Filing identity and reporting period
The supplied filing is Happiness Biotech Group Limited’s Form 20-F annual report for the fiscal year ended March 31, 2021, filed August 2, 2021. It does not match the requested company, Paranovus Entertainment Technology Ltd., or the requested period, 2019 Q4. The filing reports annual results, not 2019 Q4 results. The company describes nutraceutical and dietary supplements as its established business and e-commerce and automobile sales as newer revenue streams. Financial statements are prepared under U.S. GAAP.
Key financial metrics
Amounts are U.S. dollars unless otherwise noted.
| Metric | FY ended Mar. 31, 2021 | FY ended Mar. 31, 2020 |
|---|---|---|
| Revenue | $71.48 million | $65.06 million |
| Gross profit; gross margin | $18.18 million; 25.4% | $30.42 million; 46.8% |
| Operating income | $1.53 million | $15.40 million |
| Net income | $0.69 million | $12.69 million |
| Basic and diluted EPS | $0.03 | $0.53 |
| Net cash from operating activities | $2.90 million | $10.78 million |
| Cash and cash equivalents at year-end | $36.56 million | $33.65 million |
| Total assets; total liabilities; total equity | $112.74 million; $15.11 million; $97.64 million | $85.10 million; $5.51 million; $79.59 million |
| Working capital | $79.99 million | $64.48 million |
| Short-term bank borrowings | $2.24 million | $2.03 million |
No long-term debt was reported. The company reported $13.22 million of cash used in investing activities, including $9.31 million in deposits for business acquisitions. Financing activities provided $10.67 million, including $10.97 million from share issuance; the company paid a $375,000 special dividend.
Material changes and business mix
- Revenue rose 9.9%, but cost of revenue increased 53.9%; gross profit fell 40.2%, operating income fell about 90%, and net income fell 94.5% year over year. Management attributed the margin compression chiefly to the low margins of new revenue streams.
- Nutraceutical and dietary supplement revenue was $45.39 million, down from $65.06 million. New FY2021 revenue included online store sales of $13.47 million, internet information and advertising services of $9.25 million, and automobile sales of $3.38 million.
- Reported FY2021 gross margins were 37.9% for healthcare products, 5.3% for online sales, 2.6% for information and advertising services, and 1.1% for automobile sales. Management said it was prioritizing growth and customer acquisition in the newer businesses.
- COVID-19 disrupted production, distribution, and sales; management said experience-store closures and weaker distribution sales harmed the established business. Ten experience stores were closed during FY2021. Revenue increased overall as the company expanded online and added businesses.
- Shares issued for cash and services increased outstanding shares to 30,481,580 at March 31, 2021, from 25,000,000 a year earlier. The filing reports 31,953,025 shares outstanding as of August 2, 2021.
Outlook, risks, and unusual items
- No quantified earnings, revenue, or margin guidance is provided. Management said it planned to continue investing in e-commerce and automobile sales. It cautioned that renewed COVID-19 outbreaks could disrupt operations and that the impact on FY2022 could not then be reasonably estimated.
- Liquidity is supported by substantial reported cash and working capital, but $34.56 million of accounts receivable had no allowance for doubtful accounts. Customers generally received credit periods of up to 180 days; management considered the balances recoverable.
- Prepaid expenses and other current assets rose to $22.19 million from $4.26 million. They included a $9.13 million deposit toward a proposed 51% acquisition of an agricultural-products trader, pending due diligence and audited financial statements; the filing says the deposit would be refunded if the deal did not close. The company also prepaid a supplier for raw materials; about $4.02 million remained outstanding at year-end.
- Investors face China-related legal, regulatory, currency-conversion, dividend-repatriation, cybersecurity, and audit-inspection risks. The filing discusses potential U.S. trading restrictions under the Holding Foreign Companies Accountable Act and uncertainty around evolving PRC oversight of overseas-listed companies.
- Management concluded disclosure controls and internal control over financial reporting were not effective at March 31, 2021. Cited material weaknesses included insufficient U.S. GAAP/SEC reporting expertise and inadequate procedures to identify certain related-party transactions. Management outlined remediation plans. The auditor issued an unqualified opinion on the financial statements but did not opine on control effectiveness.
- The company reported a $162,832 goodwill balance from acquiring a 51% interest in a live-show services business, and no identified impairment indicator. It reported no pending material legal proceedings or off-balance-sheet arrangements. The auditor’s report says the financial statements fairly present the company’s position and results under U.S. GAAP.
Most important facts to verify
- Confirm that this is the intended issuer and period: the filing is Happiness Biotech Group Limited FY2021, not Paranovus Entertainment Technology Ltd. or a 2019 Q4 report.
- Review receivables aging, subsequent collections, and the basis for recording no credit-loss allowance on $34.56 million of receivables.
- Verify the status, recoverability, and accounting for the $9.13 million acquisition deposit and supplier prepayments, including the remaining supplier balance.
- Assess whether the newer businesses can improve their very low reported gross margins and generate operating cash flow.
- Track remediation of the disclosed material weaknesses, share issuance and dilution, and the company’s ability to move cash from China to the holding company.