| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 SUMMARY OF 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”).
The consolidated financial statements include the financial statements of Wah Fu, its subsidiaries and its subsidiary’s VIE. All
inter-company balances and transactions have been eliminated upon consolidation.
Company Date of Place of Percentage of Principal activities
Subsidiaries:
Wah Fu Holding* May 19, 2016 Hong Kong, PRC 100% Holding Company
Distance Learning December 23, 1999 Mainland, PRC 100% Provider of online education services and technological development and operation services
Shanghai Xin Fu July 20, 2015 Mainland, PRC 100% Inactive
Shanghai Xia Shu April 29, 2016 Mainland, PRC 100% Inactive
Hunan Huafu June 15, 2015 Mainland, PRC 75% Provider of online education services
Nanjing Suyun March 8, 2017 Mainland, PRC 70% Provider of online education services
Huaxia MOOC March 15, 2017 Mainland, PRC 71% Provider of online education services
Guizhou Huafu April 25, 2017 Mainland, PRC 51% Provider of online education services
Fuzhou Huafu May 21, 2018 Mainland, PRC 65% Provider of online education services
Liaoning Huafu ** June 26, 2018 Mainland, PRC 70% Provider of online education services
Guangxi Huafu *** August 14, 2019 Mainland, PRC 55% Inactive
Guangzhou Huafu October 21, 2019 Mainland, PRC 60% Provider of online education services
Sichuan Huafu November 8, 2019 Mainland, PRC 70% Provider of online education services
Chongqing Huafu July 4, 2022 Mainland, PRC 55% Provider of online education services
Variable interest entity
Digital Information September 14, 2000 Mainland, PRC Nil Provider of technological development and operation service and holder of Internet Content Provider (“ICP”) License * Wah Fu Holding was dissolved on April 23, 2021. ** Liaoning Huafu was dissolved on June 27, 2022. *** Guangxi Huafu was dissolved on March 17, 2022. Consolidation of Variable Interest Entities In accordance with accounting
standards regarding consolidation of variable interest entities, VIEs are generally entities that lack sufficient equity to finance their
activities without additional financial support from other parties or whose equity holders lack adequate decision making ability. The
VIE with which the Company is involved must be evaluated to determine the primary beneficiary of the risks and rewards of the VIE. The
primary beneficiary is required to consolidate the VIE for financial reporting purposes. The Company has determined that Distance Learning
is the primary beneficiary of Digital Information’s risks and rewards. The following tables set forth the assets, liabilities,
results of operations and changes in cash of the VIE, Digital Information, which were included in the Company’s consolidated balance
sheets, statements of operations and comprehensive loss and cash flows:
As of As of
Current assets $ 430,150 $ 580,823
Non-current assets 16,866 145,711
Total assets 447,016 726,534
Current liabilities 252,446 598,354
Intercompany payables* 3,156,235 3,513,846
Total liabilities 3,408,681 4,112,200
Net assets $ (2,961,665 ) $ (3,385,666 )
* Intercompany
payables are eliminated upon consolidation.
For the Years Ended
March 31, March 31, March 31,
Revenue* $ 708,503 $ 829,928 $ 514,888
Net Income (loss) $ 119,846 $ 36,181 $ (114,129 ) * Intercompany sales are eliminated upon consolidation.
For the Years Ended
March 31, March 31, March 31,
Net cash (used in) provided by operating activities* $ (89,131 ) $ 252,880 $ 92,187
Net cash used in investing activities (5,437 ) - (1,252 )
Effect of exchange (loss) gain on cash (39,585 ) 11,562 15,091
Net (decrease) increase in cash $ (134,153 ) $ 264,442 $ 106,026 * Intercompany operating activities are eliminated upon consolidation. Non-controlling
interests U.S. GAAP requires that non-controlling interests
in subsidiaries and affiliates be reported in the equity section of a company’s balance sheets. In addition, the amounts attributable
to the net income of those subsidiaries are reported separately in the consolidated statements of operations and comprehensive income
(loss). Use of estimates The preparation of consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenue
and expenses during each reporting period. Actual results could differ from those estimates. Significant accounting estimates reflected
in the Company’s consolidated financial statements include the allowances for doubtful accounts, valuation allowance for deferred
tax assets, estimated useful lives and fair value in connection with the impairment of property and equipment, and lease assumptions.
Actual results could differ from these estimates. Reclassifications Certain items in the financial statements of comparative
period have been reclassified to conform to the financial statements for the current period. The reclassification has no impact on the
total assets and total liabilities as of March 31, 2023 and 2022 or on the statements of operations for the years ended March 31, 2023,
2022 and 2021. Cash The Company considers all highly liquid investment
instruments with an original maturity of three months or less from the date of purchase to be cash equivalents. As of March 31, 2023 and
2022, the Company had no cash equivalents. The Company maintains its cash with various financial institutions mainly in the mainland China
and Hong Kong Special Administrative Region of PRC (the “Hong Kong”). Cash maintained in banks within the People’s Republic
of China of less than RMB0.5 million (equivalent to $72,805) per bank are covered by “deposit insurance regulation” promulgated
by the State Council of the People’s Republic of China. Balances in banks in Hong Kong are insured by Hong Kong Deposit Board and
subject to a certain limitation. Accounts receivable, net Accounts receivable are recognized and carried
at original invoiced amount less an estimated allowance for uncollectible accounts. The Company usually grants credit to customers with
good credit standing with a maximum of 90 days. As China’s online education market is intensely competitive in recent years, in
order to retain existing and attract new universities, educational institutions and technological service customers to capture additional
market share, the Company extends more credit sales with longer credit terms to certain customers which have a well-established business
relationship with the Company for more than five years. As of March 31, 2023 and 2022, the accounts
receivable were $0.8 million d $1.71 million respectively. As of March 31, 2023 and 2022, no accounts receivable were due from
customers accounting for 10% or more of total outstanding receivables nor 10% or more of total revenues. The Company determines the adequacy of reserves
for doubtful accounts based on individual account analysis and historical collections. The Company establishes a provision for doubtful
receivables when there is objective evidence that the Company may not be able to collect amounts due. The allowance is based on management’s
best estimates of specific losses on individual exposures, as well as a provision on historical trends of collections. The provision is
recorded against accounts receivable balances, with a corresponding charge recorded in the consolidated statements of operations and comprehensive
income (loss). Actual amounts received may differ from management’s estimate of credit worthiness and the economic environment.
Delinquent account balances are written-off against the allowance for doubtful accounts after management has determined that the likelihood
of collection is not probable. As of March 31, 2023 and 2022, the allowances for doubtful accounts were $535,767 and $1,122,743, respectively. Accounts receivable aging consisted of the following:
As of As of
Less than 12 months $ 1,220,327 $ 1,723,099
More than 12 months 108,652 1,112,074
Less: allowance for doubtful accounts (535,767 ) (1,122,743 )
Total accounts receivable, net $ 793,212 $ 1,712,430 Loans to third parties Loans to third parties are cash advances mainly
used for short-term funding to unrelated companies with which the Company has business relationships. To earn interest income with relatively
low risk, the Company provided loans from time to time. The interest rate of these loans was 6% per annum. Loans to third parties are
reviewed periodically as to whether their carrying values remain realizable. Property and equipment, net Property and equipment are stated at cost, less
accumulated depreciation. Depreciation is provided on a straight-line basis, less estimated residual value, over an asset’s estimated
useful life. Following are the estimated useful lives of the Company’s property and equipment:
Estimated
Buildings 20 years
Electronic equipment 4 - 5 years
Office equipment and furniture 4 - 5 years
Motor vehicles 4 - 5 years
Leasehold improvements The shorter of the lease term and useful life Repair and maintenance costs are charged to expense
as incurred, whereas the cost of renewals and betterment that extends the useful lives of property and equipment are capitalized as additions
to the related assets. Retirements, sales and disposals of assets are recorded by removing the cost and accumulated depreciation from
the asset and accumulated depreciation accounts with any resulting gain or loss reflected in the consolidated statements of operations
and comprehensive income (loss) in other income or expenses. Capitalized software development costs The Company capitalizes the costs incurred during
the application development stage, which include direct costs mainly consisting of payroll and payroll related taxes and benefits. Costs
incurred in the preliminary stages of development are expensed as incurred. Once an application has reached the development stage, internal
and external costs, if direct and incremental, are capitalized until the software is substantially complete and ready for its intended
use. Capitalization ceases upon the completion of all substantial testing. The Company also capitalizes costs related to specific upgrades
and enhancements when it is probable that the expenditures will result in additional features and functionality. Maintenance costs are
expensed as incurred. Internal use software is amortized on a straight-line basis over its estimated useful life, generally five years. Impairment of long-lived assets The Company assesses its long-lived assets such
as property and equipment for impairment whenever events or changes in circumstances indicate the carrying amount of an asset may not
be recoverable. Factors which may indicate potential impairment include a significant underperformance related to the historical or projected
future operating results or a significant negative industry or economic trend. Recoverability of these assets is measured by comparison
of their carrying amounts to future undiscounted cash flows the assets are expected to generate. If property and equipment and certain
identifiable intangibles are considered to be impaired, the impairment to be recognized equals the amount by which the carrying value
of the assets exceeds their fair value. The Company did not record any impairment loss on its long-lived assets during the years ended
March 31, 2023, 2022 and 2021. Revenue recognition The Company previously recognized revenue when
the following four criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the service has been rendered, (iii) the fees
are fixed or determinable, and (iv) collectability is reasonably assured. On April 1, 2018, the Company adopted Accounting
Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (FASB ASC Topic 606) (“ASC 606”) using
the modified retrospective method under which cumulative effects are recognized at the date of the initial application of ASC 606. With
the adoption of ASC 606, revenue is recognized when all of the following five steps are met: (i) identify the contract(s) with the customer;
(ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price
to the performance obligations; (v) recognize revenue when (or as) each performance obligation is satisfied. The Company believes that
its current revenue recognition policies are generally consistent with the new revenue recognition standards set forth in ASC 606. Based
on the Company’s assessment, potential adjustments to input measures are not expected to be pervasive to the majority of its contracts.
As such, the Company has concluded that the adoption of this new guidance will not result in a material cumulative catch-up adjustment
to the opening balance sheet or retained earnings at the effective date or any other material impact on its consolidated financial statements. Online education service The online education services provided by the
Company to its customers are an integrated service, including audio-video course content, mock examinations and online chat rooms during
the subscription service period. Audio-video course content, mock examinations and online chat rooms are not practical to be sold on standalone
basis and have never been sold separately. Therefore, the Company’s contracts have a single performance obligation for an integrated
service and the transaction price is stated in the contracts, usually as a price per student or course. Quantity of students enrolled
or courses provided is determined before rendering service. The Company typically satisfies its performance obligations in contracts with
customers upon render of the services. For examination service, the revenue is recognized at a point in time when customer/student completes
the examination on the platform. At this point in time, customer/student is able to direct use of and obtain substantially all of the
benefits from the online education platform at the time the services are delivered. Except examination service, all other revenues for
the online education service are recognized on a straight line basis over the subscription period from the month in which students enroll
in the courses to the month in which the subscriptions expire. The subscription period for a majority of the online education services
is six months or less. Customer/student can access to the courses. anytime during the subscription period. The online education services
include online education cloud services (“B2B2C”), which are provided through educational institutions to individual students,
the study period depends on their universities and college usually from 6 months to 5 years, and online training services (“B2C”),
which are provided to students directly, valid period for the B2C is 6 months. B2C services can be cancelled and is refundable no later
than 24 hours after enrollment. B2B2C services cannot be cancelled and is not refundable after enrollment. All estimates are based on
the Company’s historical experience, complete satisfaction of the performance obligation, and the Company’s best judgment
at the time the estimates are made. Returns and allowances are not a significant aspect of the revenue recognition process as historically
they have been immaterial. Technological development and operation service Revenues from technological development service,
including information technology system design and cloud platform development, are recognized when the system or platform are delivered
and accepted by the customers. , normally within a year. Upon delivery of services, project completion inspection and customer acceptance
notice are required as proof of the completion of performance obligations, which is a confirmation of customer to its ability to direct
the use of and obtain substantially all of the benefits from, the design and development service. In instances where substantive completion
inspection and customer acceptance provisions are specified in contracts, revenues are deferred until all inspection and acceptance criteria
have been met. From time to time, the Company enters into arrangement
to provide technological support and maintenance service of online platforms to its customers. the Company’s efforts are expended
evenly throughout the service period. The revenues for the technological support and maintenance service are recognized over the support
and maintenance services period, usually from 3 months to one year. The Company’s contracts have a single performance obligation
and are primarily on a fixed-price basis. No significant returns, refund and other similar obligations during each reporting period. The core principle underlying the revenue recognition ASU is that the
Company will recognize revenue to represent the transfer of services to customers in an amount that reflects the consideration to which
the Company expects to be entitled to in such exchange. This will require the Company to identify contractual performance obligations
and determine whether revenue should be recognized at a point in time or over time, based on when services are provided to a customer. The Company’s accounts receivable consists
primarily of receivables related to providing online education services to enrolled students, and contract receivable associated with
providing technological development and operation services to education institutions, in which the Company’s contracted performance
obligations have been satisfied, amount billed and the Company has an unconditional right to payment. Payment terms and conditions vary
by contract types. For most of B2B2C contracts and technical development and operation service contracts, payment is due from customers
within 30 days of the invoice date, and the contracts do not have significant financing components. The Company’s revenue is recognized
when control of the promised services is rendered over the service period and the payment from customers is not contingent on a future
event, and the Company’s right to consideration in exchange for services that the Company has transferred to a customer is only
conditioned on the passage of time. Therefore, the Company does not have any contract assets. The Company also does not have significant
capitalized commissions or other costs as of March 31, 2023 and 2022. The Company’s contract liability, which
is reflected in its consolidated balance sheets as deferred revenue, represents the Company’s unsatisfied performance obligations
as of March 31, 2023 and 2022. This is primarily composed of revenue for online course tuition received in advance from B2C services and
B2B2C services. If a course is provided over a period end, deferred revenue is recorded for the revenue related to the course conducted
in the next period. Normally, B2C service provides service to students directly, they can choose the courses they need on our platform,
the valid period for the B2C service is 6 months, and thus the deferred revenue for B2C service is recognized as revenue within 6 months.
However, we have treated deferred revenue for B2B2C with a longer recognition period which will be recognized from 6 months to 5 years.
Such variance in B2B2C recognition of deferred revenue is due to a student’s university and college degree length; this ranges from
6 months to 5 years, and online training services, which are provided to students directly, has period of 6 months. Such deferred revenue consists primarily of revenues
from online education services. Costs cannot distinguish whether the costs relate to unsatisfied performance obligations or to satisfied
performance obligations (or partially satisfied performance obligations). Income taxes The Company accounts for income taxes under ASC
740. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the consolidated
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period including
the enactment date. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amount expected to be realized. The provisions of ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes,” prescribe a more-likely-than-not threshold for consolidated financial statement recognition and
measurement of a tax position taken (or expected to be taken) in a tax return. This interpretation also provides guidance on the recognition
of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest
and penalties associated with tax positions, and related disclosures. The Company does not believe that there was any uncertain tax position
as of March 31, 2023 and 2022. Value added tax (“VAT”) Sales revenue derived from the invoiced online
education service, and technological development and operation service is subject to VAT since 2014. Prior to that, the Company was subject
to a fixed rate of business tax of 3%. The applicable VAT rates are 6% and 3% for the entities that are general taxpayer and small-scale
taxpayer, respectively. Distance Learning and Digital Information are both considered VAT general taxpayers since June 2015. Hunan Huafu
became to a VAT general taxpayer since August 2018. Shanghai Xia Shu, Shanghai Xin Fu, Nanjing Suyun, Guizhou Huafu, Fuzhou Huafu, Liaoning
Huafu, Sichuan Huafu, Guangzhou Huafu and Chongqing Huafu are VAT small-scale taxpayers since the date of incorporation. Entities that are VAT general taxpayers are allowed
to offset qualified input VAT paid to suppliers against their output VAT liabilities. Net VAT balance between input VAT and output VAT
is recorded in the line item of taxes payable on the consolidated balance sheets. All of the VAT returns of the Company have been and
remain subject to examination by the tax authorities for five years from the date of filing. Leases On April 1, 2019, the Company adopted ASU 2016-02,
Leases (Topic 842). For all leases that were entered into prior to the effective date of Topic 842, the Company elected to apply the package
of practical expedients. Based on this guidance the Company did not reassess the following: (1) whether any expired or existing contracts
are or contain leases; (2) the lease classification for any expired or existing leases; and (3) initial direct costs for any existing
leases. The adoption of Topic 842 did not have a material impact on the Company’s consolidated statements of operations and comprehensive
income (loss). The adoption of Topic 842 resulted in the presentation
of approximately $47,000 of operating lease assets and operating lease liabilities on the consolidated balance sheet as of April 1, 2019.
See Note 9 for additional information. The Company determines if an arrangement is a
lease at inception. Operating leases are included in operating lease right-of-use (“ROU”) assets, operating lease liabilities,
current, and operating lease liabilities, non-current on the Company’s consolidated balance sheets. Operating lease ROU assets and operating lease
liabilities are recognized based on the present value of the future minimum lease payments over the lease term at commencement date. As
most of the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate based on the information
available at commencement date in determining the present value of future payments. The operating lease ROU asset also includes any lease
payments made and excludes lease incentives and initial direct costs incurred. The Company’s 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. Foreign currency translation Since the Company operates in the PRC, the Company’s
functional currency is the Chinese RMB. The Company’s consolidated financial statements have been translated into the reporting
currency, the United States Dollar (“USD”). Assets and liabilities of the Company are translated at the exchange rate at each
reporting period end date. Equity is translated at historical rates. Income and expense accounts are translated at the average rate of
exchange during the reporting period. The resulting translation adjustments are reported under other comprehensive income (loss). Gains
and losses resulting from the translations of foreign currency transactions and balances are reflected in the result of operations. RMB
is not freely convertible into foreign currency and all foreign exchange transactions must take place through authorized institutions.
No representation is made that the RMB amounts could have been, or could be, converted into USD at the rates used in translation. Earnings (loss) per share The Company computes earnings (loss) per share
(“EPS”) in accordance with ASC 260, “Earnings per Share” (“ASC 260”). ASC 260 requires companies with
complex capital structures to present basic and diluted EPS. Basic EPS is measured as net income (loss) divided by the weighted average
common shares outstanding for the period. Diluted EPS is similar to basic EPS but presents the dilutive effect on a per share basis of
potential common shares (e.g., convertible securities, options and warrants) as if they had been converted at the beginning of the periods
presented, or issuance date, if later. Potential common shares that have an anti-dilutive effect (i.e., those that increase income per
share or decrease loss per share) are excluded from the calculation of diluted EPS. Comprehensive income (loss) Comprehensive income (loss) consists of two components,
net income (loss) and other comprehensive income (loss). The foreign currency translation gain or loss resulting from translation of the
financial statements expressed in RMB to USD is reported in other comprehensive income (loss) in the consolidated statements of operations
and comprehensive income (loss). Fair value of financial instruments The Company follows the provisions of FASB ASC
820, “Fair Value Measurements and Disclosures” (“ASC 820”). ASC 820 clarifies the definition of fair value, prescribes
methods for measuring fair value, and establishes a fair value hierarchy to classify the inputs used in measuring fair value as follows: Level 1 - Inputs are unadjusted quoted prices
in active markets for identical assets or liabilities available at the measurement date. Level 2 - Inputs are unadjusted quoted prices
for similar assets and liabilities in active markets, quoted prices for identical or similar assets and liabilities in markets that are
not active, inputs other than quoted prices that are observable, and inputs derived from or corroborated by observable market data. Level 3 - Inputs are unobservable inputs which
reflect the reporting entity’s own assumptions on what assumptions the market participants would use in pricing the asset or liability
based on the best available information. The carrying amounts reported in the balance sheets
for cash, accounts receivable, other receivables, loans to third parties, current, other current assets, deferred offering costs, due
to related parties, deferred revenue, operating lease liabilities, current, taxes payable, other payables, accrued expenses and other
liabilities approximate their fair value based on the short-term maturity of these instruments. Risks and uncertainties The operations of the Company are located in the
PRC. Accordingly, the Company’s business, financial condition, and results of operations may be influenced by the political, economic,
and legal environments in the PRC, as well as by the general state of the PRC economy. The Company’s operations in the PRC are subject
to special considerations and significant risks not typically associated with companies in North America and Western Europe. These include
risks associated with, among other factors, the political, economic and legal environment and foreign currency exchange. The Company’s
results may be adversely affected by changes in the political, regulatory and social conditions in the PRC, and by changes in governmental
policies or interpretations with respect to laws and regulations, anti-inflationary measures, currency conversion, remittances abroad,
and rates and methods of taxation, among other things. Although the Company has not experienced losses from these situations and believes
that it is in compliance with existing laws and regulations, this may not be indicative of future results. Concentrations and credit risk Credit risk Financial instruments that potentially subject
the Company to significant concentrations of credit risk consist primarily of cash. As of March 31, 2023 and 2022, $1,511,208 and $1,940,850
of the Company’s cash were on deposits at financial institutions in Hong Kong, are insured by Hong Kong Deposit Board and subject
to a certain limitation of HKD 500,000 (about $63,695). As of March 31, 2023 and 2022, $11,056,255 and $9,821,654 of the Company’s
cash were on deposits at financial institutions in the mainland China, where there currently is no rule or regulation requiring such financial
institutions to maintain insurance to cover bank deposits in the event of bank failure. While management believes that these financial
institutions are of high credit quality, it also continually monitors their credit worthiness. Accounts receivable are typically unsecured and
derived from revenue earned from customers, thereby exposed to credit risk. The risk is mitigated by the Company’s assessment of
its customers’ creditworthiness and its ongoing monitoring of outstanding balances. Customer and supplier concentration risk The Company’s revenues are derived from
enrolled students or institutions that are located primarily in China. For the year ended March 31, 2023, 2022 and 2021, no customers
accounted for over 10% of the Company’s total revenue. As of March 31, 2023 and 2022, no customer accounted
for 10% of the total outstanding accounts receivable balance, respectively. As of March 31, 2021, one customer accounted for
10.4% of the total outstanding accounts receivable balance, respectively. For the years ended March 31, 2023, 2022 and 2021,
no suppliers accounted for more than 10% of total purchases. A loss of either of these customers or suppliers
could adversely affect the operating results or cash flows of the Company. Statements of cash flows In accordance with FASB ASC Topic 230, “Statement
of Cash Flows,” cash flows from the Company are calculated based upon the local currencies. As a result, amounts related to assets
and liabilities reported on the Company’s statements of cash flows will not necessarily agree with changes in the corresponding
balances on the balance sheets. Recent accounting pronouncements The Company does not believe other recently issued
but not yet effective accounting standards, if currently adopted, would have a material effect on the consolidated financial position,
statements of operations and cash flows. |
