Exhibit 99.1
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2023 | 2023 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Other receivables, net | ||||||||
| Prepayments | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use asset | ||||||||
| Prepayments - non-current | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable | $ | $ | ||||||
| Other payables and accrued liabilities | ||||||||
| Other payables - related parties | ||||||||
| Lease liability - current | ||||||||
| Convertible notes payable, net of debt issuance costs of $ | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Lease liability - non-current | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Class A ordinary shares, $ | ||||||||
| Class B 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.
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COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | ||||||||
| GROSS PROFIT | ||||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | ( | ) | ( | ) | ||||
| PROVISION FOR EXPECTED CREDIT LOSSES | ( | ) | ( | ) | ||||
| RESEARCH AND DEVELOPMENT EXPENSES | ( | ) | ||||||
| STOCK COMPENSATION EXPENSE | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE), NET | ||||||||
| Other income, net | ||||||||
| Amortization of debt issuance costs | ( | ) | ||||||
| Finance expense | ( | ) | ( | ) | ||||
| TOTAL OTHER INCOME (EXPENSE), NET | ( | ) | ||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | $ | ( | ) | ||
| LOSS PER CLASS A and CLASS B ORDINARY SHARE | ||||||||
| Weighted average number of shares* | ||||||||
| Loss per share - basic and diluted* | ||||||||
| $ | ( | ) | $ | ( | ) | |||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGE IN SHAREHOLDERS’ EQUITY
| For the Six Months Ended December 31, 2023 | ||||||||||||||||||||||||||||||||
| Class A Ordinary shares* | Class B Ordinary shares* | Additional | Deferred | |||||||||||||||||||||||||||||
| Number | Par | Number | Par | paid-in | share | Accumulated | ||||||||||||||||||||||||||
| of shares | amount | of shares | amount | capital | compensation | deficit | Total | |||||||||||||||||||||||||
| Balance, June 30, 2023 | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| Sale of ordinary shares | ||||||||||||||||||||||||||||||||
| Ordinary shares issued for acquisition of intangible assets | ||||||||||||||||||||||||||||||||
| Ordinary shares issued for acquisition of concert cooperation rights | ||||||||||||||||||||||||||||||||
| Stock compensation expense | - | - | ||||||||||||||||||||||||||||||
| Net loss | - | - | ( | ) | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2023 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| For the Six Months Ended December 31, 2022 | ||||||||||||||||||||||||||||||||
| Class A Ordinary shares* | Class B Ordinary shares | Additional | Deferred | |||||||||||||||||||||||||||||
| Number | Par | Number | Par | paid-in | share | Accumulated | ||||||||||||||||||||||||||
| of shares | amount | of shares | amount | capital | compensation | deficit | Total | |||||||||||||||||||||||||
| 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) | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||||||||||||||||
| * |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Provision for expected credit losses | ||||||||
| Depreciation | ||||||||
| Amortization of intangible assets | ||||||||
| Amortization of right of use asset | ||||||||
| Stock compensation expense | ||||||||
| Amortization of debt issuance costs | ||||||||
| Changes in operating assets and liabilities | ||||||||
| Other receivables | ( | ) | ||||||
| Prepayments | ( | ) | ||||||
| Accounts payable | ( | ) | ||||||
| Lease liabilities | ||||||||
| Other payables and accrued liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Borrowings from related parties | ||||||||
| Proceeds from a convertible note, net of debt issuance costs | ||||||||
| 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 | $ | $ | ||||||
| NON-CASH TRANSACTIONS OF INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Initial recognition of operating right of use asset and lease liability | $ | $ | ||||||
| Ordinary shares issued for prepayments on concert cooperation rights | $ | $ | ||||||
| Ordinary shares issued for acquisition of intangible assets | $ | $ | - | |||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
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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 Star DMCC (“DMCC”).
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 Entertainment Limited (“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
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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. Upon the closing of the transaction
(the “Disposition”) contemplated by the Disposition SPA, the Purchaser will become the sole shareholder of Color Sky and as
a result, assume all assets and liabilities of Color Sky. The Disposition closed on February 3, 2023 after the satisfaction of all closing
conditions. The Disposition resulted in the recognition of a loss of $
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. As of the date of this report, Color Metaverse has not commenced operations.
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
Color Star DMCC
On January 23, 2023, DMCC was incorporated in
the United Arab Emirates with share capital of AED
Model Queen Limited
On August 9, 2023, Model Queen Limited (“Model
Queen”) was incorporated in Hong Kong Special Administrative Region and is
Hainan Yuhai Entertainment Co. Ltd.
On September 14, 2023, Hainan Yuhai Entertainment
Co. Ltd. (“Color Star Hainan”) was incorporated in the Hainan Province of the People’s Republic of China (PRC) with
registered capital of RMB
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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, 2023 on Form 20-F filed with the SEC on November 14, 2023.
Principles of consolidation
| Subsidiaries | Place incorporated | Ownership percentage | ||||
| CACM | % | |||||
| Color Sky (1) | % | |||||
| Modern Pleasure (2) | % | |||||
| Color Metaverse | % | |||||
| Color Star Ohio | % | |||||
| DMCC | % | |||||
| Model Queen Limited | % | |||||
| Color Star Hainan | % | |||||
| (1) | |
| (2) |
Use of estimates and assumptions
The preparation of unaudited condensed 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 and other receivables, stock-based compensation, and fair value and useful lives of property, plant and equipment and intangibles assets. Actual results could be materially different from those estimates.
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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 offered the following services:
| (a) | Concerts and Entertainment Events |
Sale of concerts and entertainment events is accounted for as a single performance obligation which is satisfied at a point in time on the day of the events. All ticket sales are final upon payment.
| (b) | Construction Management Consulting Services |
Sale of construction management consulting services is accounted for as a single performance obligation which is satisfied at a point in time at the time the services are performed.
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.
| For the Six Months Ended December 31, | ||||||||
| 2023 | 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Concerts and entertainment events | $ | $ | ||||||
| Construction management consulting services | ||||||||
| Total revenue | $ | $ | ||||||
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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 losses. 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 prepayments for live concert productions, 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.
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Property, plant and equipment, net
Property, 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
| 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
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, 2023 and 2022.
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.
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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.
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.
Convertible notes
Upon adoption of ASU 2020-06 on July 1, 2021, the elimination of the beneficial conversion feature (“BCF”) and cash conversion models in ASC 470-20 that requires separate accounting for embedded conversion features in convertible instruments results in the convertible debt instruments being recorded as a single liability (i.e., there is no separation of the conversion feature, and all proceeds are allocated to the convertible debt instruments as a single unit of account). Unless conversion features are derivatives that must be bifurcated from the host contracts in accordance with ASC 815-15 or, in the case of convertible debt, if the instruments are issued with a substantial premium, in the latter case, ASC 470-20-25-13 requires the substantial premium to be attributable to the conversion feature and recorded in additional paid-in capital (APIC).
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.
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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
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 loss per share is computed by dividing net loss by the weighted average number of ordinary shares outstanding during the year using the two-class method. Using the two class method, net loss is allocated between ordinary shares and other participating securities (i.e. preference shares) based on their participating rights.
Diluted loss 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 loss per share are excluded from the calculation of diluted loss per share.
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.
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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.
In December 2023, the FASB issued Accounting Standards Update No. 2023-09, “Income Taxes (Topic 740): Improvements to Income Tax Disclosures” (“ASU 2023-09”), which modifies the rules on income tax disclosures to require entities to disclose (1) specific categories in the rate reconciliation, (2) the income or loss from continuing operations before income tax expense or benefit (separated between domestic and foreign) and (3) income tax expense or benefit from continuing operations (separated by federal, state and foreign). ASU 2023-09 also requires entities to disclose their income tax payments to international, federal, state and local jurisdictions, among other changes. The guidance is effective for annual periods beginning after December 15, 2024. Early adoption is permitted for annual financial statements that have not yet been issued or made available for issuance. ASU 2023-09 should be applied on a prospective basis, but retrospective application is permitted. The Company evaluated the potential impact of adopting this new guidance on its unaudited condensed consolidated financial statements and related disclosures, and believed that the adoption 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 – Other receivables, net
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Others | $ | $ | ||||||
| Receivables from vendors upon cancellation of concerts | ||||||||
| Receivables from transfer of concert cooperation right | ||||||||
| Other receivables | ||||||||
| Allowance for credit losses | ( | ) | ( | ) | ||||
| Other receivables, net | $ | $ | ||||||
For the six months ended December 31, 2023 and
2022, the Company recognized $
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Beginning balance | $ | $ | ||||||
| Addition | ||||||||
| Ending balance | $ | $ | ||||||
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Note 4 – Prepayments
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Prepayment for live concert productions | $ | $ | ||||||
| Prepayment for transportation services | ||||||||
| Prepayments and advances | $ | $ | ||||||
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Prepayment for transportation services | $ | $ | ||||||
Note 5 – Property, plant and equipment, net
| December 31, 2023 |
June 30, 2023 |
|||||||
| (Unaudited) | ||||||||
| Office equipment | $ | |
$ | |||||
| Less: Accumulated depreciation | ( |
) | ( |
) | ||||
| Property, plant and equipment, net | $ | $ | ||||||
Depreciation expense was $
Note 6 – Intangible assets, net
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Copyrights of online education academy courses | $ | $ | ||||||
| Less: Accumulated amortization | ( | ) | ( | ) | ||||
| Intangible assets, net | $ | $ | ||||||
Amortization expense was $
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Note 7 – Related party transactions
Other payables – related parties
| Name of Related Party | Relationship | Nature | December 31, 2023 | June 30, 2023 | ||||||||
| (Unaudited) | ||||||||||||
| Wei Zhang | $ | $ | ||||||||||
| Hui Xu | ||||||||||||
| Louis Luo | ||||||||||||
| Total | $ | $ | ||||||||||
Note 8 – Accounts payable
| December 31, 2023 | June 30, 2023 | |||||||
| (Unaudited) | ||||||||
| Royal fees payable | $ | $ | ||||||
Note 9 – 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.
In May 2022, the Company entered another lease
agreement for office space in New York from July 1, 2022 through June 30, 2023, with a rental fee of $
In June 2022, the Company entered another lease
agreement for office space in Dubai, United Arab Emirates from July 15, 2022 through July 14, 2023, with a rental fee of $
In July 2023, the Company entered a lease agreement
for office space in Dubai, United Arab Emirates from August 4, 2023 through August 3, 2025, with a rental fee of $
| For Six Months Ended | ||||||||
| December 31, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Operating lease cost | ||||||||
| Lease expenses | $ | $ | ||||||
| Lease expenses – short-term | ||||||||
| Total lease expenses | $ | $ | ||||||
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| As of December 31, 2023 | As of June 30, 2023 | |||||||
| Weighted-average remaining term | ||||||||
| Operating lease | ||||||||
| Weighted-average discount rate | ||||||||
| Operating lease | % | % | ||||||
| Twelve months Ending December 31, | Operating Lease Amount | |||
| 2024 | $ | |||
| Thereafter | ||||
| Total minimum lease payments | ||||
| Less: discount | ( | ) | ||
| Present value of minimum lease payments | $ | |||
Note 10 – Convertible notes payable
On July 11, 2023, the Company entered into a securities
purchase agreement (the “Purchase Agreement”) with Streeterville Capital, LLC, a Utah limited liability company (the “Investor”),
pursuant to which the Company issued the Investor an unsecured promissory note on July 11, 2023 in the original principal amount of $
As of December 31, 2023, the Note, net of debt
issuance costs of $
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.
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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, 2023 and 2022. The applicable
tax rate is
Color Star Hainan
Color Star Hainan is incorporated in the PRC and
is subject to PRC Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance with relevant
PRC tax laws. The applicable tax rate is
Color Metaverse
Color Metaverse are incorporated in Singapore
and is subject to Singapore Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance
with relevant Singapore tax laws. The applicable tax rate is
Color DMCC
Color DMCC are incorporated in United Arab Dirham
and is subject to United Arab Dirham Profits Tax on the taxable income as reported in its statutory financial statements adjusted in accordance
with relevant United Arab Dirham tax laws. The applicable tax rate is
| For the Six Months Ended December 31, 2023 | For the Six Months ended December 31, 2022 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cayman | $ | ( | ) | $ | ( | ) | ||
| United States | ( | ) | ( | ) | ||||
| Hong Kong | ( | ) | ||||||
| Dubai | ( | ) | ||||||
| PRC | ( | ) | ||||||
| Loss before provision for income taxes | $ | ( | ) | $ | ( | ) | ||
| December 31, 2023 | June 30, 2023 | |||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforward in the U.S. | ||||||||
| Net operating loss carryforward in the United Arab Emirates | ||||||||
| Net operating loss carryforward in PRC | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total net deferred tax assets | $ | $ | ||||||
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As of December 31, 2023 and June 30, 2023, CACM
and Color Star Ohio’s net operating loss carry forward for the U.S. income taxes was approximately $
As of December 31, 2023 and June 30, 2023, Color
Star DMCC’s net operating loss carry forward for the United Arab Emirates income taxes was approximately $
As of December 31, 2023 and June 30, 2023, Color
Sky Hainan’s net operating loss carry forward for the PRC income taxes was $
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, 2023 and June 30, 2023, 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, 2023 and 2022, the Company did not incur any tax related interest or penalties.
Note 12 – Shareholders’ equity
Shares Reverse Split
On March 10, 2022, the Board of Directors of the
Company approved the
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Share Capital Amendment
On March 24, 2023, the Shareholders of the Company
approved the alteration of the authorized issued share capital of the Company from (i) US$
The holders of Class A ordinary Shares and Class B ordinary shares shall have the same rights except for voting and conversion rights. The holders of Class A ordinary shares shall have one vote in respect of each Class A ordinary share held and the holders of Class B ordinary shares shall have ten vote in respect of each Class B ordinary share held. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof. Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances.
Sale of Class A Ordinary Shares
On September 14, 2022, the Company entered
into a securities purchase agreement (the “SPA 3”) with certain institutional investors for a registered direct offering of
Class A ordinary shares and warrants. Each unit consists of one Class A ordinary share and one warrant to purchase one Class A ordinary
share. The purchase price per unit is $
On December 20, 2022, the Company entered into
certain securities purchase agreement (the “SPA 4”) 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
On November 8, 2023, the Company entered into
a certain securities purchase agreement with Vast Ocean Inc., the largest shareholder of the Company, pursuant to which the Company agreed
to sell
19
On November 20, 2023, the Company entered into
certain securities purchase agreement (the “SPA 6”) with Vast Ocean Inc. (the “Purchaser”), the largest shareholder
of the Company, as such term is defined in Section 4(a)(2) of the Securities Act of 1933, as amended, pursuant to which the Company agreed
to sell
On December 28, 2022, the Company entered into
certain securities purchase agreement (the “SPA7”) with a certain sophisticated investor (the “Purchaser”) as
such term is defined in Rule 506(b) of Regulation D of the Securities Act of 1933, as amended (the “Securities Act”), 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 Class A ordinary shares to the members of the board of directors (the “Board”), senior management and consultants.
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
In February 2023, the Company granted an aggregate
of
In April 2023, the Company granted an aggregate
of
In August 2023, the Company granted an aggregate
of
For the six months ended December 31, 2023 and
2022, the Company recognized approximately $
20
| Restricted stock grants | Shares | Weighted Average Grant Date Fair Value Per Share | Aggregate Intrinsic Value | |||||||||
| Unvested as of June 30, 2022 | $ | $ | ||||||||||
| Forfeited | ( | ) | $ | |||||||||
| Granted | $ | |||||||||||
| Vested | ( | ) | $ | |||||||||
| Unvested as of June 30, 2023 | $ | $ | ||||||||||
| Forfeited | $ | |||||||||||
| Granted | $ | |||||||||||
| Vested | ( | ) | $ | |||||||||
| Unvested as of December 31, 2022 (Unaudited) | $ | $ | ||||||||||
Class A Ordinary Shares Issued for Compensation
In November 2022, the Board granted an aggregate
of
In May 2023, the Board granted an aggregate of
In May 2023, the Board granted an aggregate of
For the six months ended December 31, 2023 and
2022, the Company recorded $
Class A Ordinary Shares Issued for Services
In December 2022, the Board granted an aggregate
of
In March 2023, the Board granted an aggregate
of
For the six months ended December 31, 2023 and
2022, the Company amortized approximately $
Class A Ordinary Shares Issued for Acquisitions
In August 2020, the Company issued
In February 2021, the Company issued
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In March 2023, the Company issued
In May 2023, the Company entered into a certain
concert cooperation agreement (“Agreement”) by and among Rich America Inc., an Ohio corporation, (“Rich America”),
Color Star DMCC and the Company. Pursuant to the Agreement, Rich America agreed to have certain music artists represented by Rich America
perform at nine concert events organized by Color Star to be held between May 2023 and March 2024 (the “Concerts’) for an
aggregate consideration of US$
In December 2023, the Company issued
Warrants
| Warrants Outstanding | Weighted Average Exercise Price | Average Remaining Contractual Life | ||||||||||
| June 30, 2022 | $ | |||||||||||
| Granted | $ | |||||||||||
| Forfeited | $ | - | ||||||||||
| Exercised | ( | ) | $ | |||||||||
| June 30, 2023 | $ | |||||||||||
| Granted | $ | - | ||||||||||
| Forfeited | $ | - | ||||||||||
| Exercised | - | $ | - | - | ||||||||
| December 31, 2022 (Unaudited) | $ | |||||||||||
Note 13 – Loss per shares
The Company computes loss per share of Class A ordinary shares and Class B ordinary shares using the two-class method. The rights, including the liquidation and dividend rights, of the holders of Class A ordinary shares and Class B ordinary shares are identical. As a result, the undistributed earnings (loss) for each year are allocated based on the contractual participation rights of the Class A ordinary shares and Class B ordinary shares as if the earnings for the year had been distributed. As the liquidation and dividend rights are identical, the undistributed loss are allocated on a proportionate basis.
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| For the Six Months Ended December 31, 2023 | For the Six Months Ended December 31, 2022 | |||||||||||
| Class A Ordinary Shares | Class B Ordinary Shares | Class A Ordinary Shares | ||||||||||
| Basic and diluted loss per share: | ||||||||||||
| Numerator | ||||||||||||
| Allocation of undistributed loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||
| Denominator | ||||||||||||
| Number of shares used in per share computation | ||||||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Note 14 – 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.
Note 15 – 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, 2023 and June 30, 2023, $
Prepayments and advances are subject to credit evaluation. An allowance will be made for allowance on estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
Vendor Concentration Risk
As of December 31, 2023 and June 30, 2023, one
vendor accounted for
For the six months ended December 31, 2023, two
vendors accounted for
Customer Concentration Risk
For the six months ended December 31, 2023, no
customer accounted for more than
Note 16 – Subsequent events
As previously disclosed, the Company entered into
a certain securities purchase agreement (the “SPA7”) with a certain investor on December 28, 2023, pursuant to which the Company
agreed to sell
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