control and corporate governance functions on behalf of the board; |
|
|
|
| · | reviews and approves in advance any proposed related-party transactions and report to the full Board on any approved transactions; and |
|
|
|
| · | provides oversight assistance in connection with legal, ethical and risk management compliance programs established by management and the Board, including Sarbanes-Oxley Act implementation, and makes recommendations to the Board regarding corporate governance issues and policy decisions. |
It is determined that George Yijian Xu, possesses accounting or related financial management experience that qualifies him as an “audit committee financial expert” as defined by the rules and regulations of the SEC.
Compensation Committee
We have established the Compensation Committee in October 2019. David Sean Lu, Alex Lightman, and George Yijian Xu are members of our Compensation Committee and David Sean Lu is the chairman. All members of our Compensation Committee are qualified as independent under the current definition promulgated by NASDAQ. We have adopted a charter for the Compensation Committee prior to consummation of this offering. In accordance with the Compensation Committee’s Charter, the Compensation Committee is responsible for overseeing and making recommendations to the Board regarding the salaries and other compensation of our executive officers and general employees and providing assistance and recommendations with respect to our compensation policies and practices.
Nominating and Governance Committee
David Sean Lu, George Yijian Xu and Alex Lightman are the members of our Nominating and Governance Committee where Alex Lightman serves as the chairman. All members of our Nominating and Governance Committee are qualified as independent under the current definition promulgated by NASDAQ. The Board of Directors adopted and approved a charter for the Nominating and Governance Committee prior to consummation of this offering. In accordance with the Nominating and Governance Committee’s Charter, the Nominating and Corporate Governance Committee is responsible to identify and propose new potential director nominees to the Board of Directors for consideration and review our corporate governance policies.
Code of Conduct and Ethics
On October 24, 2019, we adopted a code of conduct and ethics applicable to our directors, officers and employees in accordance with applicable federal securities laws and NASDAQ rules.
Corporate Governance
Our board of directors has adopted a code of business conduct and ethics, which is applicable to all of our directors, officers and employees. We will make our code of business conduct and ethics publicly available on our website prior to the initial closing of this offering.
| 44 |
| Table of Contents |
Insider Trading Policy
On October 24, 2019, our Board of Directors adopted an insider trading policy that applies to our directors, officers and employees.
Director Independence
In conformity with Nasdaq’s Corporate Governance Rules, the Company, as a foreign private issuer, has opted not to comply with Nasdaq’s independence requirements. Accordingly, our Board of Directors has determined that three of our directors, David Sean Lu, Alex Lightman and George Yijian Xu qualify as independent directors pursuant to the rules of the Nasdaq Marketplace.
D. Employees
As of March 31, 2026, we had a total of 34 full-time employees, based in the U.S and China. As of the date of this annual report, we have a total of 34 full-time employees, based in the U.S and China.
None of our employees are represented by a union. We believe that our relationship with our employees has historically been good, and this is expected to continue.
The functional distribution of our full-time employees as of March 31, 2026 is as follows:
Function |
| Number |
| |
Management |
|
| 8 |
|
Sales and marketing |
|
| 19 |
|
Finance and administration |
|
| 2 |
|
Warehouse |
|
| 5 |
|
Total |
|
| 34 |
|
E. Share Ownership
The following table sets forth information regarding the beneficial ownership of our ordinary shares as of the date of this annual report:
| · | each person known by us to be the beneficial owner of more than 5% of our outstanding ordinary shares; |
|
|
|
| · | each of our executive officers and directors; and |
|
|
|
| · | all our executive officers and directors as a group. |
The beneficial ownership of ordinary shares is determined in accordance with the rules of the SEC and generally includes any ordinary shares over which a person exercises sole or shared voting or investment power. For purposes of the table below, we deem shares subject to options, warrants or other exercisable or convertible securities that are exercisable or convertible currently or within 60 days of the date of this annual report, to be outstanding and to be beneficially owned by the person holding the options, warrants or other currently exercisable or convertible securities for the purposes of computing the percentage ownership of that person but we do not treat them as outstanding for the purpose of computing the percentage ownership of any other person. Unless otherwise indicated below, to our knowledge, all persons named in the table have sole voting and investment power with respect to their shares, except to the extent authority is shared by spouses under community property laws.
Percentage of beneficial ownership of each listed person is based on 856,897 Class A Ordinary Shares and 12,741 Class B Ordinary Shares outstanding as of the date of this annual report.
| 45 |
| Table of Contents |
|
| Shares Beneficially Owned (1)(2) |
|
|
| |||||||||||||||
|
| Class A ordinary shares |
|
| Class B ordinary shares |
|
| % of Total |
| |||||||||||
|
| Number |
|
| % |
|
| Number |
|
| % |
|
| Voting Power |
| |||||
Directors and Executive Officers(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Xiaoyue Zhang, Chief Executive Officer and Director |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Ling Guo, Chief Financial Officer |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Minzhu Xu, Chairwoman(4) |
|
| 4 |
|
| * |
|
|
| 12,739 |
|
|
| 99.98 | % |
|
| 54.32 | % | |
David Sean Lu, Director |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
Alex Lightman, Director |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
George Yijian Xu, Director |
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
|
| — |
|
All Directors and Executive Officers |
|
| 4 |
|
| * |
|
|
| 12,739 |
|
|
| 99.98 | % |
|
| 54.32 | % | |
5% Shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Happy Group Inc. (4) |
|
| — |
|
|
| — |
|
|
| 12,739 |
|
|
| 99.98 | % |
|
| 54.32 | % |
* | less than 1% |
(1) | Beneficial ownership is determined in accordance with the rules of the SEC and includes voting or investment power with respect to the ordinary shares. All shares represent only ordinary shares held by shareholders as no options are issued or outstanding. |
(2) | Each Class A ordinary share has one (1) vote per share. Each Class B ordinary share has eighty (80) votes per share. |
(3) | The business address for each of our directors and officers is c/o Paranovus Entertainment Technology Ltd., 1177 6th avenue, floor 5, New York, NY 10036. |
(4) | Ms. Minzhu Xu holds 4 Class A Ordinary Shares directly and 12,739 Class B Ordinary Shares via Happy Group Inc. indirectly, which is wholly owned by Ms. Xu. |
| 46 |
| Table of Contents |
F. Disclosure of a Registrant’s Action to Recover Erroneously Awarded Compensation
Not applicable.
ITEM 7. MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS
A. Major Shareholders
Please refer to Item 6 “Directors, Senior Management and Employees—E. Share Ownership.”
B. Related Party Transactions
In addition to the executive officer and director compensation arrangements discussed in “Directors and Executive Compensation,” below we describe transactions since April 1, 2025, to which we have been a participant, in which the amount involved in the transactions is material to us or the related party.
a. | Nature of relationships with related parties |
Name of related parties |
| Relationship with the Company |
Minzhu Xu |
| Chairperson of the Board |
Shunqi Du |
| Former Legal representative of Paranovus Hainan |
Shuang Wu |
| Former CEO of Bomie Wookoo Inc. |
Jue Wang |
| Shareholder of Bomie Wookoo Inc. |
b. | Dues to the related parties |
|
| As of March 31, |
|
| As of March 31, |
| ||
Due to the related parties |
| 2026 |
|
| 2025 |
| ||
Minzhu Xu |
|
| - |
|
|
| 1,777,512 |
|
Shunqi Du |
|
| 85,589 |
|
|
| 70,646 |
|
Shuang Wu |
|
| 98,469 |
|
|
| 98,469 |
|
Total |
| $ | 184,058 |
|
| $ | 1,946,627 |
|
c. | Amount due from a related party |
|
| As of March 31, 2026 |
|
| As of March 31, 2025 |
| ||
Jue Wang |
| $ | 40,000 |
|
| $ | - |
|
Due from related party |
| $ | 40,000 |
|
| $ | - |
|
d. | Related party transactions |
On June 26, 2025, the Company signed a promissory note purchase agreement with Ms. Minzhu Xu, the chairperson of the Board. Pursuant to the purchase agreement, the Company issued an 8% promissory note with principal amount of $300,000 to Ms. Xu on June 26, 2025, the closing date of this transaction. The note will mature in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from this offering were used to for the general working capital purposes of the Company.
On September 18, 2025, the Company signed a promissory note purchase agreement with Ms. Xu. Pursuant to the purchase agreement, the Company issued an 8% promissory note with principal amount of $250,000 to Ms. Xu on September 18, 2025, the closing date of the transaction. The note matures in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from the note offering were used to for the general working capital purposes of the Company.
On September 18, 2025, the Company Ms. Xu, signed certain acknowledgments, pursuant to which, the parties acknowledged and agreed to amend and restate each of the current notes such that the maturity date of each of the amended and restated notes are extended to March 31, 2026.
On January 9, 2026, the Company entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the securities purchase agreement, Happy Group Inc. subscribed for and purchased from the Company, and the Company issued and sold to Happy Group Inc., an aggregate of 40,000 Class B ordinary shares of the Company, par value US$1.00 per share, for a purchase price of US$3.09 per share. The gross proceeds from this offering were $123,600.
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On April 1, 2026, the Company entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the securities purchase agreement, Happy Group Inc. subscribed for and purchased from the Company, and the Company issued and sold to Happy Group Inc., an aggregate of 20,000 Class B ordinary shares of the Company, par value US$0.000012 per share, for a purchase price of US$3.2 per share. The gross proceeds from this offering were $64,000.
On June 30, 2026, the Company entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the Securities Purchase Agreement, Happy Group Inc. subscribed for and purchased from the Company, and the Company issued and sold to Happy Group Inc., an aggregate of 12,500 Class B ordinary shares of the Company, par value US$0.0012 per share, for a purchase price of US$8.00 per share. The gross proceeds from this offering were $100,000.
Other than disclosed herein this report, there have been no material related party transactions from April 1, 2026 through the latest practicable date.
As of March 31, 2025, the amount due to Ms. Minzhu Xu, Chairperson of the Board, was $1,777,512, consisting of $1,700,000 of principal under 8% promissory notes and $77,512 of accrued interest. During the fiscal year ended March 31, 2026, we borrowed an additional $550,000 from Ms. Xu under two 8% promissory notes and recognized $113,777 of related-party interest expense. On December 12, 2025, we repaid all amounts due to Ms. Xu, totaling $2,441,289, consisting of $2,250,000 of principal and $191,289 of interest. No amount was due to Ms. Xu as of March 31, 2026.
As of March 31, 2026, amounts due to Shunqi Du and Shuang Wu were $85,589 and $98,469, respectively, and an amount due from Jue Wang, a shareholder of BW, was $40,000. These balances were unsecured, non-interest-bearing and due on demand.
As of the date of this annual report, there were no outstanding balances owed to related parties.
C. Interests of Experts and Counsel
Not applicable.
ITEM 8. FINANCIAL INFORMATION
A. Consolidated Statements and Other Financial Information
Financial Statements
We have appended consolidated financial statements filed at the end of this report on 20-F, beginning on page F-1.
Legal Proceedings
We are currently not a party to any material legal or administrative proceedings. We may from time to time be subject to various legal or administrative claims and proceedings arising in the ordinary course of business. Litigation or any other legal or administrative proceeding, regardless of the outcome, is likely to result in substantial cost and diversion of our resources, including our management’s time and attention.
Dividend Policy
On July 31, 2020, the Board of the Company declared a special cash dividend of $0.015 per ordinary shares. The dividend, equal to $375,000 in the aggregate, was fully paid on August 17, 2020. We have no plan to declare or pay any dividends in the near future on our Ordinary Shares. We currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.
Our board of directors has discretion as to whether to distribute dividends, subject to certain requirements of Cayman Islands law. In addition, subject to the provisions in our articles of association, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. Even if our board of directors decides to pay dividends, the form, frequency, and amount will depend upon our future operations and earnings, capital requirements and surplus, general financial condition, contractual restrictions, and other factors that the board of directors may deem relevant.
We are a holding company incorporated in the Cayman Islands. We have not received and do not have any present plan to receive dividends paid by our subsidiaries, but we have discretion as to whether such dividends are paid, subject to applicable statutory and contractual restrictions.
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B. Significant Changes
Not applicable.
ITEM 9. THE OFFER AND LISTING
A. Offer and Listing Details
Our Class A ordinary shares, par value $0.000012 per share, are currently trading under the ticker symbol “PAVS” on the NASDAQ Capital Market.
B. Plan of Distribution
Not applicable.
C. Markets
Our Class A ordinary shares are currently trading under the ticker symbol “PAVS” on the NASDAQ Capital Market
D. Selling Shareholders
Not applicable.
E. Dilution
Not applicable.
F. Expenses of the Issue
Not Applicable.
ITEM 10. ADDITIONAL INFORMATION
A. Share Capital
Not applicable.
B. Memorandum and Articles of Association
We incorporate by reference into this annual report our Amended and Restated Memorandum and Articles of Association, Exhibit 1.6 attached hereto, the description of our Class A Ordinary Shares (filed as Exhibit 2.2 hereof), and the description of differences in corporate laws contained in our registration statement on Form F-1 (File No. 333-254909), as amended, initially filed with the SEC on March 8, 2019.
C. Material Contracts
The following descriptions of the material provisions of the referenced agreements do not purport to be complete and are subject to, and qualified in their entirety by reference to the agreements which have been filed as exhibits to this report.
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Note Purchase Agreement with Minzhu Xu
On September 30, 2024 and January 13, 2025, respectively, the Company signed two promissory note purchase agreements with Ms. Minzhu Xu. Pursuant to these purchase agreements, the Company issued to Ms. Xu an 8% promissory note with principal amount of $500,000 on September 30, 2024, and another 8% promissory note with principal amount of $450,000 on January 13, 2025, which were the respective closing dates of the two transactions. Each note matures in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from the two note offerings were used for the general working capital purposes of the Company.
These note offerings were each unanimously approved by the audit committee of the Board of the Company consisting only of independent directors.
The copies of the purchase agreements and the notes are respectively attached as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed on October 3, 2024 and January 17, 2025, and such documents are incorporated herein by reference.
On June 26, 2025, the Company signed a promissory note purchase agreement with Ms. Minzhu Xu, the chairperson of the Board. Pursuant to the purchase agreement, the Company issued an 8% promissory note with principal amount of $300,000 to Ms. Xu on June 26, 2025, the closing date of this transaction. The note will mature in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from this offering were used to for the general working capital purposes of the Company. This offering was unanimously approved by the audit committee of the Board of the Company consisting only of independent directors.
The forms of the purchase agreement and the note are attached hereto as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed on June 30, 2025, and such documents are incorporated herein by reference.
On September 18, 2025, the Company signed a promissory note purchase agreement with Ms. Xu. Pursuant to the purchase agreement, the Company issued an 8% promissory note with principal amount of $250,000 to Ms. Xu on September 18, 2025, the closing date of the transaction. The note matures in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from the note offering were used to for the general working capital purposes of the Company.
These note offerings were each unanimously approved by the audit committee of the Board of the Company consisting only of independent directors.
The copies of the purchase agreement and the note are attached as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed on September 22, 2025, and such documents are incorporated herein by reference.
Securities Purchase Agreement with Non-U.S. Persons
On July 17, 2024, in connection with the Company’s strategic transition to streamline its operations and to concentrate in our core competencies in providing AI-powered solutions, the Company entered into a certain securities purchase agreement with certain non-U.S. investors, pursuant to which the Company agreed to sell up to 60,000,000 Class A Ordinary Shares at a per share purchase price of $0.45.
Upon satisfying all closing conditions, this offering was consummated on August 7, 2024. The Company issued a total of 60,000,000 restricted Class A Ordinary Shares to the investors. The form of the SPA was filed as Exhibit 10.1 to the Current Report on Form 6-K filed on July 23, 2024 and such document are incorporated herein by reference. The gross proceeds to the Company are approximately $27,000,000, before deducting any fees or expenses. The Company used $22,400,000 from the proceeds to fund the acquisition of 51% of outstanding shares of Bomie Wookoo Inc.
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Note Purchase Agreement with Guangrong Ao
On April 3, 2025 and May 30, 2025, respectively, the Company signed two promissory note purchase agreements with Mr. Guangrong Ao, who is a non-affiliated shareholder of the Company with less than 1% of the total voting power of the Company. Pursuant to these purchase agreements, the Company issued to Mr. Ao two 8% promissory note with principal amount of $200,000 each on April 3, 2025 and on May 30, 2025, which were the respective closing dates of the two transactions. Each note matures in 12 months after its issuance and can be pre-paid in part or in whole by the Company prior to its maturity date. The proceeds from the two note offerings were used for the general working capital purposes of the Company.
The copies of the purchase agreements and the notes are respectively attached as Exhibits 10.1 and 10.2 to the Current Report on Form 6-K filed on April 3, 2025 and May 30, 2025, and such documents are incorporated herein by reference.
Note Agreement Extension
On September 18, 2025, the Company and each of Mr. Ao and Ms. Xu, signed certain acknowledgments, pursuant to which, the parties acknowledged and agreed to amend and restate each of the current notes such that the maturity date of each of the amended and restated Notes were extended to March 31, 2026.
The extensions applied to the notes which the Company issued to Ms. Xu, on May 20, 2024, September 30, 2024 and January 13, 2025, respectively, in an aggregate original principal amount of $1,700,000.00. The extensions applied to the notes which the Company issued to Mr. Ao, on November 14, 2023, January 18, 2024, and March 12, 2024, in an aggregate original principal amount of $2,250,000.00.
Acquisition of BW
On February 28, 2025, the Company, BW, a corporation organized under the laws of New York, and stockholders of BW, entered into a share purchase agreement. Pursuant to the agreement, the Company agreed to acquire 102 shares of common stock of BW, representing 51% equity interest from BW’s stockholders for a total consideration of $22,440,000 in cash. The transaction was closed on March 25, 2025, upon the satisfaction or waiver of customary closing conditions, including the approval of the Company’s shareholders. On March 24, 2025, the Company’s shareholders approved the consummation of the transaction pursuant to the share purchase agreement in a general extraordinary meeting. The Company was granted the right to appoint a majority of the members of BW’s board of directors.
BW operates through its two wholly owned subsidiaries, Bomie US LLC in New Jersey and WooKoo LLC in Texas, engaging in e-commerce business on TikTok as well as providing e-commerce solutions to customers. This acquisition aligns with the Company’s strategy to expand into marketing-commerce field. By securing a majority interest in BW, the Company aims to capitalize on the growing interests demand for TikTok-driven e-commerce and related solutions.
The share purchase agreement is filed as Exhibit 10.1 to the Current Report on Form 6-K filed on March 3, 2025 and such document is incorporated herein by reference.
Securities Purchase Agreements with Minzhu Xu
On January 9, 2026, the Company entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the securities purchase agreement, Ms. Xu agreed to subscribe for and purchase from the Company, and the Company agreed to issue and sell to Ms. Xu, an aggregate of 40,000 Class B ordinary shares of the Company, par value US$1.00 per share, for a purchase price of US$3.09 per share. The gross proceeds from this offering were $123,600. The 40,000 Class B Ordinary Shares are issued in accordance with Regulation S under the Securities Act of 1933, as amended.
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The transaction contemplated by the Securities Purchase Agreement was closed on January 13, 2026. The entry into the Securities Purchase Agreement and the consummation of the transaction contemplated thereby have been approved by the Company’s audit committee of the board of directors on January 9, 2026. A copy of the SPA was filed as Exhibit 10.1 to the Current Report on Form 6-K filed on January 13, 2026 and such document is incorporated herein by reference.
On April 1, 2026, the Company entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the securities purchase agreement, Ms. Xu agreed to subscribe for and purchase from the Company, and the Company agreed to issue and sell to Ms. Xu, an aggregate of 20,000 Class B ordinary shares of the Company, par value US$0.000012 per share, for a purchase price of US$3.2 per share. The gross proceeds from this offering were $64,000. The 20,000 Class B Ordinary Shares are issued in accordance with Regulation S under the Securities Act of 1933, as amended.
The transaction contemplated by the Securities Purchase Agreement was closed on April 1, 2026. The entry into the Securities Purchase Agreement and the consummation of the transaction contemplated thereby have been approved by the Company’s audit committee of the board of directors on April 1, 2026. A copy of the SPA was filed as Exhibit 10.1 to the Current Report on Form 6-K filed on April 1, 2026 and such document is incorporated herein by reference.
On June 30, 2026, the Company, entered into a securities purchase agreement with Happy Group Inc., a Cayman Islands company and an existing shareholder of the Company, which is wholly owned by Ms. Xu. Pursuant to the Securities Purchase Agreement, the Affiliate agreed to subscribe for and purchase from the Company, and the Company agreed to issue and sell to the Affiliate, an aggregate of 12,500 Class B ordinary shares of the Company, par value US$0.0012 per share, for a purchase price of US$8.00 per share. The gross proceeds from this offering were $100,000. The 12,500 Class B Ordinary Shares are issued in accordance with Regulation S under the Securities Act of 1933, as amended.
The transaction contemplated by the Securities Purchase Agreement was closed on July 2, 2026. The entry into the Securities Purchase Agreement and the consummation of the transaction contemplated thereby have been approved by the Company’s audit committee of the board of directors on June 30, 2026. A copy of the SPA was filed as Exhibit 10.1 to the Current Report on Form 6-K filed on July 6, 2026 and such document is incorporated herein by reference.
At-The-Market Offering Sales Agreement with Alliance Global Partners
On October 28, 2025, the Company entered into a sales agreement with A.G.P./Alliance Global Partners (“A.G.P.”), as sales agent, pursuant to which the Company could offer and sell from time to time Class A Ordinary Shares having an aggregate offering price of up to $100,000,000 million through an at-the-market offering. Under the sales agreement, A.G.P. was entitled to a commission equal to 3.5% of the gross proceeds from each sale of Class A Ordinary Shares made through A.G.P. as sales agent. The offering was conducted pursuant to the Company’s registration statement on Form F-3 (File No. 333-275599), as supplemented by the prospectus supplement dated October 28, 2025.
On March 18, 2026, the Company delivered a termination notice to the sales agent, and the sales agreement was terminated effective March 22, 2026. As of the termination date, the Company had sold approximately 4,900 Class A Ordinary Shares, adjusted for the 1-for-12 reverse share split effective March 31, 2026 and for the 1-for-100 reverse share split effective June 29, 2026, under the sales agreement. A copy of the sales agreement was filed as Exhibit 1.1 to the Current Report on Form 6-K filed on October 29, 2025, and is incorporated herein by reference.*
The foregoing is only a brief description of the material terms of the sales agreement with A.G.P., and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
Registered Direct Offering of $5.0 Million
On March 24, 2026, the Company entered into a securities purchase agreement with an investor, pursuant to which the Company agreed to sell approximately 275 Class A Ordinary Shares at a purchase price of $420.00 per share and pre-funded warrants to purchase up to 11,630 Class A Ordinary Shares at a purchase price of $419.88 per pre-funded warrant in a registered direct offering. The purchase price of each pre-funded warrant equaled the purchase price per Class A Ordinary Share minus the $0.12 per-share exercise price of the pre-funded warrant. The pre-funded warrants were immediately exercisable and remain exercisable until exercised in full.*
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The offering closed on March 25, 2026, and the Company received gross proceeds of approximately $5.0 million, before deducting financial advisor fees and other offering expenses. The securities were offered pursuant to the Company’s registration statement on Form F-3 (File No. 333-291788), as supplemented by the prospectus supplement dated March 24, 2026.
In connection with the offering, the Company entered into a financial advisory agreement with A.G.P., pursuant to which A.G.P. acted as the Company’s exclusive financial advisor and received a cash fee equal to 7% of the gross proceeds, together with reimbursement of up to $50,000 for specified expenses. The Company also agreed, subject to certain exceptions, not to issue certain equity securities or file certain registration statements during the 30-day period following the closing. In addition, the Company’s directors and officers and shareholders beneficially owning more than 5% of its outstanding Ordinary Shares entered into 30-day lock-up agreements.
As of June 9, 2026, the investor had fully exercised the pre-funded warrants issued in this offering.
The form of pre-funded warrant, form of securities purchase agreement and financial advisory agreement were filed as exhibits 4.1, 10.1 and 10.2 to the Report on Form 6-K furnished to the SEC on March 26, 2026 and are incorporated herein by reference.
The foregoing is only a brief description of the material terms of the pre-funded warrant, the securities purchase agreement the financial advisory agreement and the lock-up agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
At-The-Market Offering Sales Agreement with AC Sunshine Securities LLC
On June 4, 2026, the Company entered into a sales agreement with AC Sunshine Securities LLC (“AC Sunshine”), as sales agent, pursuant to which the Company could offer and sell from time to time Class A Ordinary Shares having an aggregate offering price of up to approximately $195.0 million through an at-the-market offering. Under the sales agreement, AC Sunshine was entitled to a commission equal to 3.5% of the gross proceeds from each sale of Class A Ordinary Shares made through AC Sunshine as sales agent. The offering was conducted pursuant to the Company’s registration statement on Form F-3 (File No. 333-291788), as supplemented by the prospectus supplement dated June 9, 2026.
On June 14, 2026, the Company and AC Sunshine entered into a termination agreement pursuant to which the sales agreement was terminated effective immediately. As of the termination, the Company had sold approximately 392,490 Class A Ordinary Shares for aggregate gross proceeds of $30,967,191 under the sales agreement. A copy of the sales agreement was filed as Exhibit 1.1 to the Report on Form 6-K furnished to the SEC on June 9, 2026 and is incorporated herein by reference.*
The foregoing is only a brief description of the material terms of the securities purchase agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
Registered Direct Offering of $10.0 Million
On June 15, 2026, the Company entered into securities purchase agreements with certain investors, pursuant to which the Company agreed to sell approximately 93,000 Class A Ordinary Shares at a purchase price of $20.00 per share and pre-funded warrants to purchase up to 407,000 Class A Ordinary Shares at a purchase price of $19.99 per pre-funded warrant in a registered direct offering. The purchase price of each pre-funded warrant equaled the purchase price per Class A Ordinary Share minus the $0.01 per-share exercise price of the pre-funded warrant. The pre-funded warrants were immediately exercisable and remained exercisable until exercised in full.*
The offering closed on June 16, 2026, and the Company received gross proceeds of approximately $10.0 million, before deducting financial advisor fees and other offering expenses. The securities were offered pursuant to the Company’s registration statement on Form F-3 (File No. 333-291788), as supplemented by the prospectus supplement dated June 15, 2026.
In connection with the offering, the Company entered into a financial advisory agreement with A.G.P., pursuant to which A.G.P. acted as the Company’s exclusive financial advisor and received a cash fee equal to 7% of the gross proceeds, together with reimbursement of up to $50,000 for specified expenses. The Company also agreed, subject to certain exceptions, not to issue certain equity securities or file certain registration statements during the 45-day period following the closing and not to conduct certain variable-rate transactions during the six-month period following the closing. In addition, the Company’s directors and officers and shareholders beneficially owning more than 10% of its outstanding Ordinary Shares entered into 45-day lock-up agreements.
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As of August 7, 2026, the investors had fully exercised all pre-funded warrants issued in this offering.
The form of pre-funded warrant, form of securities purchase agreement and financial advisory agreement were filed as exhibits 4.1, 10.1 and 10.2 to the Report on Form 6-K furnished to the SEC on June 16, 2026 and are incorporated herein by reference.
The foregoing is only a brief description of the material terms of the pre-funded warrant, the securities purchase agreement, the financial advisory agreement, the lock-up agreement, and does not purport to be a complete description of the rights and obligations of the parties thereunder and is qualified in its entirety by reference to such exhibit.
* The numbers of Class A Ordinary Shares, the numbers of Class A Ordinary Shares underlying the pre-funded warrants, and the applicable per-share and per-warrant purchase and exercise prices disclosed above have been retroactively adjusted, as applicable, to reflect the Company’s 1-for-100 reverse share split effective December 18, 2025, 1-for-12 reverse share split effective March 31, 2026, and 1-for-100 reverse share split effective June 29, 2026.
Asset Purchase Agreement with Jabanero
On June 14, 2026, the Company entered into a non-binding letter of intent (“LOI”) regarding the proposed acquisition of 100% equity interest of Jabanero Inc., a company incorporated under the laws of New York (“Jabanero”). Following the due diligence conducted by the management and further commercial negotiations between the parties, the Company decided to proceed with a transaction to purchase the assets relating to an athletic wear business and brand “Heyviva” from Jabanero instead. On July 30, 2026, the Company entered into an asset purchase agreement (the “Asset Purchase Agreement”) with Jabanero, pursuant to which, the Company agreed to purchase from Seller substantially all of the assets relating to the athletic wear business and brand “Heyviva”, including intellectual property assets (comprising trademark registrations in the United States, trade names, know-how, and trade secrets), internet domain names and associated websites, social media accounts and handles, inventory, customer data and records (to the extent permitted by applicable law), certain assigned contracts, and all books, records, and goodwill associated with the foregoing (collectively, the “Purchased Assets”). The Purchased Assets do not include Seller’s trademarks and trademark applications registered in the European Union or the United Kingdom (the “EU/UK Marks”), which are retained by Seller, subject to certain rights and restrictions as set forth in the Agreement. The Agreement provides the Company with a right of first refusal, for a period of seven years following the Closing, to acquire the EU/UK Marks before Seller may sell, assign, or exclusively license them to a third party, or allow any such registration to lapse or be abandoned. The aggregate purchase price for the Purchased Assets is $33,000,000 in cash. The Company agreed to pay (i) $16,500,000 at the closing of the transaction contemplated by the Asset Purchase Agreement (the “Closing”), (ii) $4,950,000 within five (5) business days following the completion of the transfer and assignment of all the domain name(s) as set forth in the schedules to the Asset Purchase Agreement; (iii) $4,950,000 within five (5) business days after the Company has been recorded as the registered owner of all the U.S. trademark registrations and any pending applications as set forth in schedules to the Asset Purchase Agreement in the records of the United States Patent and Trademark Office; and (iv) $6,600,000 within five (5) business days following the completion of the transfer and assignment of all other Purchased Assets to the Company and the Company’s written confirmation that such transfers have been completed in accordance with the Asset Purchase Agreement. This transaction was closed on August 5, 2026. The Company believes that the this transaction will create meaningful synergies with its existing social commerce capabilities and enhance its ability to drive sustainable long-term growth.
The foregoing summary of the Asset Purchase Agreement is subject to, and qualified in its entirety by, such document. A copy of the Agreement is attached hereto as Exhibit 10.1 to the Current Report on Form 6-K filed on August 5, 2026, and is incorporated herein by reference.
D. Exchange Controls
Cayman Islands
There are currently no exchange control regulations in the Cayman Islands applicable to us or our shareholders.
The PRC
General administration of foreign exchange
The principal regulation governing foreign currency exchange in the PRC is the Administrative Regulations of the PRC on Foreign Exchange (the “Foreign Exchange Regulations”), which were promulgated on January 29, 1996, became effective on April 1, 1996 and were last amended on August 5, 2008. Under these rules, Renminbi is generally freely convertible for payments of current account items, such as trade- and service-related foreign exchange transactions and dividend payments, but not freely convertible for capital account items, such as capital transfer, direct investment, investment in securities, derivative products or loans unless prior approval by competent authorities for the administration of foreign exchange is obtained. Under the Foreign Exchange Regulations, foreign-invested enterprises in the PRC may purchase foreign exchange without the approval of SAFE to pay dividends by providing certain evidentiary documents, including board resolutions, tax certificates, or for trade- and services-related foreign exchange transactions, by providing commercial documents evidencing such transactions. Cross-border tax payments in connection with the foregoing are governed by the Value-Added Tax Law effective January 1, 2026 and its Implementation Regulations, which replaced the former Provisional Regulations on Value-Added Tax.
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Circular No. 75, Circular No. 37 and Circular No. 13
Circular 37 was released by SAFE on July 4, 2014 and abolished Circular 75 which had been in effect since November 1, 2005. Pursuant to Circular 37, a PRC resident should apply to SAFE for foreign exchange registration of overseas investments before it makes any capital contribution to a special purpose vehicle, or SPV, using his or her legitimate domestic or offshore assets or interests. SPVs are offshore enterprises directly established or indirectly controlled by domestic residents for the purpose of investment and financing by utilizing domestic or offshore assets or interests they legally hold. Following any significant change in a registered offshore SPV, such as capital increase, reduction, equity transfer or swap, consolidation or division involving domestic resident individuals, the domestic individuals shall amend the registration with SAFE. Where an SPV intends to repatriate funds raised after completion of offshore financing to the PRC, it shall comply with relevant PRC regulations on foreign investment and foreign debt management. A foreign-invested enterprise established through return investment shall complete relevant foreign exchange registration formalities in accordance with the prevailing foreign exchange administration regulations on foreign direct investment and truthfully disclose information on the actual controller of its shareholders. Return investment is also subject to the Foreign Investment Law of the People's Republic of China (effective January 1, 2020), which, together with its implementing regulations, constitutes the principal upper-level legal basis governing foreign investment access, including return investment, in the PRC. Any cross-border service fee, royalty or interest payment arising in connection with an SPV structure or return investment remains subject to withholding VAT under the Value-Added Tax Law effective January 1, 2026.
If any shareholder who is a PRC resident (as determined by the Circular No. 37) holds any interest in an offshore SPV and fails to fulfil the required foreign exchange registration with the local SAFE branches, the PRC subsidiaries of that offshore SPV may be prohibited from distributing their profits and dividends to their offshore parent company or from carrying out other subsequent cross-border foreign exchange activities. The offshore SPV may also be restricted in its ability to contribute additional capital to its PRC subsidiaries. Where a domestic resident fails to complete relevant foreign exchange registration as required, fails to truthfully disclose information on the actual controller of the enterprise involved in the return investment or otherwise makes false statements, the foreign exchange control authority may order them to take remedial actions, issue a warning, and impose a fine of less than RMB300,000 on an institution or less than RMB50,000 on an individual.
Circular 13 was issued by SAFE on February 13, 2015 and became effective on June 1, 2015. Pursuant to Circular 13, a domestic resident who makes a capital contribution to an SPV using his or her legitimate domestic or offshore assets or interests is no longer required to apply to SAFE for foreign exchange registration of his or her overseas investments. Instead, he or she shall register with a bank in the place where the assets or interests of the domestic enterprise in which he or she has interests are located if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate domestic assets or interests; or he or she shall register with a local bank at his or her permanent residence if the domestic resident individually seeks to make a capital contribution to the SPV using his or her legitimate offshore assets or interests.
Circular 19 and Circular 16
Circular 19 was promulgated by SAFE on March 30, 2015 and became effective on June 1, 2015. According to Circular 19, foreign exchange capital of foreign-invested enterprises shall be granted the benefits of Discretional Foreign Exchange Settlement (“Discretional Foreign Exchange Settlement”). With Discretional Foreign Exchange Settlement, foreign exchange capital in the capital account of a foreign-invested enterprise for which the rights and interests of monetary contribution has been confirmed by the local foreign exchange bureau, or for which book-entry registration of monetary contribution has been completed by the bank, can be settled at the bank based on the actual operational needs of the foreign-invested enterprise. The allowed Discretional Foreign Exchange Settlement percentage of the foreign exchange capital of a foreign-invested enterprise has been temporarily set to be 100%. The Renminbi converted from the foreign exchange capital will be kept in a designated account and if a foreign-invested enterprise needs to make any further payment from such account, it will still need to provide supporting documents and to complete the review process with its bank.
Furthermore, Circular 19 stipulates that foreign-invested enterprises shall make bona fide use of their capital for their own needs within their business scopes. The capital of a foreign-invested enterprise and the Renminbi if obtained from foreign exchange settlement shall not be used for the following purposes:
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| · | directly or indirectly used for entrusted loan in Renminbi (unless within its permitted scope of business), repayment of inter-company loans (including advances by a third party) or repayment of bank loans in Renminbi that have been sub-lent to a third party; and |
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| · | directly or indirectly used for expenses related to the purchase of real estate that is not for self-use (except for foreign-invested real estate enterprises). |
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Circular 16 was issued by SAFE on June 9, 2016. Pursuant to Circular 16, enterprises registered in the PRC may also convert their foreign debts from foreign currency to Renminbi on a self-discretionary basis. Circular 16 provides an integrated standard for conversion of foreign exchange capital items (including but not limited to foreign currency capital and foreign debts) on a self-discretionary basis applicable to all enterprises registered in the PRC. Circular 16 reiterates the principle that an enterprise’s Renminbi converted from foreign currency-denominated capital may not be directly or indirectly used for purposes beyond its business scope or purposes prohibited by PRC laws or regulations, and such converted Renminbi shall not be provided as loans to non-affiliated entities.
Circulars 16 and 19 address foreign direct investments into the PRC, and stipulate the procedures applicable to foreign exchange settlement. If and when circumstances require funds to be transferred to our WFOE in the PRC from our offshore entities, then any such transfer would be subject to Circulars 16 and 19.
E. Taxation
The following summary of the material Cayman Islands, PRC and U.S. tax consequences of an investment in our ordinary shares is based upon laws and relevant interpretations thereof in effect as of the date hereof, all of which are subject to change, possibly with retroactive effect. This summary is not intended to be, nor should it be construed as, legal or tax advice and is not exhaustive of all possible tax considerations. This summary also does not deal with all possible tax consequences relating to an investment in our ordinary shares, such as the tax consequences under state, local, non-U.S., non-PRC, and non-Cayman Islands tax laws. Investors should consult their own tax advisors with respect to the tax consequences of the acquisition, ownership and disposition of our ordinary shares.
Cayman Islands Taxation
The Cayman Islands currently levies no taxes on individuals or corporations based upon profits, income, gains or appreciation and there is no taxation in the nature of inheritance tax or estate duty. There are no other taxes levied by the Government of the Cayman Islands that are likely to be material to holders of ordinary shares or ordinary shares. The Cayman Islands is not party to any double tax treaties. There are no exchange control regulations or currency restrictions in the Cayman Islands.
People’s Republic of China Taxation
Under the EIT Law, an enterprise established outside the PRC with a “de facto management body” within the PRC is considered a PRC resident enterprise for PRC enterprise income tax purposes and is generally subject to a uniform 25% enterprise income tax rate on its worldwide income as well as tax reporting obligations. Under the Implementation Rules, a “de facto management body” is defined as a body that has material and overall management and control over the manufacturing and business operations, personnel and human resources, finances and properties of an enterprise. In addition, SAT Circular 82 issued in April 2009 specifies that certain offshore-incorporated enterprises controlled by PRC enterprises or PRC enterprise groups will be classified as PRC resident enterprises if all of the following conditions are met: (a) senior management personnel and core management departments in charge of the daily operations of the enterprises have their presence mainly in the PRC; (b) their financial and human resources decisions are subject to determination or approval by persons or bodies in the PRC; (c) major assets, accounting books and company seals of the enterprises, and minutes and files of their board’s and shareholders’ meetings are located or kept in the PRC; and (d) half or more of the enterprises’ directors or senior management personnel with voting rights habitually reside in the PRC. Further to SAT Circular 82, the SAT issued SAT Bulletin 45, which took effect in September 2011, to provide more guidance on the implementation of SAT Circular 82. SAT Bulletin 45 provides for procedures and administration details of determination on PRC resident enterprise status and administration on post-determination matters. If the PRC tax authorities determine that Paranovus Entertainment Technology Ltd. is a PRC resident enterprise for PRC enterprise income tax purposes, a number of unfavorable PRC tax consequences could follow. For example, Fujian Happiness may be subject to enterprise income tax at a rate of 25% with respect to its worldwide taxable income. Also, a 10% withholding tax would be imposed on dividends we pay to our non-PRC enterprise shareholders and with respect to gains derived by our non-PRC enterprise shareholders from transferring our shares or ordinary shares and potentially a 20% of withholding tax would be imposed on dividends we pay to our non-PRC individual shareholders and with respect to gains derived by our non-PRC individual shareholders from transferring our shares or ordinary shares.
It is unclear whether, if we are considered a PRC resident enterprise, holders of our shares or ordinary shares would be able to claim the benefit of income tax treaties or agreements entered into between China and other countries or areas. See “Risk Factors — Risk Factors Relating to Doing Business in China — Under the PRC Enterprise Income Tax Law, we may be classified as a PRC resident enterprise for PRC enterprise income tax purposes. Such classification would likely result in unfavorable tax consequences to us and our non-PRC Shareholders and have a material adverse effect on our results of operations and the value of your investment”.
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Pursuant to the Arrangement between the Mainland China and the Hong Kong Special Administrative Region for the Avoidance of Double Taxation and Tax Evasion on Income, or the Tax Arrangement, where a Hong Kong resident enterprise which is considered a non-PRC tax resident enterprise directly holds at least 25% of a PRC enterprise, the withholding tax rate in respect of the payment of dividends by such PRC enterprise to such Hong Kong resident enterprise is reduced to 5% from a standard rate of 10%, subject to approval of the PRC local tax authority. Pursuant to the Notice of the State Administration of Taxation on the Issues concerning the Application of the Dividend Clauses of Tax Agreements, or Circular 81, a resident enterprise of the counter-party to such Tax Arrangement should meet the following conditions, among others, in order to enjoy the reduced withholding tax under the Tax Arrangement: (i) it must directly own the required percentage of equity interests and voting rights in such PRC resident enterprise; and (ii) it should directly own such percentage in the PRC resident enterprise anytime in the 12 months prior to receiving the dividends. Furthermore, the Administrative Measures for Non-Resident Enterprises to Enjoy Treatments under Tax Treaties (For Trial Implementation), or the Administrative Measures, which became effective in October 2009, requires that the non-resident enterprises must obtain the approval from the relevant tax authority in order to enjoy the reduced withholding tax rate under the tax treaties. There are also other conditions for enjoying such reduced withholding tax rate according to other relevant tax rules and regulations. According to Circular 81, if the relevant tax authorities consider the transactions or arrangements we have are for the primary purpose of enjoying a favorable tax treatment, the relevant tax authorities may adjust the favorable withholding tax in the future.
United States Federal Income Taxation
The following is a discussion of United States federal income tax considerations relating to the acquisition, ownership, and disposition of our ordinary shares by a U.S. Holder, as defined below, that acquires our ordinary shares and holds our ordinary shares as “capital assets” (generally, property held for investment) under the United States Internal Revenue Code of 1986, as amended (the “Code”). This discussion is based upon existing United States federal income tax law, which is subject to differing interpretations or change, possibly with retroactive effect. No ruling has been sought from the Internal Revenue Service (the “IRS”) with respect to any United States federal income tax consequences described below, and there can be no assurance that the IRS or a court will not take a contrary position. This discussion does not address all aspects of United States federal income taxation that may be important to particular investors in light of their individual circumstances, including investors subject to special tax rules (such as, for example, certain financial institutions, insurance companies, regulated investment companies, real estate investment trusts, broker-dealers, traders in securities that elect mark-to-market treatment, partnerships and their partners, tax-exempt organizations (including private foundations)), investors who are not U.S. Holders, investors that own (directly, indirectly, or constructively) 10% or more of our voting stock, investors that hold their ordinary shares as part of a straddle, hedge, conversion, constructive sale or other integrated transaction), or investors that have a functional currency other than the U.S. dollar, all of whom may be subject to tax rules that differ significantly from those summarized below. In addition, this discussion does not address any tax laws other than the United States federal income tax laws, including any state, local, alternative minimum tax or non-United States tax considerations, or the Medicare tax. Each potential investor is urged to consult its tax advisor regarding the United States federal, state, local and non-United States income and other tax considerations of an investment in our ordinary shares.
General
For purposes of this discussion, a “U.S. Holder” is a beneficial owner of our ordinary shares that is, for United States federal income tax purposes, (i) an individual who is a citizen or resident of the United States, (ii) a corporation (or other entity treated as a corporation for United States federal income tax purposes) created in, or organized under the laws of, the United States or any state thereof or the District of Columbia, (iii) an estate the income of which is includible in gross income for United States federal income tax purposes regardless of its source, or (iv) a trust (A) the administration of which is subject to the primary supervision of a United States court and which has one or more United States persons who have the authority to control all substantial decisions of the trust or (B) that has otherwise elected to be treated as a United States person under the Code.
If a partnership (or other entity treated as a partnership for United States federal income tax purposes) is a beneficial owner of our ordinary shares, the tax treatment of a partner in the partnership will depend upon the status of the partner and the activities of the partnership. Partnerships and partners of a partnership holding our ordinary shares are urged to consult their tax advisors regarding an investment in our ordinary shares.
The discussion set forth below is addressed only to U.S. Holders that purchase ordinary shares. Prospective purchasers are urged to consult their own tax advisors about the application of the U.S. federal income tax rules to their particular circumstances as well as the state, local, foreign and other tax consequences to them of the purchase, ownership and disposition of our ordinary shares.
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Taxation of Dividends and Other Distributions on our Class A Ordinary Shares
Subject to the passive foreign investment company rules discussed below, the gross amount of distributions made by us to you with respect to the ordinary shares (including the amount of any taxes withheld therefrom) will generally be includable in your gross income as dividend income on the date of receipt by you, but only to the extent that the distribution is paid out of our current or accumulated earnings and profits (as determined under U.S. federal income tax principles). With respect to corporate U.S. Holders, the dividends will not be eligible for the dividends-received deduction allowed to corporations in respect of dividends received from other U.S. corporations.
With respect to non-corporate U.S. Holders, including individual U.S. Holders, dividends will be taxed at the lower capital gains rate applicable to qualified dividend income, provided that (1) the ordinary shares are readily tradable on an established securities market in the United States, or we are eligible for the benefits of an approved qualifying income tax treaty with the United States that includes an exchange of information program, (2) we are not a passive foreign investment company (as discussed below) for either our taxable year in which the dividend is paid or the preceding taxable year, and (3) certain holding period requirements are met. Because there is no income tax treaty between the United States and the Cayman Islands, clause (1) above can be satisfied only if the ordinary shares are readily tradable on an established securities market in the United States. Under U.S. Internal Revenue Service authority, ordinary shares are considered for purpose of clause (1) above to be readily tradable on an established securities market in the United States if they are listed on Nasdaq. You are urged to consult your tax advisors regarding the availability of the lower rate for dividends paid with respect to our ordinary shares, including the effects of any change in law after the date of this report.
To the extent that the amount of the distribution exceeds our current and accumulated earnings and profits (as determined under U.S. federal income tax principles), it will be treated first as a tax-free return of your tax basis in your ordinary shares, and to the extent the amount of the distribution exceeds your tax basis, the excess will be taxed as capital gain. We do not intend to calculate our earnings and profits under U.S. federal income tax principles. Therefore, a U.S. Holder should expect that a distribution will be treated as a dividend even if that distribution would otherwise be treated as a non-taxable return of capital or as capital gain under the rules described above.
Taxation of Dispositions of Class A Ordinary Shares
Subject to the passive foreign investment company rules discussed below, you will recognize taxable gain or loss on any sale, exchange or other taxable disposition of a share equal to the difference between the amount realized (in U.S. dollars) for the share and your tax basis (in U.S. dollars) in the ordinary shares. The gain or loss will be capital gain or loss. If you are a non-corporate U.S. Holder, including an individual U.S. Holder, who has held the ordinary shares for more than one year, you may be eligible for reduced tax rates on any such capital gains. The deductibility of capital losses is subject to limitations.
Passive Foreign Investment Company Rules
A foreign (i.e., non-U.S.) corporation will be a PFIC if at least 75% of its gross income in a taxable year of the foreign corporation, including its pro rata share of the gross income of any corporation in which it is considered to own at least 25% of the shares by value, is passive income. Alternatively, a foreign corporation will be a PFIC if at least 50% of its assets in a taxable year of the foreign corporation, ordinarily determined based on fair market value and averaged quarterly over the year, including its pro rata share of the assets of any corporation in which it is considered to own at least 25% of the shares by value, are held for the production of, or produce, passive income. Passive income generally includes dividends, interest, rents and royalties (other than certain rents or royalties derived from the active conduct of a trade or business) and gains from the disposition of passive assets.
Based on the composition of our assets and the nature of the Company’s income and subsidiaries’ income for our taxable year ended March 31, 2026 , we do not expect to be treated as a PFIC for such year and we do not expect to be one for our taxable year ending March 31, 2026 or become one in the foreseeable future. Nevertheless, the application of the PFIC rules is subject to ambiguity in several respects and, in addition, we must make a separate determination each year as to whether we are a PFIC (after the close of each taxable year). Accordingly, we cannot assure you that we will not be a PFIC for the current or any other taxable year. Moreover, although we do not believe we would be treated as a PFIC, we have not engaged any U.S. tax advisers to determine our PFIC status. In addition, if a U.S. Holder owned our ordinary shares at any time prior to our initial public offering, such U.S. Holder may be considered to own stock of a PFIC by virtue of the fact that we may have been a PFIC during the period prior to our initial public offering , unless such U.S. Holder made either a valid and timely QEF election or a valid and timely mark-to-market election, in each case as described below.
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If we are determined to be a PFIC for any taxable year (or portion thereof) that is included in the holding period of a U.S. Holder of our shares or redeemable warrants and, in the case of our shares, the U.S. Holder did not make either a timely qualified electing fund (“QEF”) election for our first taxable year as a PFIC in which the U.S. Holder held (or was deemed to hold) such shares, a QEF election along with a purging election, or a mark-to-market election, each as described below, such holder generally will be subject to special rules for regular U.S. federal income tax purposes with respect to:
| · | any gain recognized by the U.S. Holder on the sale or other disposition of its shares or redeemable warrants; and |
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| · | any “excess distribution” made to the U.S. Holder (generally, any distributions to such U.S. Holder during a taxable year of the U.S. Holder that are greater than 125% of the average annual distributions received by such U.S. Holder in respect of the shares or warrants during the three preceding taxable years of such U.S. Holder or, if shorter, such U.S. Holder’s holding period for the shares or warrants). |
Under these rules,
| · | the U.S. Holder’s gain or excess distribution will be allocated ratably over the U.S. Holder’s holding period for the shares or redeemable warrants; |
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| · | the amount allocated to the U.S. Holder’s taxable year in which the U.S. Holder recognized the gain or received the excess distribution, or to the period in the U.S. Holder’s holding period before the first day of our first taxable year in which we are a PFIC, will be taxed as ordinary income; |
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| · | the amount allocated to other taxable years (or portions thereof) of the U.S. Holder and included in its holding period will be taxed at the highest tax rate in effect for that year and applicable to the U.S. Holder; and |
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| · | the interest charge generally applicable to underpayments of tax will be imposed in respect of the tax attributable to each such other taxable year of the U.S. Holder. |
In general, if we are determined to be a PFIC, a U.S. Holder may avoid the PFIC tax consequences described above in respect to our shares by making a timely QEF election (or a QEF election along with a purging election, as described below). Pursuant to the QEF election, a U.S. Holder will be required to include in income its pro rata share of our net capital gains (as long-term capital gain) and other earnings and profits (as ordinary income), on a current basis, in each case whether or not distributed, in the taxable year of the U.S. Holder in which or with which our taxable year ends. A U.S. Holder may make a separate election to defer the payment of taxes on undistributed income inclusions under the QEF rules, but if deferred, any such taxes will be subject to an interest charge.
A U.S. Holder may not make a QEF election with respect to its redeemable warrants. As a result, if a U.S. Holder sells or otherwise disposes of a redeemable warrant (other than upon exercise of the redeemable warrant), any gain recognized generally will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above, if we were a PFIC at any time during the period the U.S. Holder held the redeemable warrants. If a U.S. Holder that exercises such redeemable warrants properly makes a QEF election with respect to the newly acquired ordinary shares (or has previously made a QEF election with respect to our shares), the QEF election will apply to the newly acquired ordinary shares, but the adverse tax consequences relating to PFIC shares, adjusted to take into account the current income inclusions resulting from the QEF election, will continue to apply with respect to such newly acquired ordinary shares (which generally will be deemed to have a holding period for purposes of the PFIC rules that includes the period the U.S. Holder held the redeemable warrants), unless the U.S. Holder makes a purging election with respect to such shares. The purging election creates a deemed sale of such shares at their fair market value. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will increase the adjusted tax basis in its ordinary shares acquired upon the exercise of the redeemable warrants by the gain recognized and will also have a new holding period in such ordinary shares for purposes of the PFIC rules.
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The QEF election is made on a shareholder-by-shareholder basis and, once made, can be revoked only with the consent of the IRS. A U.S. Holder generally makes a QEF election by attaching a completed IRS Form 8621 (Information Return by a Shareholder of a Passive Foreign Investment Company or Qualified Electing Fund), including the information provided in a PFIC annual information statement, to a timely filed U.S. federal income tax return for the taxable year to which the election relates. Retroactive QEF elections generally may be made only by filing a protective statement with such return and if certain other conditions are met or with the consent of the IRS.
In order to comply with the requirements of a QEF election, a U.S. Holder must receive certain information from us. Upon request from a U.S. Holder, we will endeavor to provide to the U.S. Holder no later than 90 days after the request such information as the IRS may require, including a PFIC annual information statement, in order to enable the U.S. Holder to make and maintain a QEF election. However, there is no assurance that we will have timely knowledge of our status as a PFIC in the future or of the required information to be provided.
If a U.S. Holder has made a QEF election with respect to our shares and the special tax and interest charge rules do not apply to such shares (because of a timely QEF election for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) such shares or a QEF election, along with a purge of the PFIC taint pursuant to a purging election, as described above), any gain recognized on the sale or other taxable disposition of our shares generally will be taxable as capital gain and no interest charge will be imposed. As discussed above, for regular U.S. federal income tax purposes, U.S. Holders of a QEF are currently taxed on their pro rata shares of the QEF’s earnings and profits, whether or not distributed. In such case, a subsequent distribution of such earnings and profits that were previously included in income generally should not be taxable as a dividend to such U.S. Holders. The adjusted tax basis of a U.S. Holder’s shares in a QEF will be increased by amounts that are included in income, and decreased by amounts distributed but not taxed as dividends, under the above rules. Similar basis adjustments apply to property if by reason of holding such property the U.S. Holder is treated under the applicable attribution rules as owning shares in a QEF.
Although a determination as to our PFIC status will be made annually, the initial determination that we are a PFIC generally will apply for subsequent years to a U.S. Holder who held shares or redeemable warrants while we were a PFIC, whether or not we meet the test for PFIC status in those subsequent years, unless such U.S. Holder made a purging election as described below. A U.S. Holder who makes the QEF election discussed above for our first taxable year as a PFIC in which the U.S. Holder holds (or is deemed to hold) our shares, however, will not be subject to the PFIC tax and interest charge rules discussed above in respect to such shares. In addition, such U.S. Holder will not be subject to the QEF inclusion regime with respect to such shares for any of our taxable years that end within or with a taxable year of the U.S. Holder and in which we are not a PFIC. On the other hand, if the QEF election is not effective for each of our taxable years in which we are a PFIC and during which the U.S. Holder holds (or is deemed to hold) our shares, the PFIC rules discussed above will continue to apply to such shares unless the holder files on a timely filed U.S. income tax return (including extensions) a QEF election and a purging election to recognize under the rules of Section 1291 of the Code any gain that the U.S. Holder would otherwise recognize if the U.S. Holder had sold our shares for their fair market value on the “qualification date.” The qualification date is the first day of our tax year in which we qualify as a QEF with respect to such U.S. Holder. The purging election can only be made if such U.S. Holder held our ordinary shares on the qualification date. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, the U.S. Holder will increase the adjusted tax basis in its ordinary shares by the amount of the gain recognized and will also have a new holding period in the shares for purposes of the PFIC rules.
If a U.S. Holder did not make a timely “mark-to-market” election (as described above), and if we were a PFIC at any time during the period such U.S. Holder held our ordinary shares, then such ordinary shares will continue to be treated as stock of a PFIC with respect to such U.S. Holder even if we cease to be a PFIC in a future year, unless such U.S. Holder makes a “purging election” for the year we cease to be a PFIC. A “purging election” creates a deemed sale of such ordinary shares at their fair market value on the last day of the last year in which we are treated as a PFIC. The gain recognized by the purging election will be subject to the special tax and interest charge rules treating the gain as an excess distribution, as described above. As a result of the purging election, such U.S. Holder will have a new tax basis (equal to the fair market value of the ordinary shares on the last day of the last year in which we are treated as a PFIC) and tax holding period (which new holding period will begin the day after such last day) in such ordinary shares.
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As an alternative to the QEF election, if a U.S. Holder, at the close of its taxable year, owns shares in a PFIC that are treated as marketable stock, the U.S. Holder may make a mark-to-market election with respect to such shares for such taxable year. If the U.S. Holder makes a valid mark-to-market election for the first taxable year of the U.S. Holder in which the U.S. Holder holds (or is deemed to hold) our shares and for which we are determined to be a PFIC, such holder generally will not be subject to the PFIC rules described above in respect to its shares. Instead, in general, the U.S. Holder will include as ordinary income each year the excess, if any, of the fair market value of its shares at the end of its taxable year over the adjusted tax basis in its shares. The U.S. Holder also will be allowed to take an ordinary loss in respect of the excess, if any, of the adjusted tax basis of its shares over the fair market value of its shares at the end of its taxable year (but only to the extent of the net amount of previously included income as a result of the mark-to-market election). The U.S. Holder’s adjusted tax basis in its shares will be adjusted to reflect any such income or loss amounts, and any further gain recognized on a sale or other taxable disposition of the shares will be treated as ordinary income. Currently, a mark-to-market election may not be made with respect to our redeemable warrants.
The mark-to-market election is available only for stock that is regularly traded on a national securities exchange that is registered with the Securities and Exchange Commission, including the NASDAQ Capital Market, or on a foreign exchange or market that the IRS determines has rules sufficient to ensure that the market price represents a legitimate and sound fair market value. Although our ordinary shares are listed and traded on the NASDAQ Capital Market, we cannot guarantee that our shares will continue to be listed and traded on the NASDAQ Capital Market. U.S. Holders should consult their own tax advisors regarding the availability and tax consequences of a mark-to-market election in respect to our shares under their particular circumstances.
If we are a PFIC and, at any time, have a foreign subsidiary that is classified as a PFIC, a U.S. Holder generally would be deemed to own a portion of the shares of such lower-tier PFIC, and generally could incur liability for the deferred tax and interest charge described above if we receive a distribution from, or dispose of all or part of our interest in, or the U.S. Holder otherwise were deemed to have disposed of an interest in, the lower-tier PFIC. Upon request, we will endeavor to cause any lower-tier PFIC to provide to a U.S. Holder no later than 90 days after the request the information that may be required to make or maintain a QEF election with respect to the lower-tier PFIC. However, there is no assurance that we will have timely knowledge of the status of any such lower-tier PFIC, and we do not plan to make annual determinations or otherwise notify U.S. Holders of the PFIC status of any such lower-tier PFIC. There also is no assurance that we will be able to cause the lower-tier PFIC to provide the required information. U.S. Holders are urged to consult their own tax advisors regarding the tax issues raised by lower-tier PFICs.
A U.S. Holder that owns (or is deemed to own) shares in a PFIC during any taxable year of the U.S. Holder may have to file an IRS Form 8621 (whether or not a QEF election or mark-to-market election is or has been made) with such U.S. Holder’s U.S. federal income tax return and provide such other information as may be required by the U.S. Treasury Department.
The rules dealing with PFICs and with the QEF and mark-to-market elections are very complex and are affected by various factors in addition to those described above. Accordingly, U.S. Holders of our shares and redeemable warrants should consult their own tax advisors concerning the application of the PFIC rules to our shares and redeemable warrants under their particular circumstances.
Non-U.S. Holders
Dividends (including constructive dividends) paid or deemed paid to a Non-U.S. Holder in respect to our securities generally will not be subject to U.S. federal income tax, unless the dividends are effectively connected with the Non-U.S. Holder’s conduct of a trade or business within the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United States).
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In addition, a Non-U.S. Holder generally will not be subject to U.S. federal income tax on any gain attributable to a sale or other taxable disposition of our securities unless such gain is effectively connected with its conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, is attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United States) or the Non-U.S. Holder is an individual who is present in the United States for 183 days or more in the taxable year of sale or other disposition and certain other conditions are met (in which case, such gain from U.S. sources generally is subject to U.S. federal income tax at a 30% rate or a lower applicable tax treaty rate).
Dividends and gains that are effectively connected with the Non-U.S. Holder’s conduct of a trade or business in the United States (and, if required by an applicable income tax treaty, are attributable to a permanent establishment or fixed base that such holder maintains or maintained in the United States) generally will be subject to regular U.S. federal income tax at the same regular U.S. federal income tax rates applicable to a comparable U.S. Holder and, in the case of a Non-U.S. Holder that is a corporation for U.S. federal income tax purposes, may also be subject to an additional branch profits tax at a 30% rate or a lower applicable tax treaty rate.
The U.S. federal income tax treatment of a Non-U.S. Holder’s exercise of redeemable warrants, or the lapse of redeemable warrants held by a Non-U.S. Holder, generally will correspond to the U.S. federal income tax treatment of the exercise or lapse of redeemable warrants by a U.S. Holder, as described under “U.S. Holders — Exercise or Lapse of Redeemable Warrants” above.
Backup Withholding and Information Reporting
Dividend payments with respect to our ordinary shares and proceeds from the sale, exchange or redemption of our ordinary shares may be subject to information reporting to the U.S. Internal Revenue Service and possible U.S. backup withholding at a current rate of 24%. Backup withholding will not apply, however, to a U.S. Holder who furnishes a correct taxpayer identification number and makes any other required certification on U.S. Internal Revenue Service Form W-9 or who is otherwise exempt from backup withholding. U.S. Holders who are required to establish their exempt status generally must provide such certification on U.S. Internal Revenue Service Form W-9. U.S. Holders are urged to consult their tax advisors regarding the application of the U.S. information reporting and backup withholding rules.
Backup withholding is not an additional tax. Amounts withheld as backup withholding may be credited against your U.S. federal income tax liability, and you may obtain a refund of any excess amounts withheld under the backup withholding rules by filing the appropriate claim for refund with the U.S. Internal Revenue Service and furnishing any required information. We do not intend to withhold taxes for individual shareholders. However, transactions effected through certain brokers or other intermediaries may be subject to withholding taxes (including backup withholding), and such brokers or intermediaries may be required by law to withhold such taxes.
Under the Hiring Incentives to Restore Employment Act of 2010, certain U.S. Holders are required to report information relating to our ordinary shares, subject to certain exceptions (including an exception for ordinary shares held in accounts maintained by certain financial institutions), by attaching a complete Internal Revenue Service Form 8938, Statement of Specified Foreign Financial Assets, with their tax return for each year in which they hold ordinary shares.
F. Dividends and Paying Agents
Not applicable.
G. Statement by Experts
Not applicable.
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H. Documents on Display
The Company is subject to the informational requirements of the Securities Exchange Act of 1934, as amended, and will file reports, registration statements and other information with the SEC. The Company’s reports, registration statements and other information can be inspected on the SEC’s website at www.sec.gov . You may also visit us at https://pavs.ai. However, information contained on our website does not constitute a part of this annual report.
I. Subsidiary Information
Not applicable.
ITEM 11. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk
We deposit surplus funds with Chinese banks earning daily interest. We do not invest in any instruments for trading purposes. Most of our outstanding debt instruments carry loan prime rates plus basis points of interest. Our operations generally are not directly sensitive to fluctuations in interest rates and we currently do not have any long-term debt outstanding. Management monitors the banks’ prime rates in conjunction with our cash requirements to determine the appropriate level of debt balances relative to other sources of funds. We have not entered into any hedging transactions in an effort to reduce our exposure to interest rate risk.
Foreign Exchange Risk
Our reporting currency is the U.S. dollar, substantially all of our consolidated revenues and consolidated costs and expenses are denominated in U.S. dollar. We purchase certain products and materials from suppliers located in the PRC, and certain of these purchases and related accounts payable are denominated in RMB. In addition, certain short-term investments held by our PRC subsidiaries are denominated in RMB, which also exposes us to foreign exchange risk arising from fluctuations between the U.S. dollar and RMB. As a result, we are exposed to foreign exchange risk as our revenues and results of operations may be affected by fluctuations in the exchange rate between the U.S. dollar and the RMB. An appreciation of the RMB against the U.S. dollar could increase the U.S. dollar equivalent cost of our RMB-denominated purchases and adversely affect our results of operations. For the year ended March 31, 2026, the effect of exchange rate changes on our cash and cash equivalents was approximately $303,462. As of March 31, 2026, we have not entered into any hedging transactions in an effort to reduce our exposure to foreign exchange risk.
The value of RMB against the U.S. dollar and other currencies is affected by, among other things, changes in China’s political and economic conditions. Since July 2005, RMB has not been pegged to the U.S. dollar. Although the People’s Bank of China regularly intervenes in the foreign exchange market to prevent significant short-term fluctuations in the exchange rate, RMB may appreciate or depreciate significantly in value against the U.S. dollar in the medium to long term. Moreover, it is possible that in the future, PRC authorities may lift restrictions on fluctuations in RMB exchange rate and lessen intervention in the foreign exchange market.
Inflation
Inflationary factors such as increases in the cost of our product and overhead costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, a high rate of inflation in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenues if the selling prices of our products do not increase with these increased costs.
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| Table of Contents |
ITEM 12. DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES
Not applicable.
ITEM 13. DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES
None.
ITEM 14. MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS
None.
ITEM 15. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our CEO and CFO, has performed an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report, as required by Rule 13a-15(b) under the Exchange Act. Based on the foregoing evaluation, our principal executive officer and principal financial officer concluded that, as of March 31, 2026 , our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15 (f) under the Exchange Act. Our management, with the participation of our CEO and CFO, evaluated the effectiveness of our internal control over financial reporting based on criteria established in the framework in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation under the 2013 Framework, our principal executive officer and principal financial officer have concluded that our internal control over financial reporting was not effective as of March 31, 2026 due to the following material weaknesses:
| · | We had insufficient financial reporting and accounting with appropriate knowledge of U.S. GAAP and SEC reporting requirements to properly address complex U.S. GAAP accounting issues and to prepare and review our consolidated financial statements and related disclosures to fulfil U.S. GAAP and SEC financial reporting requirements; |
|
|
|
| · | We lack personnel with technical knowledge of business combinations, fair value measurement, intangibles valuation and goodwill impairment analysis; |
A material weakness is a deficiency, or a combination of deficiencies, within the meaning of PCAOB Auditing Standard AS 2201, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.
We plan to address the weaknesses identified above by implementing the following measures:
| (1) | recruiting qualified professionals with appropriate levels of knowledge and experience to assist in resolving accounting issues in non-routine or complex transactions; |
| (2) | investing in technology infrastructure to support our financial reporting function; |
| (3) | improving the communication between management, board of directors and chief financial officer; and |
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during the period covered by this annual report on Form 20-F that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
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| Table of Contents |
ITEM 16. RESERVED
ITEM 16A. AUDIT COMMITTEE FINANCIAL EXPERT
Our board of directors has determined that Mr. George Yijian Xu is an independent director as defined by the rules of the NASDAQ Stock Market as well as qualifies as an audit committee financial expert as defined by the rules of the NASDAQ Stock Market, Inc. and Rule 10A-3 under the Exchange Act.
ITEM 16B. CODE OF ETHICS
Our board of directors has adopted a code of ethics that applies to our directors, officers, employees and agents, including certain provisions that specifically apply to our chief executive officer, chief financial officer, vice presidents and any other persons who perform similar functions for us. We have posted a copy of our code of business conduct and ethics on our website at https://pavs.ai.
ITEM 16C PRINCIPAL ACCOUNTANT FEES AND SERVICES
The following table sets forth the aggregate fees by categories specified below in connection with certain professional services rendered by our independent registered public accounting firm, we did not pay any other fees to our independent registered public accounting firm during the periods indicated below.
|
| Year Ended March 31, 2026 |
|
| Year Ended March 31, 2025 |
|
| Year Ended March 31, 2024 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Audit fees(1) |
| $ | 110,000 |
|
| $ | 110,000 |
|
| $ | 200,000 |
|
Audit related fees(2) |
|
| - |
|
|
| - |
|
|
| - |
|
Tax fees(3) |
|
| - |
|
|
| - |
|
|
| - |
|
All other fees(4) |
|
| - |
|
|
| - |
|
|
| - |
|
TOTAL |
| $ | 110,000 |
|
| $ | 110,000 |
|
| $ | 200,000 |
|
(1) | “Audit fees” means the aggregate fees billed for each of the fiscal years for professional services rendered by our principal accountant for the audit of our annual financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years. |
|
|
(2) | “Audit related fees” means the aggregate fees billed for each of the fiscal years for assurance and related services by our principal accountant that are reasonably related to the performance of the audit or review of our financial statements and are not reported under paragraph (1). |
(3) | “Tax Fees” represents the aggregate fees billed in each of the fiscal years listed for the professional tax services rendered by our principal auditors. |
(4) | “All Other Fees” represents the aggregate fees billed in each of the fiscal years listed for services rendered by our principal auditors other than services reported under “Audit fees,” “Audit-related fees” and “Tax fees.” |
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| Table of Contents |
The policy of our audit committee and our board of directors is to pre-approve all audit and non-audit services provided by our principal auditors, including audit services, audit-related services, and other services as described above, other than those for de minimis services which are approved by the audit committee or our board of directors prior to the completion of the services.
ITEM 16D. EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES
Not applicable.
ITEM 16E. PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS
None.
ITEM 16F. CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANTS
On June 26, 2026, of the audit committee of the Board has resolved to accept the resignation of HHL LLP (the “Former Auditor”) as the Company’s independent registered public accounting firm, effective on June 26, 2026, and to appoint HCL, PLLC (the “New Auditor”) to serve as its independent registered public accounting firm, effective on June 26, 2026.
Since the Former Auditor’s appointment on October 19, 2025 and up to June 26, 2026, the Former Auditor has not issued any report on the financial statements of the Company and has neither provided any adverse opinion or qualifications on the Company’s financial statements nor had a disagreement with the Company since their engagement on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements that, if not resolved to the Former Auditor’s satisfaction, would have caused the Former Auditor to make reference to the subject matter thereof in its reports for such fiscal years and interim period.
During the two most recent fiscal years ended March 31, 2026 and 2025, and through the subsequent interim period preceding the release, there was no “reportable event” within the meaning of Item 16F(a)(1)(v) of Form 20-F.
The Company has provided the Former Auditor with a copy of this report prior to its filing with the Commission. The Former Auditor has provided a letter to us, dated June 26, 2026 and addressed to the SEC, which is attached hereto as Exhibit 16.1 and is hereby incorporated herein by reference.
During the two most recent fiscal years ended March 31, 2026 and 2025, and any subsequent interim periods prior to the engagement of the New Auditor, neither the Company, nor someone on behalf of the Company, has consulted New Auditor regarding (i) the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements; (ii) the type of audit opinion that might be rendered on the Company’s financial statements by the New Auditor in either case where written or oral advice provided by the New Auditor would be an important factor considered by the Company in reaching a decision as to any accounting, auditing or financial reporting issues; or (iii) any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
ITEM 16G. CORPORATE GOVERNANCE
Our Class A Ordinary Shares are listed on the NASDAQ Capital Market, or NASDAQ. As such, we are subject to corporate governance requirements imposed by NASDAQ. Under NASDAQ rules, listed non-US companies such as ourselves may, in general, follow their home country corporate governance practices in lieu of some of the NASDAQ corporate governance requirements. A NASDAQ-listed non-US company is required to provide a general summary of the significant differences to its US investors either on the company website or in its annual report distributed to its US investors.
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Other than as described in this section, our corporate governance practices do not differ from those followed by domestic companies listed on the NASDAQ Capital Market. NASDAQ Listing Rule 5635 generally provides that shareholder approval is required of U.S. domestic companies listed on the NASDAQ Capital Market prior to issuance (or potential issuance) of securities (i) equaling 20% or more of the company’s common stock or voting power for less than the greater of market or book value (ii) resulting in a change of control of the company; and (iii) which is being issued pursuant to a stock option or purchase plan to be established or materially amended or other equity compensation arrangement made or materially amended. Notwithstanding this general requirement, NASDAQ Listing Rule 5615(a)(3)(A) permits foreign private issuers to follow their home country practice rather than these shareholder approval requirements. The Cayman Islands do not require shareholder approval prior to any of the foregoing types of issuances. The Company, therefore, is not required to obtain such shareholder approval prior to entering into a transaction with the potential to issue securities as described above. The Board of Directors of the Company has elected to follow the Company’s home country rules as to such issuances and will not be required to seek shareholder approval prior to entering into such a transaction. Rule 5620(a) requires each company listing common stock or voting preferred stock, or their equivalents, shall hold an annual meeting of shareholders no later than one year after the end of the issuer’s fiscal year-end. The Company follows the home country practice and expect to hold annual shareholders meetings only if there are matters that require shareholders’ approval.
ITEM 16H. MINE SAFETY DISCLOSURE
Not applicable.
ITEM 16I. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENT INSPECTION
Not applicable
ITEM 16J. INSIDER TRADING POLICIES
Our board of directors has adopted an insider trading policy, which governs the purchase, sale, and other dispositions of our securities by directors, senior management, and employees that are reasonably designed to promote compliance with applicable insider trading laws, rules, and regulations, and any listing standards applicable to us. A copy of the insider trading policy is attached as Exhibit 11.2 to this annual report.
ITEM 16K. CYBERSECURITY
Risk Management and Strategy
We believe that cybersecurity is important to our operations and we recognize the importance of timely and appropriately assessing, preventing, identifying and managing risks associated with cybersecurity threats. Such risks include, among other things, potential operational risks, financial risks, intellectual property theft, fraud, extortion, harm to employees and clients, violation of privacy and other litigation and legal risks, and reputational risks.
We do not have a dedicated board committee solely focused on cybersecurity, and our senior management team, including Ms. Xiaoyue Zhang, CEO, and Ms. Ling Guo, CFO, has oversight responsibility for risks and incidents relating to cybersecurity threats, including compliance with disclosure requirements, cooperation with law enforcement, and related effects on financial and other risks, and it reports any material findings and recommendations, as appropriate, to our board of directors for consideration.
In the year ended March 31, 2026 , we have not encountered any cybersecurity incidents which have affected or are reasonably likely to affect us, and we have not implemented any specific policies with respect to monitoring and managing cybersecurity threats. However, we intend to adopt cybersecurity processes, technologies and controls to aid in our efforts to assess, prevent, identify and manage such risks. We cannot assure that we will not encounter any material cybersecurity incidents in the future or that our business operations, financial position or results of operations will not be materially and adversely affected as a result. Since we do not currently implement a comprehensive cybersecurity risk management program, our efforts may not be adequate, and we may fail to accurately assess the severity of an incident, may not be sufficient to prevent or limit harm, or may fail to sufficiently remediate an incident in a timely fashion, any of which could harm our business, reputation, results of operations and financial condition.
Although risks from cybersecurity threats have not to date materially affected, and we do not believe they are reasonably likely to materially affect, us, our business strategy, results of operations or financial condition, we may, from time to time, experience threats to and security incidents related to our data and systems. See “Item 3. Key Information—D. Risk Factors—Risks Relating to Our Business—We rely extensively on information technology systems, and cybersecurity incidents could adversely affect us.”
Governance
Our Board of Directors oversees the Company’s cybersecurity risks management. Material cybersecurity incidents and issues are reported to the Board of Directors, as appropriate. In particular, our Board reviews and approves the cybersecurity-related disclosure in the periodic reports (including our annual reports on Form 20-F) of the Company.
The Company has designated personnel responsible for coordinating day-to-day technology support and cybersecurity-related matters. When cybersecurity incidents arise, such personnel assess the issue, coordinate the appropriate response, and, where necessary, engage external technology service providers. Significant cybersecurity matters are reported to management for further evaluation and oversight.
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| Table of Contents |
PART III
ITEM 17. FINANCIAL STATEMENTS
We have elected to provide financial statements pursuant to Item 18.
ITEM 18. FINANCIAL STATEMENTS
See the Index to Consolidated Financial Statements accompanying this report beginning page F-1.
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PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Table of Contents | Pages |
| |
Report of Independent Registered Public Accounting Firm (PCAOB ID: 7222) | F-2 |
| |
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Report of Independent Registered Public Accounting Firm (PCAOB ID: | F-3 |
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F-4 |
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F-5 |
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F-6 |
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| |||
Consolidated Statements of Cash Flows for the Years Ended March 31, 2026, 2025 and 2024 | F-7 |
| |
| |||
F-8 |
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| F-1 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Paranovus Entertainment Technology Ltd.
Opinion on the 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, 2026, and the related consolidated statements of operations and other comprehensive income (loss), changes in shareholders’ equity, and cash flows for the year ended March 31, 2026, and the related notes (collectively, 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, 2026, and the results of its operations and its cash flows for the year ended March 31, 2026, 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.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to an account or disclosure that is material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
Valuation of Goodwill
Description of the Matter
As disclosed in Notes 2 and 7 to the financial statements, goodwill is assessed for impairment annually, or more frequently when events or changes in circumstances indicate that goodwill might be impaired. As of March 31, 2026, the Company had gross goodwill of $20.9 million, accumulated impairment losses of $9.9 million and net goodwill of $10.9 million. During the year ended March 31, 2026, the Company recognized a goodwill impairment loss of $6.6 million related to goodwill arising from the acquisition of Bomie Wookoo Inc. (“BW”).
Auditing management’s goodwill impairment assessment was complex and highly judgmental because estimating the fair value of the reporting unit required significant estimation. Significant assumptions included forecast revenue, operating margins and the discount rate. These assumptions were affected by management’s expectations regarding future market and economic conditions.
How the Matter Was Addressed in the Audit
Our audit procedures included, among others, evaluating the methodology used to estimate fair value, testing the completeness and accuracy of the underlying data and evaluating significant assumptions used by management. We compared projected results with historical performance and considered market and economic trends.
HCL PLLC
We have served as the Company’s auditor since 2026.
Chicago, IL
August 14, 2026
| F-2 |
| Table of Contents |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders of
Paranovus Entertainment Technology Ltd.
Opinion on the 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, 2025, and the related consolidated statements of operations and other comprehensive income (loss), changes in shareholders’ equity, and cash flows for each of the years in the two-year period ended March 31, 2025, and the related notes (collectively, 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, 2025, and the results of its operations and its cash flows for each of the years in the two-year period ended March 31, 2025, 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 audits. We are a public accounting firm registered with the 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 audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we were 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 expressed no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that responded to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits 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 provided a reasonable basis for our opinion.
/s/
We served as the Company’s auditor from 2023 to 2025.
August 4, 2025
| F-3 |
| Table of Contents |
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2026 AND 2025
(IN U.S. DOLLARS)
|
| As of March 31, |
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| As of March 31, |
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| 2026 |
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| 2025 |
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ASSETS |
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Current assets |
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Cash and cash equivalents |
| $ |
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| $ |
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Accounts receivable, net |
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Inventories |
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Amount due from related parties |
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Short-term investments |
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Prepaid expenses and other current assets |
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Total current assets |
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Property, plant and equipment, net |
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Intangible assets, net |
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Goodwill |
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Right-of-use assets |
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Total non-current assets |
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TOTAL ASSETS |
| $ |
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| $ |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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Current liabilities |
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Accounts payable |
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Other payables and accrued liabilities |
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Due to related parties |
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Taxes payable |
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Current maturities of operating lease liabilities |
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Total current liabilities |
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Non-current maturities of operating lease liabilities |
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Deferred tax liabilities |
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Other non-current liabilities |
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Total non-current liabilities |
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TOTAL LIABILITIES |
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COMMITMENTS AND CONTINGENCIES (NOTE 14) |
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SHAREHOLDERS’ EQUITY |
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Class A Ordinary shares ($ |
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Class B Ordinary shares, $ |
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Preferred shares, $ |
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Additional paid-in capital |
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Accumulated deficit |
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| ( | ) |
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| ( | ) |
Accumulated other comprehensive income |
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Total Paranovus Entertainment Technology Ltd.’s shareholders’ equity |
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Non-controlling interests |
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Total shareholders’ equity |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ |
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| $ |
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The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
| Table of Contents |
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(IN U.S. DOLLARS)
|
| For the years ended March 31, |
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| 2026 |
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| 2025 |
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| 2024 |
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Revenues |
| $ |
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| $ |
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| $ |
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Cost of revenues |
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Gross profit |
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Operating expenses: |
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Selling and marketing |
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| ( | ) |
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| ( | ) |
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| ( | ) |
General and administrative |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Goodwill impairment |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Asset impairment |
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| ( | ) |
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| ( | ) |
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Total operating expenses |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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Operating loss |
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| ( | ) |
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| ( | ) |
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| ( | ) |
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Other income (expenses): |
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Interest income |
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Interest expense |
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| ( | ) |
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| ( | ) |
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| ( | ) |
Other income, net |
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Total other income (expenses), net |
|
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| ( | ) |
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| ( | ) | |
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Loss from continuing operations before income taxes |
|
| ( | ) |
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| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expenses |
|
| ( | ) |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from continuing operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss from discontinued operations before tax |
|
|
|
|
| ( | ) |
|
| ( | ) | |
(Loss) Gain on disposal of discontinued operations |
|
|
|
|
| ( | ) |
|
|
| ||
Net loss from discontinued operations |
|
|
|
|
| ( | ) |
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Less: Net (loss) income attributable to noncontrolling interest |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Net loss attributable to Paranovus Entertainment Technology Ltd. |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Comprehensive loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Less: comprehensive (loss) income attributable to non-controlling interests: |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Comprehensive loss attributable to the Company |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted loss per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Continuing operations basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Basic and diluted loss per ordinary share |
|
|
|
|
|
|
|
|
|
|
|
|
Discontinued operations basic and diluted |
|
|
|
| $ | ( | ) |
| $ | ( | ) | |
Total basic and diluted |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted average number of ordinary shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
|
|
|
|
|
|
| |||
Note: Share and per-share amounts reflect the share consolidations described in Note 11 – Shareholders’ Equity.
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
| Table of Contents |
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 Deficit) |
|
| Accumulated other comprehensive income (loss) |
|
| Total Paranovus Entertainment Technology Ltd shareholders’ equity |
|
| Non-controlling interests |
|
| Total equity |
| |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Balance as of March 31, 2023 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
| $ |
|
| $ | ( | ) |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ |
| ||||||||
Share cancellation |
|
| ( | ) |
|
| ( | ) |
|
| - |
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | |||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Discontinued operations - disposal |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Foreign currency translation adjustments |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Balance as of March 31, 2024 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ | ( | ) |
| $ |
| |||||||||
Ordinary shares issued for cash |
|
|
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Discontinued operations |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Business combination |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Foreign currency translation adjustments |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance as of March 31, 2025 |
|
|
|
| $ |
|
|
|
|
| $ |
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Ordinary shares issued for cash |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Share consolidations |
|
| ( | ) |
|
|
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||
Capital reduction |
|
| - |
|
|
| ( | ) |
|
| - |
|
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Net loss |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
|
|
|
| ( | ) |
|
| ( | ) |
|
| ( | ) | |||||
Foreign currency translation adjustments |
|
| - |
|
|
|
|
|
| - |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ( | ) |
|
| ( | ) |
|
|
|
|
| ( | ) | ||||||
Balance as of March 31, 2026 |
|
|
|
| $ |
|
|
|
|
|
|
|
| $ |
|
|
|
|
| $ | ( | ) |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||||||||
Note: Share and per-share amounts reflect the share consolidations described in Note 11 – Shareholders’ Equity.
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
| Table of Contents |
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN U.S. DOLLARS)
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
| |||
Net loss |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Adjustments to reconcile net loss to net cash used in operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
|
|
|
|
|
|
| |||
Amortization of operating lease right-of-use assets |
|
|
|
|
|
|
|
|
| |||
Goodwill impairment |
|
|
|
|
|
|
|
|
| |||
Intangible asset impairment |
|
|
|
|
|
|
|
|
| |||
Impairment of prepaid expenses and other current assets |
|
|
|
|
|
|
|
|
| |||
Interest income |
|
| ( | ) |
|
|
|
|
|
| ||
Interest expense |
|
|
|
|
|
|
|
|
| |||
Gain on disposal of discontinued operations |
|
|
|
|
|
|
|
| ( | ) | ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable |
|
| ( | ) |
|
|
|
|
|
| ||
Inventories |
|
|
|
|
|
|
|
|
| |||
Prepaid expenses and other current assets |
|
| ( | ) |
|
|
|
|
| ( | ) | |
Amount due from related parties |
|
| ( | ) |
|
|
|
|
|
| ||
Accounts payable |
|
| ( | ) |
|
|
|
|
|
| ||
Other payables and accrued liabilities |
|
|
|
|
|
|
|
|
| |||
Taxes payable |
|
|
|
|
|
|
|
|
| |||
Operating lease liabilities |
|
| ( | ) |
|
|
|
|
|
| ||
Deferred income taxes |
|
|
|
|
|
|
|
|
| |||
Net cash used in operating activities from continuing operations |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
Net cash provided by operating activities from discontinued operations |
|
|
|
|
|
|
|
|
| |||
Net cash used in operating activities |
|
| ( | ) |
|
| ( | ) |
|
| ( | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Purchase of short-term investments, net |
|
|
|
|
| ( | ) |
|
|
| ||
Loans to third parties |
|
| ( | ) |
|
|
|
|
|
| ||
Purchases of property, plant and equipment |
|
|
|
|
|
|
|
|
| |||
Business acquisition, net of cash acquired |
|
|
|
|
| ( | ) |
|
|
| ||
Proceeds from disposal of discontinued operations |
|
|
|
|
|
|
|
|
| |||
Net cash used in investing activities from continuing operations |
|
| ( | ) |
|
| ( | ) |
|
|
| |
Net cash provided by investing activities from discontinued operations |
|
|
|
|
|
|
|
|
| |||
Net cash used in investing activities |
|
| ( | ) |
|
| ( | ) |
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from ordinary share issuances |
|
|
|
|
|
|
|
|
| |||
Amount due to / from related parties |
|
| ( | ) |
|
|
|
|
|
| ||
Proceeds from borrowing from third parties |
|
|
|
|
|
|
|
|
| |||
Repayment of borrowing to third parties |
|
| ( | ) |
|
|
|
|
|
| ||
Net cash provided by financing activities from continuing operations |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities from discontinued operations |
|
|
|
|
|
|
|
|
| |||
Net cash provided by financing activities |
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents |
|
| ( | ) |
|
|
|
|
| ( | ) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Cash and cash equivalents of continuing operations - beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents of discontinued operations - beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents - beginning of year |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents - end of year |
|
|
|
|
|
|
|
|
| |||
Less cash and cash equivalents of discontinued operations - end of year |
|
|
|
|
|
|
|
|
| |||
Cash and cash equivalents of continuing operations - end of year |
| $ |
|
| $ |
|
| $ |
| |||
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flows information: |
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for income taxes |
| $ |
|
| $ |
|
| $ |
| |||
Cash paid for interest expense |
| $ |
|
| $ |
|
| $ |
| |||
| F-7 |
| Table of Contents |
PARANOVUS ENTERTAINMENT TECHNOLOGY LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 – ORGANIZATION AND NATURE OF OPERATIONS
Paranovus Entertainment Technology Ltd. (“Paranovus Cayman”) is a holding company. It was incorporated on February 9, 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 Ltd. under the special resolution dated March 13, 2023. The Company has no substantive operations other than holding
Reorganization
A Reorganization of the legal structure was completed in August 2018. The Reorganization involved the incorporation of Paranovus Entertainment Technology Ltd., a Cayman Islands holding company; Happiness Biology Technology Group Limited, a holding company established in Hong Kong, PRC; Happiness (Fuzhou) E-commerce Co., Ltd, a holding company established in Fujian, PRC; and the transfer of
Prior to the reorganization,
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
On October 7, 2022,
| F-8 |
| Table of Contents |
During the reporting periods, the Company has the following subsidiaries. Details of the Company and its operating subsidiaries are set out below:
Name of subsidiary |
| Place of incorporation |
| Date of incorporation |
| Date of Acquisition |
| % of Ownership |
| Principal activities |
Paranovus Entertainment (NewYork) Technology Limited (“Paranovus New York”) |
|
|
| N/a |
|
| ||||
2lab3 LLC(“2Lab3”) |
|
|
|
|
| |||||
Paranovus Entertainment (Hong Kong) Technology Ltd. (“Paranovus Hong Kong”) |
|
|
| N/a |
| 100% by Paranovus Cayman |
| |||
Hainan Paranovous Technology Co., Ltd. (“Paranouvous Hainan” |
|
|
| N/a |
|
| ||||
Bomie Wookoo Inc.(“BW”) |
|
|
|
|
| |||||
WooKoo LLC (“Wookoo”) |
|
| ||||||||
Bomie US LLC (“Bomie US”) |
|
|
|
|
| |||||
Hainan Paranovous Technology Co., Ltd((“Paranovus Hainan”) |
|
|
| N/a |
|
| ||||
Happiness (Shunchang) E-commerce Co., Ltd (“Happiness Shunchang”)* |
|
|
| N/a |
|
| ||||
Fuzhou Happiness Enterprise Management Consulting Co., Ltd* |
|
|
| N/a |
|
| ||||
Taochejun (Fujian) automobiles Co., Ltd* |
|
|
| N/a |
|
|
* | On July 5, 2024, the Company transferred the 100% of the equity interests of Happiness Hong Kong and its subsidiaries to a third party by the strategic decision. |
| F-9 |
| Table of Contents |
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 consolidated balance sheets are presented as of March 31, 2026 and 2025, and the consolidated statements of operations and other comprehensive income (loss), changes in shareholders’ equity and cash flows are presented for each of the three years ended March 31, 2026. All intercompany balances and transactions have been eliminated upon consolidation. Certain amounts may not add due to rounding.
The results of subsidiaries acquired or disposed of are recorded in the consolidated income statements from the effective date of acquisition or up to the effective date of disposal, as appropriate. A subsidiary is an entity in which (i) the Company directly or indirectly controls more than 50% of the voting power, or (ii) the Company has the power to appoint or remove the majority of the members of the board of directors or to cast a majority of votes at the meetings of the board of directors or to govern the financial and operating policies of the investee pursuant to a statute or under an agreement among the shareholders or equity holders.
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 operations and other comprehensive income (loss) 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, plant and equipment, net 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 investments with original maturities of three months or less when purchased to be cash equivalents. The Company maintains substantially all of its cash with financial institutions in the United States, where balances may exceed Federal Deposit Insurance Corporation insurance limits. The Company also maintains immaterial cash balances in the PRC and Hong Kong, which are subject to applicable local banking and foreign-exchange regulations. The Company has not experienced any losses in such accounts and believes it is not exposed to significant credit risk on cash.
| F-10 |
| Table of Contents |
Short-term investments
Short-term investments consist primarily of investments in fixed deposits with original maturities between three months and one year and certain investments in wealth management products and other investments that the Company has the intention to redeem within one year.
Inventories
The Company holds inventory that is sold through retail, including e-commerce channels. Substantially all of the Company's inventories are comprised of finished goods and are reported at the lower of cost or net realizable value. Cost elements of inventories comprise the purchase price of products, shipping charges to receive products from the suppliers when they are embedded in the purchase price. Cost is determined using the first-in first-out method. The Company establishes provisions for inventories deemed excessive, slow-moving, expired, obsolete, or carried at amounts exceeding their net realizable value. Certain factors could impact the realizable value of inventory, so the Company continually evaluates the recoverability based on assumptions about customer demand and market conditions. The evaluation may take into consideration historical usage, inventory aging, expiration date, expected demand, anticipated sales price, product obsolescence and other factors. The reserve or write-down is equal to the difference between the cost of inventory and the estimated net realizable value based upon assumptions about future demand and market conditions. If actual market conditions are less favorable than those projected by management, additional inventory reserves or write-downs may be required that could negatively impact the Company’s gross margin and operating results. If actual market conditions are more favorable, the Company may have higher gross margin when products that have been previously reserved or written down are eventually sold. As of March 31, 2026 and 2025, management compared the cost of inventories with their net realizable value and determined no inventory write-down was necessary.
Prepaid expenses and other current assets
Prepaid expenses and other current assets include advances to vendors, loans to third parties, interest receivable and other receivables. The balances are classified as current or non-current based on their contractual terms and expected realization. The Company evaluates advances and receivables for impairment based on contractual rights, counterparty creditworthiness, aging, subsequent settlement and other relevant facts and circumstances. During the fiscal year ended March 31, 2026, the Company fully impaired a $
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.
| F-11 |
| Table of Contents |
ASC 350-20-35-41 requires goodwill acquired in a business combination to be assigned, as of the acquisition date, to one or more reporting units expected to benefit from the synergies of the combination. The Company identified Bomie and Wookoo as separate reporting units because they are separately managed businesses for which discrete financial information is available and is reviewed separately by the CODM. The $
Property, Plant and Equipment, net
Property, plant and equipment, net are stated at historical cost (including all expenditures necessary to bring the asset to its intended use) less accumulated depreciation and impairment if any. Depreciation is computed using the straight-line method over the following estimated useful lives.
|
| Useful Lives |
Vehicles |
|
The cost and related accumulated depreciation of assets sold or otherwise retired are eliminated from the accounts and any gain or loss is included in the consolidated statements of operations and comprehensive income (loss). Expenditures for maintenance and repairs are charged to earnings as incurred, while additions, renewals and betterments, which are expected to extend the useful life of assets, are capitalized. The Company also re-evaluates the periods of depreciation to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
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 |
Proprietary technology |
| |
Customer relationships |
|
Impairment of Long-lived Assets other than goodwill
The Company recorded impairment of intangible assets of $
| F-12 |
| Table of Contents |
Right-of-use assets
The Company determines if an arrangement is a lease and determines the classification of the lease, as either operating or finance, at commencement. The Company has operating leases for office buildings and has no finance leases as of March 31, 2026 and 2025. Operating lease ROU assets and operating lease liabilities are recognized based on the present value of the lease payments over the lease term at commencement date.
As the Company’s leases do not provide an implicit rate, an incremental borrowing rate is used based on the information available at the commencement date, to determine the present value of lease payments. The incremental borrowing rate approximates the rate the Company would pay to borrow in the currency of the lease payments for the weighted-average life of the lease.
The operating lease ROU assets also include any lease payments made prior to lease commencement and exclude lease incentives and initial direct costs incurred if any. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for minimum lease payments is recognized on a straight-line basis over the lease term.
The Company’s lease agreements contain both lease and non-lease components, which are accounted for separately based on their relative standalone price.
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 short-term investments, 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 as of March 31, 2026 and 2025 based upon the short-term nature of the assets and liabilities.
| F-13 |
| Table of Contents |
Discontinued operations
In accordance with ASC 205-20, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity, a disposal of a component of an entity or a group of components of an entity is required to be reported as a discontinued operation if the disposal represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results when the components of an entity meets the criteria in paragraph 205-20-45-1E to be classified as held for sale. When all of the criteria to be classified as held for sale are met, including management, having the authority to approve the action, commits to a plan to sell the entity, the major current assets, other assets, current liabilities, and non-current liabilities shall be reported as components of total assets and liabilities separate from those balances of the continuing operations. At the same time, the results of all discontinued operations, less applicable income taxes (benefit), shall be reported as components of net income (loss) separate from the net income (loss) of continuing operations in accordance with ASC 205-20-45.
Revenue Recognition
The Company’s current revenue is generated principally from offline product sales, online store sales and e-commerce solution services. Revenue from legacy businesses is presented in the applicable comparative periods or within discontinued operations, as appropriate.
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
The Company’s revenue-recognition policies for its principal current revenue streams are as follows:
Offline product sales
Offline product sales primarily consist of wholesale product sales by Bomie. The Company is the principal because it controls the products before transfer, establishes pricing and bears inventory and collection risk. Revenue is recognized at a point in time when control transfers upon delivery to, and acceptance by, the customer, as supported by purchase orders, invoices and delivery documentation.
| F-14 |
| Table of Contents |
Online store sales
Online store sales primarily consist of products sold by Wookoo through third-party e-commerce platforms. The Company is the principal because it controls the products before transfer and bears inventory risk. Revenue is recognized at a point in time upon delivery to and acceptance by the customer, net of returns, discounts and platform adjustments. Amounts collected by the platform are remitted to the Company in accordance with the platform’s settlement terms.
E-commerce solution services
E-commerce solution services include training, consulting, brand design, advertising and content production, livestreaming operations and related TikTok-based enablement services. Revenue from stand-ready, training and consulting services is recognized over time as the customer simultaneously receives and consumes the benefits. Revenue from distinct brand-design, advertising-production and similar deliverables is recognized at a point in time when the completed deliverable is transferred to and accepted by the customer.
Revenue is presented net of returns, discounts and amounts collected on behalf of third parties. Product revenue is recognized at a point in time; service revenue is recognized over time or at a point in time depending on the nature of the performance obligation.
The following table presents an overview of our sales from our product lines for the years ended March 31, 2026, 2025 and 2024:
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Offline product sales |
| $ |
|
| $ |
|
| $ |
| |||
Online store sales |
| $ |
|
| $ |
|
| $ |
| |||
Service revenue |
| $ |
|
| $ |
|
| $ |
| |||
Revenue |
| $ |
|
| $ |
|
| $ |
| |||
Cost of Revenues
Offline product sales
Cost of revenue for offline product sales consists primarily of product purchase costs and directly attributable freight and delivery costs.
Online store sales
Cost of revenue for online store sales consists primarily of product costs, packing, shipping, supplies and directly attributable platform and fulfillment costs.
E-commerce solution services
Cost of revenue for e-commerce solution services consists primarily of payroll, contract labor and other direct costs of providing training, consulting, design, advertising-production and livestreaming services.
| F-15 |
| Table of Contents |
Income Taxes
The Company follows the liability method of accounting for income taxes in accordance with ASC 740, Income Taxes. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax bases of assets and liabilities using enacted tax rates that will be in effect in the period in which the differences are expected to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence, it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred taxes of a change in tax rate is recognized in tax expense in the period that includes the enactment date of the change in tax rate.
The Company accounted for uncertainties in income taxes in accordance with ASC 740. Interest and penalties related to unrecognized tax benefit recognized in accordance with ASC 740 are classified in the consolidated statements of operations and comprehensive income (loss) as income tax benefit (expense).
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. Under the two-class method, net profit/loss is allocated between Class A ordinary shares, Class B ordinary shares and other participating securities based on their participating rights.
The Company computes earnings per share ("EPS") in accordance with ASC 260, Earnings per Share. ASC 260 requires entities with complex capital structures to present basic and diluted EPS. Basic EPS is calculated by dividing net profit/loss attributable to ordinary shareholders by the weighted-average number of ordinary shares outstanding during the period. Diluted EPS adjusts the numerator and denominator for dilutive ordinary-share equivalents, if any; potential ordinary shares are excluded when their effect would be anti-dilutive. Except for voting rights, Class A and Class B ordinary shares have identical economic rights, and EPS is therefore the same for both classes.
ASC 260-10-55-12 requires share and per-share computations to reflect a reverse share split retrospectively for all periods presented, including a reverse share split effected after the balance-sheet date but before the financial statements are issued. Accordingly, all share and per-share amounts have been retrospectively adjusted for the 1-for-100 share consolidation effective December 18, 2025, the 1-for-12 share consolidation effective March 31, 2026 and the 1-for-100 share consolidation effective June 29, 2026. Potential ordinary shares associated with pre-funded warrants were excluded from diluted loss per share because their effect was anti-dilutive.
| F-16 |
| Table of Contents |
Foreign Currency Translation
The Company and its subsidiaries’ principal country of operations is the United States. 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 operations and other comprehensive income (loss) 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 operations and comprehensive income (loss).
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, 2026 |
| March 31, 2025 |
| March 31, 2024 |
|
Period-end spot rate |
|
|
|
| |||
Average rate |
|
|
|
|
Comprehensive income (loss)
Comprehensive income (loss) includes net loss and foreign currency translation adjustments and is reported in the consolidated statements of operations and other comprehensive income (loss).
Segment Reporting
An operating segment is a component of the Company that engages in business activities from which it may earn revenue and incur expenses and is identified on the basis of the internal financial reports that are provided to and regularly reviewed by the Company’s chief operating decision maker (“CODM”) in order to allocate resources and assess performance of the segment.
In accordance with ASC 280, the Company has two operating and reportable segments, Bomie and Wookoo. The Company’s chief executive officer is the chief operating decision maker (“CODM”) and regularly reviews separate financial information for Bomie and Wookoo to allocate resources and assess performance. Corporate costs and consolidation adjustments are not an operating segment and are presented only as a reconciliation to consolidated amounts.
| F-17 |
| Table of Contents |
Concentration of Risks
Exchange Rate Risks
The Company’s principal operations are in the United States. Its limited activities in mainland China and Hong Kong expose it to foreign-currency risk arising from fluctuations between the U.S. dollar and RMB.
Currency Convertibility Risks
Only limited operating activities are transacted in RMB. Those balances and transactions are subject to PRC foreign-exchange and currency-convertibility regulations, including requirements applicable to payments and remittances denominated in foreign currencies.
Concentration of Credit Risks
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company maintains substantially all cash with financial institutions in the United States and immaterial balances in mainland China and Hong Kong. The Company performs ongoing credit evaluations of customers and generally does not require collateral. The concentration of credit risk associated with accounts receivable is related to the concentration of revenue.
Interest Rate Risks
The Company is exposed to interest-rate risk principally through its interest-bearing third-party loans and notes. Because the material borrowings outstanding as of March 31, 2026 carried fixed rates, management did not consider its exposure to changes in market interest rates to be significant.
Related Parties
A related party is generally defined as (i) any person and or their immediate family hold 10% or more of the Company’s securities (ii) the Company’s management, (iii) someone that directly or indirectly controls, is controlled by or is under common control with the Company, or (iv) anyone who can significantly influence the financial and operating decisions of the Company. A transaction is considered to be a related party transaction when there is a transfer of resources or obligations between related parties. Related parties may be individuals or corporate entities.
Transactions involving related parties cannot be presumed to be carried out on an arm’s-length basis, as the requisite conditions of competitive, free market dealings may not exist. Representations about transactions with related parties, if made, shall not imply that the related party transactions were consummated on terms equivalent to those that prevail in arm’s-length transactions unless such representations can be substantiated. It is not, however, practical to determine the fair value of amounts due from/to related parties due to their related party nature.
| F-18 |
| Table of Contents |
Recent Accounting Pronouncements
In November 2023, the FASB issued ASU 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. The amendments enhance annual and interim disclosures about significant segment expenses and the information used by the chief operating decision maker. The Company adopted ASU 2023-07 in the fiscal year ended March 31, 2026 and applied the amendments retrospectively to all periods presented.
In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures. The amendments expand rate-reconciliation and income-taxes-paid disclosures. For entities using the private-company effective date under the JOBS Act transition election, the amendments are effective for annual periods beginning after December 15, 2025. Early adoption is permitted. The Company is evaluating the impact on its disclosures.
In November 2024, the FASB issued ASU 2024-03, Income Statement—Reporting Comprehensive Income (Subtopic 220-40): Disaggregation of Income Statement Expenses, as clarified by ASU 2025-01. The amendments require additional disclosure of specified expense categories included in income-statement captions and are effective for the Company’s fiscal year beginning April 1, 2027, with interim adoption in the following fiscal year. Early adoption is permitted. The Company is evaluating the effect on its disclosures.
In July 2025, the FASB issued ASU 2025-05, Financial Instruments—Credit Losses (Topic 326), which provides a practical expedient for estimating expected credit losses on current accounts receivable and current contract assets arising from Topic 606 transactions. The amendments are effective for annual periods beginning after December 15, 2025, including interim periods within those annual periods. Early adoption is permitted. The Company is evaluating the effect on its consolidated financial statements and disclosures.
In September 2025, the FASB issued ASU 2025-06, Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software. The amendments modernize the capitalization guidance for software costs and are effective for fiscal years beginning after December 15, 2027, including interim periods within those fiscal years. Early adoption is permitted. The Company is evaluating the effect on its consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-10, Government Grants (Topic 832): Accounting for Government Grants Received by Business Entities. The amendments establish recognition, measurement, presentation and disclosure guidance for government grants received by business entities and are effective for public business entities for fiscal years beginning after December 15, 2028, with early adoption permitted. The Company is evaluating the effect on its consolidated financial statements and disclosures.
In December 2025, the FASB issued ASU 2025-11, Interim Reporting (Topic 270): Narrow-Scope Improvements. The amendments clarify the applicability, form, content and disclosure requirements for interim financial statements and are effective for public business entities for interim periods within annual periods beginning after December 15, 2027. Early adoption is permitted. The Company is evaluating the effect on its disclosures.
Except for the above-mentioned pronouncements, there are no new recent issued accounting standards that will have a material impact on the consolidated financial position, statements of operations and cash flows.
| F-19 |
| Table of Contents |
NOTE 3 – ACCOUNTS RECEIVABLE, NET
Accounts receivable, net, consisted of the following:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Accounts receivable |
| $ |
|
| $ |
| ||
Allowance for credit losses |
|
|
|
|
|
| ||
Accounts receivable, net |
| $ |
|
| $ |
| ||
As of March 31, 2026, the Company had not recognized an allowance for credit losses on accounts receivable based on its assessment of collectability and subsequent collections.
NOTE 4 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following as of March 31, 2026 and 2025:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Advance payments and prepayments (1) |
| $ |
|
| $ |
| ||
Loans to third parties (2) |
|
|
|
|
|
| ||
Other receivables |
|
|
|
|
|
| ||
Interest receivable |
|
|
|
|
|
| ||
Prepaid expenses and other current assets, gross |
|
|
|
|
|
| ||
Less: impairment allowance |
|
| ( | ) |
|
|
| |
Prepaid expenses and other current assets, net |
| $ |
|
| $ |
| ||
(1) During the fiscal year 2026, an application-development project for which the Company had previously paid a $
(2) On December 4, 2025, the Company made unsecured loans of $
NOTE 5 – PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment consisted of the following as of March 31, 2026 and 2025:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Vehicles |
| $ |
|
| $ |
| ||
Total property, plant and equipment, at cost |
|
|
|
|
|
| ||
Less: accumulated depreciation |
|
| ( | ) |
|
|
| |
Property, plant and equipment, net |
| $ |
|
| $ |
| ||
As of March 31, 2026 and 2025, no property, plant and equipment has been pledged.
Depreciation expense was $
No property, plant and equipment was disposed of during the years ended March 31, 2026 and 2025. Additions to vehicles during the year ended March 31, 2026 were $
| F-20 |
| Table of Contents |
NOTE 6 – INTANGIBLE ASSETS, NET
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Proprietary technology |
| $ |
|
| $ |
| ||
Customer relationships |
|
|
|
|
|
| ||
Total intangible assets, at cost |
|
|
|
|
|
| ||
Less: accumulated amortization |
|
| ( | ) |
|
| ( | ) |
Less: accumulated impairment |
|
| ( | ) |
|
| ( | ) |
Intangible assets, net |
| $ |
|
| $ |
| ||
As of March 31, 2026 and 2025, no intangible assets were pledged. The customer-relationship intangible asset of $
No intangible assets were purchased or disposed of during the years ended March 31, 2026 and 2025.
The Company recognized impairment of intangible assets of $
Amortization expense was $
Estimated future amortization expense is as follows as of March 31, 2026:
Years ending March 31, |
| Amortization expense |
| |
2027 |
| $ |
| |
2028 |
|
|
| |
2029 |
|
|
| |
2030 |
|
|
| |
2031 |
|
|
| |
Total |
| $ |
| |
NOTE 7 – GOODWILL
Goodwill consisted of the following as of March 31, 2026 and 2025:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Goodwill, gross (Note 12) |
| $ |
|
| $ |
| ||
Less: impairment |
|
| ( | ) |
|
| ( | ) |
Goodwill, net |
|
|
|
|
|
| ||
The changes in the carrying amount of goodwill for the years ended March 31, 2026 and 2025 were as follow:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Goodwill |
| $ |
|
| $ |
| ||
Acquisitions (Note 12) |
|
|
|
|
|
| ||
Impairment |
|
| ( | ) |
|
| ( | ) |
Ending balance |
|
|
|
|
|
| ||
The Company recognized goodwill impairment of $
| F-21 |
| Table of Contents |
NOTE 8 – LEASES
Effective on January 1, 2021, the Company adopted Topic 842. At the inception of a contract, the Company determines if the arrangement is, or contains, a lease. ROU assets represent the Company’s right to use an underlying asset over the lease term and lease liability represent the Company’s obligation to make lease payments derived from the lease.
Operating lease ROU asset and liability are recognized at commencement date based on the present value of lease payments over the lease terms. Rent expense is recognized on a straight-line basis over the lease terms.
The Company leases warehouse and office space in Dallas, Texas under an operating lease. During the fiscal year ended March 31, 2026, management reassessed the lease term and recognized the additional two-year period from October 2025 through September 2027 as a lease modification. The Company also leased a residential apartment in Long Island City, New York under a one-year lease that expired in August 2025.
Balance sheet information related to operating leases right-of-use assets and lease liabilities is as follows:
(a) | Amount recognized in the consolidated balance sheet: |
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Operating lease right-of-use assets, net |
| $ |
|
| $ |
| ||
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Operating lease liabilities, current |
| $ |
|
| $ |
| ||
Operating lease liabilities, non-current |
|
|
|
|
|
| ||
Total operating lease liabilities |
|
|
|
|
|
| ||
(b) | The weighted-average remaining lease term and discount rate as of March 31, 2026 and 2025 were as follows: |
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Remaining lease term and discount rate: |
|
|
|
|
|
| ||
Weighted average remaining lease term (years) |
|
|
|
|
|
| ||
Weighted average discount rate |
|
| % |
|
| % | ||
Maturity analysis of operating lease liabilities as of March 31, 2026 is as follows:
Operating lease payment |
| As of March 31, 2026 |
| |
Within one year |
|
|
| |
One to three years |
|
|
| |
Total future minimum lease payments |
| $ |
| |
Less: imputed interest |
|
| ( | ) |
Total |
|
|
| |
| F-22 |
| Table of Contents |
Operating lease cost was $
NOTE 9 – RELATED PARTY TRANSACTIONS AND BALANCES
a. | Nature of relationships with related parties |
Name of related parties |
| Relationship with the Company |
Minzhu Xu |
| |
Shunqi Du |
| |
Shuang Wu |
| |
Jue Wang |
|
b. | Dues to the related parties |
|
| As of March 31, |
|
| As of March 31, |
| ||
Due to the related parties |
| 2026 |
|
| 2025 |
| ||
Minzhu Xu |
|
|
|
|
|
| ||
Shunqi Du |
|
|
|
|
|
| ||
Shuang Wu |
|
|
|
|
|
| ||
Total |
| $ |
|
| $ |
| ||
c. | Amount due from a related party | ||||
|
| As of March 31, 2026 |
|
| As of March 31, 2025 |
| ||
Jue Wang |
| $ |
|
| $ |
| ||
Due from related party |
| $ |
|
| $ |
| ||
d. | Related party transactions | ||||
During the year ended March 31, 2026, the Company borrowed an additional $
As of March 31, 2026, amounts due to Shunqi Du and Shuang Wu were $
Except for the promissory notes from Ms. Minzhu Xu, which bore interest at
| F-23 |
| Table of Contents |
NOTE 10 – OTHER PAYABLES AND ACCRUED LIABILITIES
Other payables and accrued liabilities consisted of the following as of March 31, 2026 and 2025:
|
| As of March 31, |
|
| As of March 31, |
| ||
|
| 2026 |
|
| 2025 |
| ||
Advances from customers |
| $ |
|
| $ |
| ||
Loan payable to the third party |
|
|
|
|
|
| ||
Interest payable |
|
|
|
|
|
| ||
Deposit |
|
|
|
|
|
| ||
Others |
|
|
|
|
|
| ||
Other payables and accrued liabilities |
|
|
|
|
|
| ||
NOTE 11 – SHAREHOLDERS’ EQUITY
During the year ended March 31, 2026, the Company issued an aggregate of 291,112,623 Class A ordinary shares and 40,000 Class B ordinary shares before giving effect to the share consolidations and received net cash proceeds of $19,862,097. The Class A issuances included 283,275,325 shares sold under an at-the-market program before the December 2025 consolidation, 3,047,298 shares sold under an at-the-market program after that consolidation, 330,000 shares sold in the March 2026 registered direct offering and 4,460,000 shares issued upon exercise of pre-funded warrants. On January 9, 2026, the Company issued 40,000 Class B ordinary shares to Happy Group Inc. for cash proceeds of $123,600.
On December 18, 2025, the Company effected a 1-for-100 share consolidation. On March 31, 2026, the Company effected a 1-for-12 share consolidation. On June 29, 2026, after the balance-sheet date but before issuance of these financial statements, the Company effected a further 1-for-100 share consolidation. All weighted-average share and per-share information has been retrospectively adjusted for all three consolidations where required by U.S. GAAP. The number of shares presented in the consolidated statements of changes in shareholders’ equity represents the legal shares outstanding at the respective balance-sheet dates and therefore does not reflect the June 29, 2026 consolidation. During the fiscal year ended March 31, 2026, the Company also completed a capital reduction that transferred $
Ordinary shares
Paranovus Cayman was incorporated under the laws of the Cayman Islands on February 9, 2018. The Company issued
A Reorganization of the legal structure was completed in August 2018. The Reorganization involved the incorporation of Paranovus Entertainment Technology Ltd., a Cayman Islands holding company; Happiness Biology Technology Group Limited, a holding company established in Hong Kong, PRC; Happiness (Fuzhou) E-commerce Co., Ltd, a holding company established in Fujian, PRC; and the transfer of
In May 2018, the Company received $
On March 4, 2019, the Company subdivided its
| F-24 |
| Table of Contents |
On October 25, 2019, the Company announced the closing of its initial public offering of
The Company entered several Securities Purchase Agreement from September 2020 through March 2021. Pursuant to which, the Company issued
On March 15, 2021, the Company issued
On June 21, 2021, the Company issued an aggregate of
On June 25, 2021, the Company entered several Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued
On October 14, 2021, the Company issued an aggregate of
On October 20, 2021, the Company entered into a certain equity agreement with Shennong for the purchase of
On October 21, 2021, the Company held its annual meeting of shareholders for its fiscal year ending March 31, 2021. The Company approved as a special resolution an alteration to the share capital of the Company by: a: the conversion of each issued paid up Ordinary Share with a par value of $
On January 12, 2022, the Company issued an aggregate of
On January 20, 2022, the Company entered several Securities Purchase Agreement with non-US persons. Pursuant to which, the Company issued
On March 4, 2022, the Company entered into a certain equity transfer agreement with Hekangyuan for the purchase of
| F-25 |
| Table of Contents |
On March 10, 2022, the Company entered several Securities Purchase Agreement with non-US investors. Pursuant to which, the Company issued
On April 21, 2022,
On October 10, 2022, a
On December 27, 2022, the Company entered into certain securities purchase agreement (the “SPA”) with certain sophisticated purchasers (the “Purchasers”), pursuant to which the Company agreed to sell
On March 14, 2022, the Company entered into a certain equity transfer agreement with 2Lab3 LLC for the purchase of 100% of the equity interest of 2Lab3 LLC at a consideration of approximately $
On July 17, 2024, the Company entered into a certain securities purchase agreement (the “SPA”) with certain investors (the “Purchasers”), pursuant to which the Company agreed to sell up to
During the year ended March 31, 2026, the Company issued an aggregate of
Non-controlling Interest
Non-controlling interests represent the interest of non-controlling shareholders in Paranovus Entertainment Technology Ltd. based on their proportionate interests in the equity of that company adjusted for their proportionate share, which is
Statutory reserve
The Company is required to make appropriations to certain reserve funds, comprising the statutory reserve and the discretionary 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
| F-26 |
| Table of Contents |
Pre-funded warrants
In connection with the March 2026 registered direct offering,
As of March 31, 2026, pre-funded warrants to purchase
NOTE 12 – BUSINESS COMBINATION
Acquisition of 2Lab3
On March 28, 2023, the Company acquired
The Company engaged an independent valuation firm to assist management in valuing assets acquired, liabilities assumed, intangible assets identified and contingent consideration as of the acquisition day.
The identifiable intangible assets acquired upon acquisition were proprietary technology with definite useful life. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the consideration was based on the closing market price of the Company’s common share on the acquisition date.
| F-27 |
| Table of Contents |
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) |
| $ |
| |
|
|
|
|
|
Subtotal |
| $ |
| |
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liability assumed: |
|
|
|
|
Cash |
| $ |
| |
Intangible asset –proprietary technology |
|
|
| |
Current liabilities |
|
| ( | ) |
Total identifiable net assets |
| $ |
| |
Fair value of non-controlling interests |
|
|
| |
Goodwill* |
| $ |
| |
* | The goodwill generated from the expected synergies from the output capacity of the transaction and service scenario of developing AI-powered applications. |
Acquisition of BW
On March 25, 2025, the Company acquired
The Company engaged an independent valuation firm to assist management in valuing assets acquired, liabilities assumed, intangible assets identified and contingent consideration as of the acquisition day.
The identifiable intangible assets acquired upon acquisition were customer relationships with definite useful life. All other current assets and current liabilities carrying value approximated fair value at the time of acquisition. The fair value of the consideration was based on closing market price of the Company’s common share on the acquisition date.
According to the independent valuation report, the purchase price was allocated to the assets acquired and liabilities assumed based on their fair values was as follows:
Fair value of total consideration transferred: |
|
|
| |
Cash consideration |
| $ |
| |
|
|
|
|
|
Subtotal |
| $ |
| |
|
|
|
|
|
Recognized amounts of identifiable assets acquired and liability assumed: |
|
|
|
|
Cash |
| $ |
| |
Current assets other than cash |
|
|
| |
Property, plant and equipment, net |
|
|
| |
Intangible asset – customer relationships |
|
|
| |
Operating lease assets |
|
|
| |
Current liabilities |
|
| ( | ) |
Total identifiable net assets |
| $ |
| |
Fair value of non-controlling interests |
|
|
| |
Goodwill* |
| $ |
| |
* | The goodwill generated from the expected synergies from the cooperation of providing TikTok-related e-commerce solutions for customers, leveraging its network in the e-commerce industry and utilizing influencer collaboration, live-streaming sales, advertising campaigns, and data-driven strategic consulting to increased visibility and engagement with BW. |
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.
| F-28 |
| Table of Contents |
NOTE 13 – DISCONTINUED OPERATIONS
Disposition of the automobile segment
On July 5, 2024, the Company terminated the automobile business and transferred the
Disposition of the healthcare and E-commerce segment
On April 10, 2023, the Company entered into an agreement to transfer
On August 28, 2023, the Company’s indirect wholly owned subsidiary (the “Seller”), Happy Buy (Fujian) Network Technology Co., Ltd. (“Happy Buy”) and Shunchang Jinyifu trading Co., Ltd ("Shunchang Jinyi”), 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 Happy Buy in exchange for cash consideration of RMB 5 million (approximately $0.7 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 Happy Buy and as a result, assume all assets and liabilities of Happy Buy and subsidiaries owned or controlled by Happy Buy. The transaction was closed on September 1, 2023.
On July 31, 2023, the Company disposed all of healthcare business for approximately $
On September 30, 2023, the Company disposed all of E-commerce business for approximately $
The Company no longer retained any financial interest over automobiles sales, healthcare and online store business from July 6, 2024, August 1, 2023 and October 1, 2023, respectively, and accordingly deconsolidated both businesses’ financial statements from the Company’s consolidated financial statements. The disposal of these businesses represented a strategic shift and has a major effect on the Company’s result of operations.
| F-29 |
| Table of Contents |
The Company calculated a loss incurred from the above-mentioned dispositions as follows:
|
| For the year ended March 31, 2025 |
| |
Consideration |
| $ |
| |
|
|
|
|
|
Cash and cash equivalents |
|
|
| |
Accounts receivable, net |
|
|
| |
Prepaid expenses and other current assets |
|
|
| |
Property, plant and equipment, net |
|
|
| |
Long-term investment |
|
|
| |
Other payables and accrued liabilities |
|
| ( | ) |
|
|
|
|
|
Net assets of discontinued operations |
|
| ( | ) |
Non-controlling interest of discontinued operations |
| $ |
| |
Foreign exchange gain or losses |
|
| ( | ) |
Less: net assets of discontinued operations contributable to the Company |
|
|
| |
Loss on disposal of discontinued operations |
| $ | ( | ) |
The assets and liabilities for discontinued operations comprised the following items as of March 31, 2024:
|
| March 31, 2024 |
| |
Current assets for discontinued operations |
|
|
| |
Cash and cash equivalents |
| $ |
| |
Accounts receivable, net |
|
|
| |
Prepaid expenses and other current assets |
|
|
| |
Total |
| $ |
| |
|
|
|
|
|
Non-current assets for discontinued operations |
|
|
|
|
Property, plant and equipment, net |
| $ |
| |
Total |
| $ |
| |
|
|
|
|
|
Total assets |
| $ |
| |
|
|
|
|
|
Current liabilities for discontinued operations |
|
|
|
|
Other payables and accrued liabilities |
| $ |
| |
Total |
| $ |
| |
|
|
|
|
|
Total liabilities |
| $ |
| |
| F-30 |
| Table of Contents |
The operating results from discontinued operations included in the Company’s consolidated statements of operations and other comprehensive income (loss) were as follows for the years ended March 31, 2026, 2025 and 2024:
|
| For the years ended March 31, |
| |||||||||
|
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Major classes of line items constituting net loss of discontinued operations |
|
|
|
|
|
|
|
|
| |||
Revenues |
| $ |
|
| $ |
|
| $ |
| |||
Cost of revenues |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Selling and marketing |
|
|
|
|
| ( | ) |
|
| ( | ) | |
General and administrative |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Research and development |
|
|
|
|
|
|
|
| ( | ) | ||
Goodwill impairment |
|
|
|
|
|
|
|
|
| |||
Other expense that are not major |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Loss from discontinued operations, before income tax |
|
|
|
|
| ( | ) |
|
| ( | ) | |
Income tax benefit (expense) |
|
|
|
|
|
|
|
|
| |||
Loss from discontinued operations, net of income tax |
|
|
|
|
| ( | ) |
|
| ( | ) | |
(Loss) gain on disposal of discontinued operations |
|
|
|
|
| ( | ) |
|
|
| ||
Net loss from discontinued operations, net of income tax |
|
|
|
| $ | ( | ) |
| $ | ( | ) | |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
As of March 31, 2026 and 2025, the Company had no material commitments or contingencies and was not involved in any material pending legal proceedings.
NOTE 15 – CUSTOMER AND SUPPLIER CONCENTRATION
For the year ended March 31, 2026, three customers accounted for $
For the year ended March 31, 2026, Two suppliers accounted for
NOTE 16 – INCOME TAXES
Income Tax Expense
Cayman Islands
The Company is incorporated in the Cayman Islands. Under current Cayman Islands law, the Company is not subject to income, corporation or capital gains tax, and no Cayman Islands withholding tax applies to dividends paid by the Company.
United States
The Company’s U.S. corporate subsidiaries are subject to U.S. federal income tax at
People’s Republic of China
The Company’s PRC subsidiary is generally subject to PRC enterprise income tax at
Hong Kong
The Company’s Hong Kong subsidiary is subject to Hong Kong profits tax under the two-tiered regime,
|
| For the year ended March 31, 2026 |
| |
Federal current tax |
| $ |
| |
State current tax |
|
|
| |
Foreign current tax |
|
|
| |
Deferred tax expense |
|
|
| |
Income tax expense |
| $ |
| |
| F-31 |
| Table of Contents |
Deferred Tax Assets and Liabilities
|
| As of March 31, 2026 |
| |
Deductible temporary differences |
| $ |
| |
Net operating loss carry forwards |
|
|
| |
Gross deferred tax assets |
|
|
| |
Less: valuation allowance |
|
| ( | ) |
Net deferred tax assets |
| $ |
| |
Customer relationships |
|
| ( | ) |
Gross deferred tax liabilities |
|
| ( | ) |
Net deferred tax liability |
| $ | ( | ) |
Deferred tax assets and liabilities are evaluated separately for each tax-paying component and are offset only when the applicable offsetting criteria are met within the same tax jurisdiction and tax-paying component.
Uncertain Tax Positions
The Company recognizes a tax benefit from an uncertain tax position only when it is more likely than not that the position will be sustained upon examination. As of March 31, 2026 and 2025, the Company had no significant unrecognized tax benefits and had not accrued interest or penalties related to uncertain tax positions. U.S. federal income tax returns are generally subject to examination for three years, and state income tax returns generally for three to four years. Under PRC law, the statute of limitations is generally three years, may be extended to five years in specified circumstances and is ten years for transfer-pricing matters; there is no limitation for tax evasion. Hong Kong tax returns are generally subject to examination for six years.
NOTE 17 – EARNINGS PER SHARE
The following table reconciles the numerators and denominators used to compute basic and diluted loss per ordinary share. All share and per-share amounts have been retrospectively adjusted for the 1-for-100 consolidation on December 18, 2025, the 1-for-12 consolidation on March 31, 2026 and the 1-for-100 consolidation on June 29, 2026.
|
| For the years ended March 31, |
| |||||||||
Numerator / denominator |
| 2026 |
|
| 2025 |
|
| 2024 |
| |||
Loss from continuing operations attributable to ordinary shareholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Loss from discontinued operations attributable to ordinary shareholders |
|
|
|
| $ | ( | ) |
| $ | ( | ) | |
Net loss attributable to ordinary shareholders |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Weighted-average ordinary shares — basic and diluted |
|
|
|
|
|
|
|
|
| |||
Basic and diluted loss per share — continuing operations |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Basic and diluted loss per share — discontinued operations |
|
|
|
| $ | ( | ) |
| $ | ( | ) | |
Basic and diluted loss per share — total |
| $ | ( | ) |
| $ | ( | ) |
| $ | ( | ) |
Note: All weighted-average share and per-share amounts presented above have been retrospectively adjusted for the share consolidations described in Note 11 – Shareholders’ Equity.
F-32 |
| Table of Contents |
NOTE 18 – SEGMENT INFORMATION
The Company’s chief executive officer is its chief operating decision maker ("CODM"). The CODM evaluates Bomie and Wookoo separately and uses profit or loss before income taxes to allocate resources and assess performance. Corporate costs and consolidation adjustments are not an operating segment and are included in the reconciliation column below.
For the year ended March 31, 2026 |
| Bomie |
|
| Wookoo |
|
| Corporate |
|
| Consolidated |
| ||||
Revenue |
| $ |
|
| $ |
|
|
|
|
| $ |
| ||||
Cost of revenue |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Goodwill impairment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Asset impairment |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Profit (loss) before income taxes |
| $ | ( | ) |
| $ |
|
| $ | ( | ) |
| $ | ( | ) | |
Total assets |
| $ |
|
| $ |
|
| $ |
|
| $ |
| ||||
The Corporate / eliminations column includes holding-company activities, acquisition-accounting adjustments, impairment charges recorded in consolidation and intercompany eliminations. Substantially all the fiscal year 2026 revenue was generated in the United States.
NOTE 19 – SUBSEQUENT EVENTS
Equity offerings in June 2026
In June 2026, the Company sold
Share consolidation in June 2026
On June 29, 2026, the Company effected a 1-for-100 share consolidation of its authorized, issued and outstanding ordinary shares. The par value increased proportionately to $
Heyviva asset acquisition
On August 5, 2026, the Company completed the acquisition of substantially all U.S. assets associated with the Heyviva business for cash consideration of $
| F-33 |
| Table of Contents |
ITEM 19. EXHIBITS
EXHIBIT INDEX
| 69 |
| Table of Contents |
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). |
| 70 |
| Table of Contents |
SIGNATURE
The registrant hereby certifies that it meets all of the requirements for filing on Form 20-F and that it has duly caused and authorized the undersigned to sign this annual report on its behalf.
| PARANOVUS ENTERTAINMENT TECHNOLOGY LTD. |
|
|
|
|
Date: August 14, 2026 | /s/ Xiaoyue Zhang |
|
| Xiaoyue Zhang |
|
| Chief Executive Officer |
|
| 71 |