Exhibit 99.1
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, | June 30, | |||||||
2022 | 2022 | |||||||
(Unaudited) | ||||||||
ASSETS | ||||||||
CURRENT ASSETS: | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable, net | ||||||||
Other receivables | ||||||||
Prepayments | ||||||||
Total current assets | ||||||||
NON-CURRENT ASSETS | ||||||||
Plant and equipment, net | ||||||||
Intangible assets, net | ||||||||
Total non-current assets | ||||||||
Total assets | $ | $ | ||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
CURRENT LIABILITIES: | ||||||||
Accounts payable | $ | $ | ||||||
Other payables and accrued liabilities | ||||||||
Other payables - related parties | ||||||||
Total current liabilities | ||||||||
Total liabilities | ||||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
SHAREHOLDERS’ EQUITY: | ||||||||
Ordinary shares, $ | ||||||||
Additional paid-in-capital | ||||||||
Deferred stock compensation | ( | ) | ( | ) | ||||
Accumulated deficit | ( | ) | ( | ) | ||||
Total shareholders’ equity | ||||||||
Total liabilities and shareholders’ equity | $ | $ |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
For the Six Months Ended December 31, | ||||||||
2022 | 2021 | |||||||
REVENUE | $ | $ | ||||||
COST OF REVENUE | ( | ) | ||||||
GROSS PROFIT | ||||||||
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | ( | ) | ( | ) | ||||
PROVISION FOR DOUBTFUL ACCOUNTS | ( | ) | ||||||
RESEARCH AND DEVELOPMENT EXPENSES | ( | ) | ( | ) | ||||
STOCK COMPENSATION EXPENSE | ( | ) | ( | ) | ||||
LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
OTHER INCOME (EXPENSE), NET | ||||||||
Other income, net | ||||||||
Finance expense | ( | ) | ( | ) | ||||
TOTAL OTHER INCOME (EXPENSE), NET | ( | ) | ||||||
LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
PROVISION FOR INCOME TAXES | ||||||||
NET LOSS | $ | ( | ) | $ | ( | ) | ||
LOSS PER ORDINARY SHARE | ||||||||
Weighted average number of shares: | ||||||||
Loss per share: | ||||||||
$ | ( | ) | $ | ( | ) |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ EQUITY
For the Six Months Ended December 31, 2022 | ||||||||||||||||||||||||
Ordinary shares* | Additional | Deferred | Total | |||||||||||||||||||||
Number | Par | paid-in | share | Accumulated | shareholders’ | |||||||||||||||||||
of shares | amount | capital | compensation | deficit | equity | |||||||||||||||||||
Balance, June 30, 2022 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
Sale of units | - | - | ||||||||||||||||||||||
Sale of ordinary shares | ||||||||||||||||||||||||
Ordinary shares issued for compensation | ( | ) | - | |||||||||||||||||||||
Forfeiture of unvested restricted ordinary shares | - | - | ( | ) | - | |||||||||||||||||||
Stock compensation expense | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
Balance, December 31, 2022 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ |
For the Six Months Ended December 31, 2021 | ||||||||||||||||||||||||
Ordinary shares* | Additional | Deferred | Total | |||||||||||||||||||||
Number | Par | paid-in | share | Accumulated | shareholders’ | |||||||||||||||||||
of shares | amount | capital | compensation | deficit | equity | |||||||||||||||||||
Balance, June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
Sale of ordinary shares | ||||||||||||||||||||||||
Ordinary shares issued for compensation | ( | ) | ||||||||||||||||||||||
Forfeiture of unvested restricted ordinary shares | - | ( | ) | |||||||||||||||||||||
Stock compensation expense | - | |||||||||||||||||||||||
Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
Balance, December 31, 2021 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ |
* |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Six Months Ended December 31, | ||||||||
2022 | 2021 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
Net loss | $ | ( | ) | $ | ( | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Provision for doubtful accounts | ||||||||
Depreciation | ||||||||
Amortization | ||||||||
Stock compensation expense | ||||||||
Changes in operating assets and liabilities | ||||||||
Accounts receivable | ||||||||
Other receivables | ||||||||
Prepayments | ( | ) | ( | ) | ||||
Accounts payable | ( | ) | ||||||
Other payables and accrued liabilities | ( | ) | ||||||
Deferred revenue | ( | ) | ||||||
Net cash used in operating activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
Prepayments for intangible assets | ( | ) | ||||||
Purchase of equipment | ( | ) | ||||||
Net cash used in investing activities | ( | ) | ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
Borrowings from related parties | ||||||||
Proceeds from sale of units, net of offering costs | ||||||||
Proceeds from sale of ordinary shares, net of offering costs | ||||||||
Net cash provided by financing activities | ||||||||
NET CHANGE IN CASH AND CASH EQUIVALENTS | ||||||||
CASH AND CASH EQUIVALENTS, beginning of period | ||||||||
CASH AND CASH EQUIVALENTS, end of period | $ | $ | ||||||
SUPPLEMENTAL CASH FLOW INFORMATION: | ||||||||
Cash paid for interest expense | $ | $ | ||||||
Cash paid for income tax | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and description of business
Color Star Technology Co., Ltd. (the “Company” or “Color Star”) is an entertainment and education company which provides online entertainment performances and online music education services via its wholly-owned subsidiary, Color China Entertainment Limited (“Color Sky”).
The Company was founded as an unincorporated business on September 1, 2005, under the name TJS Wood Flooring, Inc., and became a C-corporation in the State of Delaware on February 15, 2007. On April 29, 2008, TJS Wood Flooring, Inc. changed its name to China Advanced Construction Materials Group, Inc. (“CADC Delaware”). On August 1, 2013, CADC Delaware consummated a reincorporation merger with its newly formed wholly-owned subsidiary, China Advanced Construction Materials Group, Inc. (“CADC Nevada”), a Nevada corporation, with CADC Delaware merging into CADC Nevada and CADC Nevada being the surviving company, for the purpose of changing CADC Delaware’s state of incorporation from Delaware to Nevada. On December 27, 2018, CADC Nevada was merged with and into China Advanced Construction Materials Group, Inc. (“CADC Cayman”), a Cayman Islands corporation, whereupon the separate existence of CADC Nevada ceased and CADC Cayman continued as the surviving entity. As a result of the reincorporation, the Company is governed by the laws of the Cayman Islands.
On November 22, 2021, Color China changed its name from “Color China Entertainment Limited” to “Color Sky Entertainment Limited.”
CACM Group NY, Inc.
On
August 20, 2018, CACM Group NY, Inc. (“CACM”) was incorporated in the State of New York and is
Color Sky
The
ongoing COVID-19 pandemic has claimed hundreds of thousands of lives and caused massive global health and economic crisis, while also
causing large-scale social and behavioral changes in societies. Online entertainment and online education are experiencing enormous growth
which the Company believes will last long after the pandemic. In order to expand the Company’s global reach and to enter into an
online business, on May 7, 2020, the Company entered into a Share Exchange Agreement (“Exchange Agreement”) with Color Sky,
a Hong Kong limited company, and shareholders of Color Sky (the “Sellers”), pursuant to which, among other things and subject
to the terms and conditions contained therein, the Company acquired all of the outstanding issued shares in Color Sky from the sellers
(the “Acquisition”). Pursuant to the Exchange Agreement, in exchange for all of the outstanding shares of Color Sky, the
Company agreed to issue
On January 11, 2023, the Company, Color Sky, and Tian Jie (the “Purchaser”), entered into a certain share purchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase Color Sky in exchange for no consideration. The closing of the Disposition is subject to certain closing conditions including the receipt of a fairness opinion from Asia-Pacific Consulting and Appraisal Limited. On February 3, 2023, the Company completed the Disposition after the satisfaction of all closing conditions.
5
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Modern Pleasure International Limited
On June 18, 2021, Modern Pleasure International Limited (“Modern Pleasure”), a limited liability company, was incorporated in Hong Kong and is wholly established and owned by the Company. On December 16, 2022, Modern Pleasure was dissolved.
Color Metaverse Pte. Ltd.
On February 21, 2022, Color Metaverse Pte. Ltd. (“Color Metaverse”), a private company limited by shares, was incorporated in Singapore and is wholly established and owned by the Company. Color Metaverse commenced operations in September 2022.
Color Star Technology Ohio Inc.
On
August 11, 2022, Color Star Technology Ohio Inc. (“Color Star Ohio”) was incorporated in the State of Ohio and is
Note 2 – Summary of significant accounting policies
Going concern uncertainty
The
Company had an accumulated deficit of approximately $
Basis of presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). These unaudited condensed consolidated financial statements include the accounts of all the directly and indirectly owned subsidiaries listed below. All intercompany transactions and balances have been eliminated in consolidation. Interim results are not necessary indicative of results of a full year. In the opinion of management, all adjustments, consisting only of normal recurring adjustments, considered necessary to give a fair presentation have been included. The information in this Form 6-K should be read in conjunction with information in the annual report for the fiscal year ended June 30, 2022 on Form 20-F filed with the SEC on November 14, 2022.
Principles of consolidation
The unaudited condensed consolidated financial statements reflect the activities of the following subsidiaries. All material intercompany transactions and balances have been eliminated.
Subsidiaries | Place incorporated | Ownership percentage | ||||
CACM | % | |||||
Color Sky | % | |||||
Modern Pleasure | % | |||||
Color Metaverse | % | |||||
Color Star Ohio | % |
6
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use of estimates and assumptions
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 financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company’s unaudited condensed consolidated financial statements include the allowance for credit losses of accounts receivable, other receivables, prepayments and advances and deferred income taxes, stock-based compensation, and fair value and useful lives of plant and equipment and intangibles assets. Actual results could be materially different from those estimates.
Revenue recognition
The Company follows the Financial Accounting Standards Board (“FASB”) Accounting Standards Update (“ASU”) 2014-09 Revenue from Contracts with Customers (ASC 606) to recognize its revenue for all period presented. The core principle underlying this ASU is that the Company recognizes its revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This requires 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 control of goods and services transfers to a customer. The Company’s revenue streams to be recognized at a point in time comprise principally of music performance performed or education services provided. The Company’s revenue streams to be recognized over a period of time comprise of its platform subscribed membership fees which is recognized over the subscription period.
The ASU requires the use of a five-step model to recognize revenue from customer contracts. The five-step model requires that the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies the performance obligation. The application of the five-step model to the revenue streams compared to the prior guidance did not result in significant changes in the way the Company records its revenue. Upon adoption, the Company evaluated its revenue recognition policy for all revenue streams within the scope of the ASU under previous standards and using the five-step model under the new guidance and confirmed that there were no material differences in the pattern of revenue recognition.
The Company accounts for a contract with a customer when the contract is committed in writing, the rights of the parties, including payment terms, are identified, the contract has commercial substance and consideration to collect is substantially probable.
The Company earns its online education academy revenues from its customers for subscription for services to be delivered over a period of time, the receipt is initially recorded as “deferred revenue” on the consolidated balance sheets and revenue is recognized ratably over the membership period as services are rendered, usually one year. Membership services revenue also includes fees earned from subscribing members for on-demand content purchases and early access to premium content. The Company is principal in its relationships where its partners, including artist agents, mobile operators, internet service providers and online payment agencies, provide access to the membership services or payment processing services as the Company retains control over its service delivery to its subscribing members. Typically, payments made to its partners, are recorded as cost of revenues and as research and development expenses prior to any revenues being generated in this revenue stream. In July 2021, the Company no longer required its subscribers to pay for the annual subscription fee. Revenues in connection with the on-demand contents are recognized at a point in time when the subscription fee was paid to stream the on-demand contents.
As a practical expedient, the Company elects to record the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less.
7
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Financial instruments
US GAAP specifies a hierarchy of valuation techniques for determining the fair value of financial instruments and related fair value measurements based upon whether the inputs to those valuation techniques reflect assumptions other market participants would use based upon market data obtained from independent sources (observable inputs). The valuation hierarchy requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. In accordance with FASB ASC 820, the following summarizes the fair value hierarchy:
The three levels of inputs are defined as follows:
Level 1 | inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets; |
Level 2 | inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument; |
Level 3 | inputs to the valuation methodology are unobservable. |
Financial instruments included in current assets and current liabilities are reported in the consolidated balance sheets at face value or cost, which approximate fair value because of the short period of time between the origination of such instruments and their expected realization and their current market rates of interest.
Cash and cash equivalents
The Company considers all highly liquid investments with the original maturity of three months or less at the date of purchase to be cash equivalents.
Accounts receivable, net
Accounts receivable include receivables from Color World platform subscription fees due from App payment collections agent, net of an allowance for credit risk. Accounts receivable are recorded at subscription fees amount received from the Company’s customers and do not bear interest. Allowance for credit losses for accounts receivables is established based on various factors including historical payments and current economic trends. The Company reviews its allowance for accounts receivable by assessing individual accounts receivable over a specific aging and amount. All other balances are pooled based on historical collection experience. The estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that affect collectability. Accounts receivable are written-off on a case by case basis after exhaustive efforts at collection are made, net of any amounts that may be collected.
Other receivables
Other receivables primarily include security deposit and receivables resulted from sale of equipment, net of an allowance for credit losses. Allowance for credit losses for other receivables is established based on various factors including historical payments and current economic trends. The Company reviews its allowance for other receivables by assessing individual other receivables over a specific aging and amount. All other balances are pooled based on historical collection experience. The estimate of expected credit losses is based on information about past events, current economic conditions, and forecasts of future economic conditions that affect collectability. Other receivables are written-off on a case by case basis after exhaustive efforts at collection are made, net of any amounts that may be collected.
Prepayments, current
Prepayments, current include funds deposited or advanced to outside vendors for future performance obligations, program license fees and service fees. As a standard practice in the music performance industry, many of the Company’s vendors require a certain amount to be deposited with them as a guarantee that the Company will complete its purchases on a timely basis. The Company has legally binding contracts with its vendors, the prepayments will be used to offset performance fees, program license fees, purchase price or service fees, and the amounts are refundable and bear no interest if outside vendors breach the contracts.
Plant and equipment, net
Plant
and equipment are stated at cost or at fair value of the identifiable assets acquired on the acquisition date less accumulated depreciation
and impairment loss. Expenditures for maintenance and repairs are charged to operations as incurred while additions, renewals and improvements
are capitalized. Depreciation is provided over the estimated useful life of each class of depreciable assets and is computed using the
straight-line method with
8
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The estimated useful lives of assets are as follows:
Useful life | ||
Office equipment |
Intangible assets, net
Intangible
assets are stated at cost, less accumulated amortization. Amortization expense is recognized on the straight-line basis over the estimated
useful lives of the assets. The Company has obtained copyrights to use the online education academy courses for 3 years to unlimited
years. The Company amortizes the copyrights with limited useful life over their useful life using the straight-line method and amortizes
the copyrights with unlimited useful life over
Accounting for long-lived assets
The Company classifies its long-lived assets into: (i) office equipment and (ii) intangible assets.
Long-lived assets held and used by the Company are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of such assets may not be fully recoverable. It is possible that these assets could become impaired as a result of technological or other industry changes. If circumstances require a long-lived asset or asset group to be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, an impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques, including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
If the value of an asset is determined to be impaired, the impairment to be recognized is measured in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of are reported at the lower of the carrying amount or the fair value, less disposition costs.
There were no impairment charges for the six months ended December 31, 2022 and 2021.
Competitive pricing pressures and changes in interest rates could materially and adversely affect the Company’s estimates of future net cash flows to be generated by the long-lived assets, and thus could result in future impairment losses.
Accounts payable
Accounts payable represents royal fees payable to the Company’s vendor which was incurred from the revenues generated of its on-demand contents in the Color World Platform.
Leases
The Company accounts for leases in accordance with ASC 842 “Leases”. Operating lease right-of-use (“ROU”) assets and lease liabilities are recognized at the commencement date based on the present value of lease payments over the lease term. Since the implicit rate for the Company’s leases is not readily determinable, the Company uses its incremental borrowing rate based on the information available at the commencement date in determining the present value of lease payments. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow, on a collateralized basis, an amount equal to the lease payments, in a similar economic environment and over a similar term.
Lease terms used to calculate the present value of lease payments generally do not include any options to extend, renew, or terminate the lease, as the Company does not have reasonable certainty at lease inception that these options will be exercised. The Company generally considers the economic life of its operating lease ROU assets to be comparable to the useful life of similar owned assets. The Company has elected the short-term lease exception, therefore operating lease ROU assets and liabilities do not include leases with a lease term of twelve months or less. Its leases generally do not provide a residual guarantee. The operating lease ROU asset also excludes lease incentives. Lease expense is recognized on a straight-line basis over the lease term.
9
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Leases with an initial term of 12 months or less are not recorded on the balance sheet as operating lease ROU assets and lease liabilities.
The Company reviews the impairment of its ROU assets consistent with the approach applied for its other long-lived assets. The Company reviews the recoverability of its long-lived assets when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on its ability to recover the carrying value of the asset from the expected undiscounted future pre-tax cash flows of the related operations. The Company has elected to include the carrying amount of operating lease liabilities in any tested asset group and include the associated operating lease payments in the undiscounted future pre-tax cash flows.
As of December 31, 2022 and June 30,2022, the Company does not have any lease with an initial term of more than 12 months.
Research and development
Research and development expenses include website or app development expenditure costs, salaries and other compensation-related expenses to the Company’s research and product development personnel and related expenses for the Company’s research and product development team. The Company expenses all costs that are incurred in connection with the planning and implementation phases of development, and costs that are associated with maintenance of the existing website or app for internal use.
Stock-based compensation
The Company records stock-based compensation expense for employees at fair value on the grant date and recognizes the expense over the employee’s requisite service period. The Company’s expected volatility assumption is based on the historical volatility of the Company’s stock. The expected life assumption is primarily based on historical exercise patterns and employee post-vesting termination rate. The risk-free interest rate for the expected term of an option is based on the U.S. Treasury yield curve in effect at the time of grant. The expected dividend yield is based on the Company’s current and expected dividend policy.
The Company records stock-based compensation expense for non-employees at fair value on the grant date and recognizes the expense over the service provider’s requisite service period.
Income taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
ASC
740-10, “Accounting for Uncertainty in Income Taxes,” defines uncertainty in income taxes and the evaluation of a tax position
as a two-step process. The first step is to determine whether it is more likely than not that a tax position will be sustained upon examination,
including the resolution of any related appeals or litigation based on the technical merits of that position. The second step is to measure
a tax position that meets the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements.
A tax position is measured at the largest amount of benefit that has a greater than
Earnings (loss) per share
The Company reports earnings (loss) per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants, options, restricted stock-based grants and convertible preferred stock, to issue ordinary shares were exercised and converted into ordinary shares. Ordinary share equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share.
10
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase ordinary shares at the average market price during the period. When the Company has a loss, no potential dilutive items are included since they would be antidilutive.
Stock dividends or stock splits are accounted for retroactively if the stock dividends or stock splits occur during the period, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it effective as of the beginning of the earliest period presented.
Recent Accounting Pronouncements
In January 2020, the FASB issued ASU 2020-01 to clarify the interaction of the accounting for equity securities under ASC 321 and investments accounted for under the equity method of accounting in ASC 323 and the accounting for certain forward contracts and purchased options accounted for under ASC 815. With respect to the interactions between ASC 321 and ASC 323, the amendments clarify that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting when applying the measurement alternative in ASC 321, immediately before applying or upon discontinuing the equity method of accounting. With respect to forward contracts or purchased options to purchase securities, the amendments clarify that when applying the guidance in ASC 815-10-15-141(a), an entity should not consider whether upon the settlement of the forward contract or exercise of the purchased option, individually or with existing investments, the underlying securities would be accounted for under the equity method in ASC 323 or the fair value option in accordance with ASC 825. The ASU is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption is permitted, including adoption in any interim period. The adoption of this ASU did not have a material effect on the Company’s unaudited condensed consolidated financial statements.
The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s unaudited condensed consolidated financial statements.
Note 3 – Accounts receivable, net
Accounts receivable consisted of the following:
December 31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Color World platform subscription fees due from App payment collections agent | $ | $ | ||||||
Less: allowance for doubtful accounts | ( | ) | - | |||||
Total accounts receivable, net | $ | $ |
Provision
for doubtful accounts were $
Movement of allowance for doubtful accounts is as the following:
For
the Six Months Ended December 31, 2022 | For the Six Months Ended December 31, 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Beginning balance | $ | $ | ||||||
Allowance for doubtful accounts | ||||||||
Less: write-off | ||||||||
Ending balance | $ | $ |
11
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 4 – Other receivables
Other receivables consisted of the following:
December 31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Rent deposit | $ | $ | ||||||
Receivable from sale of equipment | ||||||||
Other receivables | $ | $ |
Note 5 – Prepayments
Prepayments, current, consisted of the following:
December 31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Prepayment for live concert productions | $ | $ | ||||||
Prepayment for online concert productions | ||||||||
Prepayment for advertisement | ||||||||
Prepayments and advances | $ | $ |
Note 6 – Plant and equipment, net
Plant and equipment consist of the following:
December 31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Office equipment | ||||||||
Less: Accumulated depreciation | ( | ) | ( | ) | ||||
Plant and equipment, net | $ | $ |
Depreciation
expense was $
Note 7 – Intangible assets, net
Intangible assets consist of the following:
December 31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Copyrights of online education academy courses | $ | $ | ||||||
Less: Accumulated amortization | ( | ) | ( | ) | ||||
Intangible assets, net | $ | $ |
Amortization
expense was $
12
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 – Related party transactions
Other payables – related parties
Other payables – related party consisted of the following:
Name
of Related Party | Relationship | Nature | December
31, 2022 | June
30, 2022 | ||||||||
(Unaudited) | ||||||||||||
Weili He | $ | $ | ||||||||||
Hui Xu | ||||||||||||
Jehan Zeb Khan | ||||||||||||
Total | $ | $ |
Note 9 – Accounts payable
December
31, 2022 | June 30, 2022 | |||||||
(Unaudited) | ||||||||
Royal fees payable | $ | $ |
Note 10 – Leases
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty.
The
Company has a new lease agreement for office space in New York from July 1, 2021 through June 30, 2022, with a rental fee of $
The one-year maturity of the Company’s lease obligations is presented below:
Twelve Months Ending December 31, | Operating Lease Amount | |||
2023 | $ | |||
Total lease payments | $ |
Operating
lease expenses are included in general and administrative expenses. Total operating lease expenses were $
13
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Income taxes
(a) Corporate income tax
Color Star
Under the current laws of the Cayman Islands, Color Star is not subject to tax on income or capital gains. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
CACM
CACM
is organized in the New York State in the United States. CACM had no taxable income for the U.S. income tax purposes for the six months
ended December 31, 2022 and2021. The applicable tax rate is
Color Sky and Modern Pleasure
Color
Sky and Modern Pleasure are organized in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory
financial statements adjusted in accordance with relevant Hong Kong tax laws. The applicable tax rate is
Income (loss) before provision for income taxes consisted of:
For
the Six Months Ended December 31, 2022 | For
the Six Months Ended December 31, 2021 | |||||||
(Unaudited) | (Unaudited) | |||||||
Cayman | $ | ( | ) | $ | ( | ) | ||
United States | ( | ) | ( | ) | ||||
Hong Kong | ( | ) | - | |||||
$ | ( | ) | $ | ( | ) |
Significant components of deferred tax assets were as follows:
December
31, 2022 | June 30, 2022 | |||||||
Deferred tax assets | ||||||||
Net operating loss carryforward in the U.S. | ||||||||
Net operating loss carryforward in Hong Kong | ||||||||
Valuation allowance | ( | ) | ( | ) | ||||
Total net deferred tax assets | $ | $ |
As
of December 31, 2022 and June 30 2022, CACM’s net operating loss carry forward for the U.S. income taxes was approximately $
14
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As
of December 31, 2022 and June 30 2022, Color Sky and Modern Pleasure’s net operating loss carry forward for the Hong Kong income
taxes was approximately $
Changes
in the valuation allowance for deferred tax assets increased by $
(b) Uncertain tax positions
There were no uncertain tax positions as of December 31, 2022 and June 30,2022, and management does not anticipate any potential future adjustments which would result in a material change to its tax positions. For the six months ended December 31, 2022 and2021, the Company did not incur any tax related interest or penalties.
Note 12 – Shareholders’ equity
Increase in Authorized Shares and Shares Reverse Split
On November 18, 2020, the Company’s shareholders approved to the authorized share capital of the Company be increased from US$75,000 divided into 75,000,000 ordinary shares of a par value of US$0.001 each to US$200,000 divided into 200,000,000 ordinary shares of a par value of US$0.001 each by the creation of an additional 125,000,000 ordinary shares of a par value of US$0.001 each to rank pari passu in all respects with the existing ordinary shares. On December 1, 2021, the Company’s shareholders approved to the authorized share capital of the Company be increased from US$200,000 divided into 200,000,000 ordinary shares of a par value of US$0.001 each to US$800,000 divided into 800,000,000 ordinary shares of a par value of US$0.001 each by the creation of an additional 600,000,000 ordinary shares of a par value of US$0.001 each to rank pari passu in all respects with the existing ordinary shares.
Sale of Ordinary Shares
On September 24, 2021, the Company and certain institutional investors entered into a securities purchase agreement (“SPA 1”), pursuant to which the Company agreed to sell such institutional investors units with each unit consisting of one ordinary share and one warrant to purchase 0.7 ordinary share, at a purchase price of $27.20 per unit, for net proceeds of approximately $19.2 million (the “Offering”). An aggregate of 790,624 ordinary shares and warrants to purchase an aggregate of 553,437 ordinary shares (the “Investor Warrants”) were agreed to be issued to the investors under the SPA 1. The Offering closed on September 28, 2021.
15
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
January 21, 2022, the Company and Hou Sing International Business Limited (“Hou Sing”) entered into a securities purchase
agreement, pursuant to which the Company agreed to issue and sell to Hou Sing an aggregate of
On
February 21, 2022, the Company and certain institutional investors entered into a securities purchase agreement (“SPA 2”),
pursuant to which the Company agreed to sell such institutional investors units with each unit consisting of one ordinary share and one
warrant to purchase one ordinary share, at a purchase price of $
On
September 14, 2022,
On
December 20, 2022, the Company entered into certain securities purchase agreement (the “SPA”) with a certain “accredited
investor” (the “Purchaser”) as such term is defined in Rule 501(a) of Regulation D of the Securities Act of 1933, as
amended, pursuant to which the Company agreed to sell
Restricted Stock Grants
Restricted stock grants are measured based on the market price on the grant date. The Company has granted restricted ordinary shares to the members of the board of directors (the “Board”), senior management, and consultants.
In
December 2021, the Board granted an aggregate of
In
April 2022, the Company granted an aggregate of
In
June 2022, the Company granted an aggregate of
In
August 2022, the Board granted an aggregate of
For
the six months ended December 31, 2022 and 2021, the Company recognized approximately $
16
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Following is a summary of the restricted stock grants:
Restricted stock grants | Shares | Weighted Average Grant Date Fair Value Per Share | Aggregate Intrinsic Value | |||||||||
Unvested as of June 30, 2021 | $ | $ | ||||||||||
Forfeited | ( | ) | $ | |||||||||
Granted | $ | |||||||||||
Vested | ( | ) | $ | |||||||||
Unvested as of June 30, 2022 | $ | $ | ||||||||||
Forfeited | ( | ) | $ | |||||||||
Granted | $ | |||||||||||
Vested | ( | ) | $ | |||||||||
Unvested as of December 31, 2022 (Unaudited) | $ | $ |
Ordinary Shares Issued for Compensation
In
August 2021, the Board granted an aggregate of
In
March 2022, the Board granted an aggregate of
In
November 2022, the Board granted an aggregate of
For
the six months ended December 31, 2022 and 2021, the Company recorded approximately $
Ordinary Shares Issued for Services
In
December 2022, the Board granted an aggregate of
For
the six months ended December 31, 2022 and 2021, the Company recognized approximately $
Warrants
On
September 24, 2021,
17
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On
February 21, 2022,
On
September 14, 2022,
The summary of warrant activity is as follows:
Warrants
Outstanding | Weighted
Average Exercise Price | Average
Remaining Contractual Life | ||||||||||
June 30, 2021 | $ | |||||||||||
Granted | $ | |||||||||||
Forfeited | $ | |||||||||||
Exercised | ( | ) | $ | |||||||||
June 30, 2022 | $ | |||||||||||
Granted | $ | |||||||||||
Forfeited | $ | |||||||||||
Exercised | $ | |||||||||||
December 31, 2022 (Unaudited) | $ |
Note 13 – Commitments and contingencies
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
18
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Concentrations of risk
Credit Risk
The Company is exposed to credit risk from its cash in banks and advances on performance obligations.
As
of December 31, 2022 and June 30, 2022, approximately $
Prepayments and advances are subject to credit evaluation. An allowance will be made for credit losses on estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
Vendor Concentration Risk
There
were no purchases for the six months ended December 31, 2022. For the six months ended December 31, 2021, one vendor accounted for
Note 15 – Subsequent events
On January 11, 2023, the Company, Color Sky, and Tian Jie (the “Purchaser”), entered into a certain share purchase agreement (the “Disposition SPA”). Pursuant to the Disposition SPA, the Purchaser agreed to purchase Color Sky in exchange for no consideration. The closing of the Disposition is subject to certain closing conditions including the receipt of a fairness opinion from Asia-Pacific Consulting and Appraisal Limited. On February 3, 2023, the Company completed the Disposition after the satisfaction of all closing conditions.
19