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.

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 $1,500,000 advance related to a terminated application-development project because management concluded that no future economic benefit would be realized.

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.

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 $17,500,601 of goodwill arising from the acquisition of BW was assigned $6,563,746 to the Bomie reporting unit and $10,936,855 to the Wookoo reporting unit. Under ASC 350-20-35-2, a goodwill impairment loss is recognized for the amount by which the carrying amount of a reporting unit exceeds its fair value, limited to the goodwill allocated to that reporting unit. Based on its fiscal year 2026 impairment test, the Company recognized an impairment loss of $6,563,746 for Bomie, fully impairing Bomie’s goodwill. The $10,936,855 of goodwill assigned to Wookoo remained as of March 31, 2026.

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.

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:

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, related to the Bomie customer-relationship asset group. The Company recorded impairment of the 2Lab3 proprietary-technology intangible asset of $1,108,333 for the year ended March 31, 2025. The $1,500,000 impairment of the terminated application-development advance in the fiscal year ended March 31, 2026 was evaluated and presented separately within prepaid expenses and other current assets.

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:

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.

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.

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:

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.

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.

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: 

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.

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.

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.