| SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 2 — SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES (a) Basis of presentation 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 for information pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). (b) Principles of consolidation The consolidated financial statements include
the financial statements of the Company and its wholly-owned subsidiaries. All transactions and balances between the Company and its subsidiaries
have been eliminated upon consolidation. (c) Emerging Growth Company The Company is an “emerging growth company,”
as defined in Section 2(a) of the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012 (the
“JOBS Act”), and it may take advantage of certain exemptions from various reporting requirements that are applicable to other
public companies that are not emerging growth companies including, but not limited to, not being required to comply with the auditor attestation
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, reduced disclosure obligations regarding executive compensation
in its periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. Further, Section 102(b)(1) of the JOBS
Act exempts emerging growth companies from being required to comply with new or revised financial accounting standards until private companies
(that is, those that have not had a Securities Act registration statement declared effective or do not have a class of securities registered
under the Exchange Act) are required to comply with the new or revised financial accounting standards. The JOBS Act provides that
a company can elect to opt out of the extended transition period and comply with the requirements that apply to non-emerging growth companies
but any such election to opt out is irrevocable. The Company has elected not to opt out of such extended transition period which means
that when a standard is issued or revised and it has different application dates for public or private companies, the Company, as an emerging
growth company, can adopt the new or revised standard at the time private companies adopt the new or revised standard. This may make comparison
of the Company’s financial statements with another public company which is neither an emerging growth company nor an emerging growth
company which has opted out of using the extended transition period difficult or impossible because of the potential differences in accounting
standards used. (a) Non-controlling interests are recognized to reflect
the portion of their equity that is not attributable, directly or indirectly, to the Company as the controlling shareholder. For the Company’s
consolidated subsidiaries, non-controlling interests represent a minority shareholder’s 40% and 40% ownership interest in Beijing
Mofy and Xi’an Mofy as of September 30, 2023 and 2022, respectively. Non-controlling interests are presented as a separate
line item in the equity section of the Company’s Consolidated Balance Sheets and have been separately disclosed in the Company’s
Consolidated Statements of Comprehensive Income (Loss) to distinguish the interests from that of the Company. (b) In preparing the consolidated financial statements
in conformity with U.S. GAAP, management makes estimates and assumptions that affect the reported amounts of assets and liabilities
and disclosures of contingent assets and liabilities at the dates of the consolidated financial statements, as well as the reported amounts
of revenue and expenses during the reporting periods. Significant items subject to such estimates and assumptions include, but are not
limited to, the assessment of the allowance for doubtful accounts, useful lives of property and equipment and intangible assets, the recoverability
of long-lived assets, uncertain tax position and valuation allowance for deferred tax assets. Actual results could differ from those estimates. (c) Cash includes cash on hand and demand deposits
placed with commercial banks. The Company maintains most of the bank accounts in mainland China. (d) Short-term investments Short-term investments consist of wealth management
products issued by private equity fund. During the year ended September 30, 2023, the Company purchased certain wealth management products
through private equity fund and accounted for such investments as “short-term investments” and measure the investments at
fair value. The Company had a unrealized gain of $30,000 in investments for the year ended September 30, 2023. (e) Accounts receivables are presented net of an allowance
for doubtful accounts. The Company maintains an allowance for doubtful accounts for estimated losses. The Company reviews its accounts
receivable on a periodic basis and makes general and specific allowances when there is doubt as to the collectability of individual balances.
In evaluating the collectability of individual receivable balances, the Company considers many factors, including the age of the balance,
customer payment history, customer’s current credit-worthiness, and current economic trends. Accounts are written off against the
allowance after all means of collection have been exhausted and the potential for recovery is considered remote. (f) Property and equipment are stated at cost, net
of accumulated depreciation and impairment, if any. Depreciation is computed using the straight-line method over the estimated useful
lives of the assets. Expenditures for repairs and maintenance, which do not materially extend the useful lives of the assets, are expensed
as incurred. Expenditures for major renewals and betterments which substantially extend the useful life of assets are capitalized. When
assets are retired or disposed of, the cost and accumulated depreciation and amortization are removed from the accounts, and any resulting
gains or losses are included in income in the year of disposition. Depreciation expense was $514,161 and $27,852 for the years ended
September 30, 2023 and 2022, respectively. Estimated useful lives are as follows:
Category Estimated useful lives
Office equipment 3 years
Leasehold improvement Shorter of lease terms and estimated useful lives (g) Intangible assets are digital assets acquired
from third-party suppliers, which mainly includes 3D models with finite lives are carried at cost less accumulated amortization and impairment
loss, if any. Intangible assets with finite lives are amortized using the straight-line method over the estimated economic live. Estimated useful lives are as follows:
Category Estimated useful lives
Licensed digital assets 3-5 years (h) Long-lived assets are evaluated for impairment
whenever events or changes in circumstances indicate that the carrying amount of an asset may not be fully recoverable or that the useful
life is shorter than the Company had originally estimated. When such events occur, the Company evaluates the impairment for the long-lived
assets by comparing the carrying value of the assets to an estimate of future undiscounted cash flows expected to be generated from the
use of the assets and their eventual disposition. If the sum of the expected future undiscounted cash flows is less than the carrying
value of the assets, the Company recognizes an impairment loss based on the excess of the carrying value of the assets over the fair value
of the assets. No impairment charge was recognized for the years ended September 30, 2023 and 2022. (i) The Company applies ASC 820, Fair Value
Measurements and Disclosures ASC 820 establishes a three-tier fair value
hierarchy, which prioritizes the inputs used in measuring fair value as follows:
● Level 1 — Observable inputs that reflect quoted
prices (unadjusted) for identical assets or liabilities in active markets.
● Level 2 — Include other inputs that are directly
or indirectly observable in the marketplace.
● Level 3 — Unobservable inputs which are supported
by little or no market activity. ASC 820 describes three main approaches to
measuring the fair value of assets and liabilities: (1) market approach; (2) income approach and (3) cost approach. The
market approach uses prices and other relevant information generated from market transactions involving identical or comparable assets
or liabilities. The income approach uses valuation techniques to convert future amounts to a single present value amount. The measurement
is based on the value indicated by current market expectations about those future amounts. The cost approach is based on the amount that
would currently be required to replace an asset. Unless otherwise disclosed, the fair value of
the Company’s financial instruments including cash, accounts receivable, advances to vendors, prepaid expenses and other current
assets, short-term bank loans, accounts payable, advance from customers, due to related parties, taxes payable, and accrued expenses and
other current liabilities approximate their recorded values due to their short-term maturities. The fair value of longer-term leases approximates
their recorded values as their stated interest rates approximate the rates currently available. The Company’s non-financial assets, such
as property and equipment would be measured at fair value only if they were determined to be impaired. The following table presents the balance of assets
measured at fair value on a recurring basis:
Level 1 Level 2 Level 3
As of September 30, 2023
Short-term investments $ — $ 780,000 $ —
Total $ — $ 780,000 $ —
Level 1 Level 2 Level 3
As of September 30, 2022
Short-term investments $ — $ — $ —
Total $ — $ — $ — (j) The Company accounted for leases in accordance
with ASC Topic 842, Leases. The Company determines if an arrangement is a lease at inception. All the Company’s leases are operating
leases. 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 (“IBR”) 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 includes
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 expenses for minimum lease payments are recognized on a straight-line basis
over the lease term. All operating lease right-of-use assets are reviewed for impairment annually. There was no impairment for operating
lease right-of-use lease assets for the years ended September 30, 2023 and 2022. The Company elected not to record assets and liabilities
on its consolidated balance sheet for lease arrangements with terms of 12 months or less. The Company recognizes lease expenses for
such lease on a straight-line basis over the lease term. (k) The Company adopted ASC Topic 606, Revenue
from Contracts with Customers (“ASC 606”) using the modified retrospective approach for the year ended September 30,
2020 and has elected to apply it retrospectively for the year ended September 30, 2019. In accordance with ASC 606, revenues
from contracts with customers are recognized when control of the promised goods or services are transferred to the customers, in an amount
that reflects the consideration the Company expects to be entitled to in exchange for those goods or services. The Company determines
revenue recognition through the following steps: (i) identify the contracts with a customer, (ii) identify the performance
obligations in the contract, (iii) determine the transaction price, (iv) allocate the transaction price to the performance obligations
in the contract, and (v) recognize revenue when, or as the entity satisfies a performance obligation. The Company’s revenues are derived principally
from virtual technology service, digital marketing and digital asset development and others. Value added taxes (“VAT”) are
presented as a reduction of revenues. Revenue from virtual technology service The Company engages in virtual content production
for visual effect in movies, television series, animations, games, advertisement, tourism, and augmented reality (“AR”) and
virtual reality (“VR”) technology etc. The virtual content production contracts are primarily on a fixed price basis, which
require the Company to perform services for visual effect design, content development, production and integration based on customers’
specific needs. The required production period is generally less than one year. The virtual content production services are considered
as a single performance obligation because the Company provides a significant service of integrating different services underlying each
contract, which are highly interdependent and interrelated with one another. The Company currently does not have any modification of contract
and the contracts currently do not have any variable consideration. The customer of the virtual content production
contract can only obtain control of the produced virtual content after the project is completed. The Company satisfy its performance obligation
at a point in time only when it transfers the developed content to the customer. The virtual content are assets when they are developed
by the Company. The Company can direct the use of the product and obtain substantially all of the remaining benefits of the asset. The
customer can direct the use and obtain benefits of the assets only after the development completed and control transfer occurred from
the Company upon acceptance by the customer. The customer does not simultaneously receive or consume the benefits provided by the Company’s
performance as the Company performs. The customer can only benefit from the final output of the virtual content as delivered by the Company.
The customer does not have control over the content as it is developed. The developed virtual content may be sold as digital assets by
the Company and the payment collected in advance based on the contract upon each milestone would be refundable if the Company does not
meet the customer’s needs or there is other default. Hence, none of the criteria of ASC 606-10-25-27 is met. Revenue from virtual
content production is recognized at a point in time when the Company satisfies the performance obligation by transferring promised virtual
content product upon acceptance by customers. Revenue from digital marketing The Company enters into two types of digital marketing
contracts directly with customers. For one type of contracts, pursuant to which the Company provides advertisement production and promotion
services to customers. The advertisements are in different format, including but not limited to short video, landing pages and static
materials. The Company considers that both of the advertisement production and promotion services are highly interrelated and not separately
identifiable. The Company’s overall promise represents a combined output that is a single performance obligation; there is no multiple
performance obligations. The Company engages third-party advising distributor while providing the promotion services. The Company considers
itself as principal of the services as it has control of the specified services at any time before it is transferred to the customers
which is evidenced by (i) the Company is primarily responsible for the production of content for advertisements and (ii) having
latitude in select third party distributors for promotion and establish pricing. Therefore, the Company acts as the principal of these
arrangements and reports revenue earned and costs incurred related to these transactions on a gross basis. Under a framework contract, the Company receives
separate purchase orders from customers. Accordingly, each purchase order is identified as a separate performance obligation, containing
a bundle of advertisements that are substantially the same and that have the same pattern of transfer to the customer. Where collectability
is reasonably assured, revenue is recognized over the service period of the purchase order, which is based on specific action (i.e. cost
per mille “CPM”) for online display. The amount of the revenue is the gross billing
charged to the customers. Revenue is recognized on a CPM basis as impressions or clicks are delivered through the Group’s display
of the advertisements in accordance with the revenue contracts. The Company entered into another type of contracts
with advertisers during the fiscal year 2022. Pursuant to which, the Company earns net fees from advertisers by acting as an agent to
purchase advertisement inventories and advertise services on behalf of the advertisers. The Company recognizes revenues over the contracted
service period. The Company is not a principal in these arrangements as it does not obtain control of ad inventories or advertising services,
and therefore recorded net revenues at the difference between the gross billing amount charged to the advertisers and the costs of purchasing
ad inventories and advertising services. Revenue from digital asset development and
others The Company enters into copyright licensing contracts
to authorize production rights, adaption rights, sublicense rights of licensed copyrights and digital assets with entertainment production
companies. The licensing provides customers the right to use the Company’s IP as it exists since neither the criteria as stated
in ASC 610-10-55-62 is met. The specific licensed copyrights and digital assets authorized to customers are all developed IP, which
are unique and do not require ongoing maintenance or effort from the Company to assure the usefulness of the license. The Company is entitled
to receive the license fee under the licensing arrangements and does not have any future obligation once it has provided the underlying
IP content to the licensee. The Company may use such authorized assets as a base model to produce new digital assets, however, these customers
will not be contractually or practically required to use them. The revenue is recognized at a point in time when the licensed copyright
and digital asset is made available for the customer’s use and benefit. Disaggregation of revenue The following table summarized disaggregated revenue
for the years ended September 30, 2023, 2022 and 2021:
For the Years Ended
2023 2022 2021
US$ US$ US$
Category of Revenue
Virtual technology service $ 15,382,324 $ 12,536,957 $ 6,722,143
Digital marketing — 632,070 6,191,046
Digital asset development and others 11,507,587 4,019,266 1,354,995
$ 26,889,911 $ 17,188,293 $ 14,268,184
Timing of Revenue Recognition
Services transferred at a point in time $ 26,889,911 $ 16,556,223 $ 8,077,138
Services transferred over time — 632,070 6,191,046
$ 26,889,911 $ 17,188,293 $ 14,268,184
Revenue recognized on gross basis $ 26,889,911 $ 16,556,223 $ 14,268,184
Revenue recognized on net basis — 632,070 —
$ 26,886,911 $ 17,188,293 $ 14,268,184 Contract balance The Company recognizes accounts receivable in
its consolidated balance sheets when it performs a service in advance of receiving consideration and it has the unconditional right to
receive consideration. Payments received from its customers are based on the payment terms established in its contracts. Such payments
are initially recorded to advance from customers and are recognized into revenue as the Company satisfies its performance obligations.
As of September 30, 2023 and 2022, the balance of advance from customers amounted to $345,838 and $1,154,100, respectively. Substantially
all of advance from customers will be recognized as revenue during the Company’s following fiscal year. (l) Cost of revenues consists primarily of outsourcing
content production cost, amortization cost of intangible assets, payroll and related costs for employees involved with the Company’s
operations and product support, such as rental and depreciation expenses. These costs are charged to the consolidated statement of comprehensive
income (loss) as incurred. (m) Selling expenses consist primarily of promotion
and advertising expenses, staff costs and other daily expenses which are related to the selling and marketing departments. These expenses
are charged to the consolidated statement of comprehensive income (loss) as incurred. (n) General and administrative expenses consist primarily
of salaries and welfare expenses and related expenses for employees involved in general corporate functions, including accounting, legal
and human resources; and costs associated with use by these functions of facilities and equipment, such as traveling and general expenses,
professional service fees and other related expenses. These expenses are charged to the consolidated statement of comprehensive income
(loss) as incurred. (o) Research and development expenses consist primarily
of employee salaries and benefits for research and development personnel, allocated overhead and outsourced development expenses. Cost
incurred for the internally developed IP of virtual content, scripts and digital assets to be licensed or sold during the planning and
designing stage are expensed when incurred and are included in the research and development expenses. Costs incurred in the development
phase subsequent to establishing technological feasibility of such IP are capitalized. During the fiscal years ended September 30,
2023, 2022 and 2021, as no such costs qualified for capitalization, all of the cost incurred for the internally developed IP of virtual
content, scripts and digital assets to be licensed or sold are expensed. (p) The Company accounts for income taxes in accordance
with ASC 740, Income Taxes. ASC 740 requires an asset and liability approach for financial accounting and reporting for income
taxes and allows recognition and measurement of deferred tax assets based upon the likelihood of realization of tax benefits in future years.
Under the asset and liability approach, deferred taxes are provided for the net tax effects of temporary differences between the carrying
amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. A valuation allowance
is provided for deferred tax assets if it is more likely than not these items will either expire before the Company is able to realize
their benefits, or future deductibility is uncertain. The Company’s subsidiaries in the PRC and Hong Kong are subject to the
income tax laws of the PRC and Hong Kong. No taxable income was generated outside the PRC for the years ended September 30,
2023, 2022 and 2021. The provisions of ASC 740-10-25, “Accounting
for Uncertainty in Income Taxes”, prescribe a more-likely-than-not threshold for financial statement recognition and measurement
of a tax position taken (or expected to be taken) in a tax return. Tax positions that meet the “more likely than not” recognition
threshold are measured, using a cumulative probability approach, at the largest amount of tax benefit that has a greater than fifty percent
likelihood of being realized upon settlement. The estimated liability for unrecognized tax benefits are periodically assessed for adequacy
and may be affected by changing interpretations of laws, rulings by tax authorities, changes and or developments with respect to tax audits,
and the expiration of the statute of limitations. Additionally, in future periods, changes in facts and circumstances, and new information
may require the Company and its wholly-owned subsidiaries to adjust the recognition and measurement of estimates with regards to changes
in individual tax position. Changes in recognition and measurement of estimates are recognized in the period which the change occurs.
ASC 740 also provides guidance on the recognition of income tax assets and liabilities, classification accounting for interest and
penalties associated with tax positions, years open for tax examination, accounting for income taxes in interim periods and income
tax disclosures. As of September 30, 2023 and 2022, there were $1,066,949 and $ nil (q) The Company’s PRC subsidiaries are subject
to value added tax (“VAT”) and related surcharges based on gross sales or service price depending on the type of services
provided in the PRC (“output VAT”), and the VAT may be offset by VAT paid by the Company on service purchases (“input
VAT”). The applicable rate of output VAT or input VAT for the Company is 6%. Gross sales or service price charged to customers is
subject to output VAT at a rate of 6% and subsequently paid to PRC tax authorities after netting input VAT on purchases incurred during
the period. The Company’s revenues are presented net of VAT collected on behalf of PRC tax authorities and its related surcharges;
the VAT is not included in the consolidated statements of comprehensive income (loss). All of the VAT returns filed by the Company’s
subsidiaries in the PRC, have been and remain subject to examination by the tax authorities for five years from the date of filing. (r) 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 are computed by dividing
net income (loss) available to ordinary shareholders of the Company by the weighted average ordinary shares outstanding during the period.
Diluted EPS takes into account the potential dilution that could occur if securities or other contracts to issue ordinary shares were
exercised and converted into ordinary shares. Potential ordinary share that has an anti-dilutive effect (i.e., those that increase income
per share or decrease loss per share) are excluded from the calculation of diluted earnings per share. For the years ended September 30,
2023 and 2022, there were no dilutive shares. (s) The reporting currency of the Company is U.S. dollars
(“US$”) and the accompanying consolidated financial statements have been expressed in US$. The Company’s principal country
of operations is the PRC. The financial position and results of its operations are determined using the Chinese Yuan (“RMB”),
the local currency, as the functional currency. The Company’s consolidated financial statements have been translated into the reporting
currency, US$. The results of operations and the consolidated statements of cash flows denominated in foreign currency are translated
at the average rate of exchange during the reporting period. Assets and liabilities denominated in foreign currencies at the balance sheet
date are translated at the applicable rates of exchange in effect at that date. The equity denominated in the functional currency is translated
at the historical rate of exchange at the time of capital contribution. Because cash flows are translated based on the average translation
rate, amounts related to assets and liabilities reported on the consolidated statements of cash flows will not necessarily agree with
changes in the corresponding balances on the consolidated balance sheets. Translation adjustments arising from the use of different exchange
rates from period to period are included as a separate component of accumulated other comprehensive income (loss) included in consolidated
statements of changes in equity (deficit). Gains and losses from foreign currency transactions and balances are included in the results
of operations. The value of RMB against US$ 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 preparing the consolidated financial statements:
September 30, September 30,
Year-end spot rate 7.2960 7.1135
For the Years Ended
2023 2022 2021
Average rate 7.0553 6.5532 6.5072 (t) ASC 280, “Segment Reporting”,
establishes standards for reporting information about operating segments on a basis consistent with the Company’s internal organizational
structure as well as information about geographical areas, business segments and the types of customers to help users of financial statements
to better understand the Company’s performance, assess its prospects for future cash net cash flow and make more informed judgements
about the Company in a whole. The Company uses the management approach to determine
reportable operating segments. The management approach considers the internal organization and reporting used by the Company’s chief
operating decision maker (“CODM”) for making decisions, allocating resources and assessing performance. The Company’s
CODM has been identified as the CEO, who reviews consolidated results when making decisions about allocating resources and assessing performance
of the Company. Based on the management’s assessment, the
Company determined that it has only one operating segment and therefore one reportable segment as defined by ASC 280. The Company’s
assets are substantially all located in the PRC and substantially all of the Company’s revenue and expense are derived in the PRC. Therefore,
no geographical segments are presented. (u) Currency convertibility risk Substantially all of the Company’s operating
activities are settled in RMB, which is not freely convertible into foreign currencies. In the PRC, certain foreign exchange transactions
are required by law to be transacted only by authorized financial institutions at exchange rates set by the People’s Bank of China
(“PBOC”). Remittances in currencies other than RMB by the Company in China must be processed through the PBOC or other Company
foreign exchange regulatory bodies which require certain supporting documentation in order to affect the remittance. Concentration and credit risk Financial instruments which potentially subject
the Company to concentrations of credit risk consist principally of cash and accounts receivable. The Company maintains certain bank accounts in
the PRC, Hong Kong and Cayman. As of September 30, 2023 and 2022, cash balances in the PRC are $10,195,088 and $1,131,886,
respectively. On May 1, 2015, China’s new Deposit Insurance Regulation came into effect, pursuant to which banking financial
institutions, such as commercial banks, established in the PRC are required to purchase deposit insurance for deposits in RMB and in foreign
currency placed with them. Such Deposit Insurance Regulation would not be effective in providing complete protection for the Company’s
accounts, as its aggregate deposits are much higher than the compensation limit, which is RMB500,000 for one bank. Other than such deposit
insurance mechanism, the Company’s bank accounts are not insured by Federal Deposit Insurance Corporation insurance or other insurance.
However, the Company believes that the risk of failure of any of these Chinese banks is remote. Bank failure is uncommon in the PRC and
the Company believes that those Chinese banks that hold the Company’s cash are financially sound based on public available information. Accounts receivables are typically unsecured and
derived from services rendered to customers that are located in China, thereby exposed to credit risk. The risk is mitigated by the Company’s
assessment of customers’ creditworthiness and its ongoing monitoring of outstanding balances. The Company has a concentration of
its accounts receivable with specific customers. Major Customers For the year ended September 30, 2023, one
customer accounted for approximately 10% of total revenues. As of September 30, 2023, the balance due from four customers accounted
for approximately 23%, 16%, 16% and 15% of the Company’s total accounts receivable, respectively. For the year ended September 30, 2022, two
customers accounted for approximately 20% and 17% of total revenues, respectively. As of September 30, 2022, the balance due from
three customers accounted for approximately 42%, 24% and 21% of the Company’s total accounts receivable, respectively. For the year ended September 30, 2021, three
customers accounted for approximately 20%, 10% and 10% of total revenues, respectively. Major Suppliers
For the year ended September 30, 2 |
