Color Star Technology(ADD) - 2023 Q2 - Quarterly Report

Financial Statements Condensed Consolidated Balance Sheets Total assets slightly increased to $30.2 million as of December 31, 2023, driven by non-current asset growth, while total liabilities rose to $7.8 million, resulting in a decline in shareholders' equity to $22.4 million Condensed Consolidated Balance Sheet Highlights (Unaudited) | Account | December 31, 2023 ($) | June 30, 2023 ($) | | :--- | :--- | :--- | | Total Current Assets | $10,629,169 | $16,047,031 | | Total Non-Current Assets | $19,556,485 | $13,995,172 | | Total Assets | $30,185,654 | $30,042,203 | | Total Current Liabilities | $7,761,515 | $5,325,768 | | Total Liabilities | $7,821,035 | $5,325,768 | | Total Shareholders' Equity | $22,364,619 | $24,716,435 | Condensed Consolidated Statements of Operations For the six months ended December 31, 2023, revenue reached $1.06 million, but net loss significantly increased to $21.1 million due to a substantial provision for expected credit losses and stock compensation expense Statement of Operations Summary (Unaudited) | Metric | Six Months Ended Dec 31, 2023 ($) | Six Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Revenue | $1,060,442 | $0 | | Gross Profit | $267,042 | $0 | | Loss from Operations | $(21,338,732) | $(12,175,092) | | Provision for Expected Credit Losses | $(15,786,550) | $(1,880,986) | | Net Loss | $(21,124,253) | $(12,177,212) | | Loss per Share (Basic and Diluted) | $(0.86) | $(81.10) | Consolidated Statements of Change in Shareholders' Equity Shareholders' equity decreased to $22.4 million by December 31, 2023, primarily due to a $21.1 million net loss, partially offset by capital raises from share issuances for cash and acquisitions Reconciliation of Shareholders' Equity (For the Six Months Ended December 31, 2023) | Description | Amount ($) | | :--- | :--- | | Balance, June 30, 2023 | $24,716,435 | | Sale of ordinary shares | $1,380,000 | | Ordinary shares issued for acquisition of intangible assets | $7,200,000 | | Ordinary shares issued for acquisition of concert cooperation rights | $8,000,000 | | Stock compensation expense | $2,192,437 | | Net loss | $(21,124,253) | | Balance, December 31, 2023 | $22,364,619 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $2.5 million for the six months ended December 31, 2023, with financing activities providing $2.5 million, and significant non-cash share issuances for acquisitions occurred Cash Flow Summary (Unaudited) | Cash Flow Activity | Six Months Ended Dec 31, 2023 ($) | Six Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | $(2,511,361) | $(6,414,815) | | Net cash provided by financing activities | $2,531,216 | $6,836,101 | | Net change in cash and cash equivalents | $19,855 | $421,286 | | Cash and cash equivalents, end of period | $259,328 | $1,293,599 | - The company conducted significant non-cash investing and financing activities, including issuing $8.0 million in ordinary shares for concert cooperation rights and $7.2 million in shares for the acquisition of intangible assets[12] Notes to the Unaudited Condensed Consolidated Financial Statements Note 1 – Organization and description of business Color Star Technology Co., Ltd. operates in online entertainment and education, undergoing restructuring by moving operations to the UAE and diversifying into construction management consulting via a new US subsidiary - The company's core business is providing online entertainment performances and online music education services through its subsidiary Color Star DMCC[15] - A key strategic shift occurred in February 2023 with the disposition of the Hong Kong-based Color Sky and the transfer of its music industry business to the newly established Color Star DMCC in the United Arab Emirates[21][25] - The company diversified its services, with subsidiary CACM Group NY, Inc. starting to provide construction management consulting services in September 2023[18] - The company has established several new subsidiaries in Singapore, Ohio (USA), Hong Kong, and Hainan (PRC), which had not commenced operations as of the report date[23][24][25][26] Note 2 – Summary of significant accounting policies The financial statements, prepared under U.S. GAAP, highlight substantial doubt about the company's going concern ability due to significant accumulated deficits and recurring losses, while detailing revenue recognition policies for various services Going concern uncertainty Management identified substantial doubt about the company's going concern ability due to a $206.3 million accumulated deficit, $21.1 million net loss, and recurring negative operating cash flows - The company faces a going concern risk due to a $206.3 million accumulated deficit, a $21.1 million net loss for the six months ended December 31, 2023, and recurring operating losses and negative cash flows[28] - Management's plan to alleviate the going concern risk involves obtaining additional equity financing, but there is no assurance of success[28] Revenue recognition Total revenue for the six months ended December 31, 2023, was $1,060,442, primarily from concerts and entertainment events, with revenue recognized at a point in time under ASC 606 Revenue by Service Type (Unaudited) | Service Type | Six Months Ended Dec 31, 2023 ($) | Six Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Concerts and entertainment events | $952,642 | $0 | | Construction management consulting services | $107,800 | $0 | | Total revenue | $1,060,442 | $0 | Note 3 – Other receivables, net Net other receivables were $1.5 million as of December 31, 2023, after a $23.3 million allowance for credit losses, with a $15.8 million provision recorded during the period, primarily for cancelled concert receivables Other Receivables and Allowance for Credit Losses (December 31, 2023) | Item | Amount ($) | | :--- | :--- | | Gross Other Receivables | $24,786,882 | | Allowance for credit losses | $(23,286,550) | | Other receivables, net | $1,500,332 | - The company recognized a $15,786,550 provision for allowance on credit losses for the six months ended December 31, 2023, compared to $0 in the same period of 2022[68] Note 4 – Prepayments Current prepayments decreased to $8.9 million as of December 31, 2023, with the majority, $8.8 million, allocated to live concert productions Prepayments Breakdown | Prepayment Type | December 31, 2023 ($) | June 30, 2023 ($) | | :--- | :--- | :--- | | Current Prepayments | | | | For live concert productions | $8,848,833 | $10,286,550 | | Total Current Prepayments | $8,869,509 | $10,307,226 | Note 5 – Property, plant and equipment, net Net property, plant, and equipment, consisting solely of office equipment, decreased to $10,428 as of December 31, 2023, due to $6,600 in depreciation expense Property, Plant and Equipment, Net | Account | December 31, 2023 ($) | June 30, 2023 ($) | | :--- | :--- | :--- | | Office equipment | $39,602 | $39,602 | | Less: Accumulated depreciation | $(29,174) | $(22,574) | | Property, plant and equipment, net | $10,428 | $17,028 | Note 6 – Intangible assets, net Net intangible assets, primarily online education copyrights, substantially increased to $19.4 million as of December 31, 2023, driven by $7.2 million in new acquisitions, partially offset by amortization Intangible Assets, Net | Account | December 31, 2023 ($) | June 30, 2023 ($) | | :--- | :--- | :--- | | Copyrights of online education academy courses | $23,800,000 | $16,600,000 | | Less: Accumulated amortization | $(4,413,917) | $(2,633,917) | | Intangible assets, net | $19,386,083 | $13,966,083 | - Amortization expense for intangible assets was $1,780,000 for the six months ended December 31, 2023, compared to $2,707,364 in the prior-year period[75] Note 7 – Related party transactions Outstanding payables to related parties, primarily interest-free, due-on-demand loans from key company figures, increased to $731,216 as of December 31, 2023 Other Payables – Related Parties | Related Party | Relationship | December 31, 2023 ($) | June 30, 2023 ($) | | :--- | :--- | :--- | :--- | | Wei Zhang | Chairman of the Board | $198,110 | $0 | | Hui Xu | General Manager of CACM | $530,000 | $580,000 | | Louis Luo | Director and CEO | $3,106 | $0 | | Total | | $731,216 | $580,000 | Note 9 – Leases A new two-year office lease in Dubai, effective August 2023, led to the recognition of an operating lease right-of-use asset and liabilities, with minimum lease payments totaling $201,358 as of December 31, 2023 - In July 2023, the company entered a new two-year office lease in Dubai, running from August 4, 2023, to August 3, 2025, with a monthly rent of $8,621[80] Lease Commitments as of December 31, 2023 | Period | Lease Amount ($) | | :--- | :--- | | Twelve months Ending December 31, 2024 | $146,564 | | Thereafter | $60,350 | | Total minimum lease payments | $206,914 | Note 10 – Convertible notes payable In July 2023, the company issued an $1.1 million convertible promissory note with an 8% interest rate, maturing in twelve months and convertible at $2.00 per Class A share, resulting in $1.0 million gross proceeds - On July 11, 2023, the company issued a convertible note with a principal of $1,100,000, an 8% interest rate, and a 12-month maturity, convertible at $2.00 per Class A ordinary share[86] - The note included an original issue discount of $80,000 and $20,000 for investor fees, resulting in gross proceeds of $1,000,000[86] Note 11 – Income taxes The company reported a $21.1 million pre-tax loss for the six months ended December 31, 2023, with no income tax provision, holding significant NOL carryforwards but with a full valuation allowance against deferred tax assets Loss Before Income Taxes by Jurisdiction (Unaudited) | Jurisdiction | Six Months Ended Dec 31, 2023 ($) | | :--- | :--- | | Cayman | $(3,370,210) | | United States | $(237,063) | | Dubai | $(17,516,926) | | PRC | $(54) | | Total Loss | $(21,124,253) | - As of December 31, 2023, the company had net operating loss carryforwards of approximately $2.3 million in the U.S. and $38.5 million in the United Arab Emirates[97][98] - A 100% valuation allowance of $4,097,908 was recorded against net deferred tax assets due to uncertainty about their future realization[97][98][100] Note 12 – Shareholders' equity Significant corporate actions affecting shareholders' equity include a 40-for-1 reverse stock split, creation of Class A and B shares, capital raises through share sales, and substantial share issuances for acquisitions, with over 3.2 million warrants outstanding Share Structure Changes A 40-for-1 reverse stock split was effective September 26, 2022, followed by the creation of Class A (one vote) and Class B (ten votes) ordinary shares on March 24, 2023 - A 40-for-1 reverse share split became effective on September 26, 2022[102] - On March 24, 2023, the company created Class A (1 vote/share) and Class B (10 votes/share) ordinary shares[103][104] Sale of Class A Ordinary Shares During the six months ended December 31, 2023, the company sold 3,120,000 Class A shares to its largest shareholder, Vast Ocean Inc., for a total of $780,000 in two private placements - On November 8, 2023, the company sold 1,120,000 Class A shares to Vast Ocean Inc. for $280,000[107] - On November 20, 2023, the company sold an additional 2,000,000 Class A shares to Vast Ocean Inc. for $500,000[109] Shares Issued for Acquisitions The company issued 6.4 million restricted Class A shares valued at $8.0 million for concert performances and 24 million restricted Class A shares valued at $7.2 million for music work rights - In December 2023, the company issued 24,000,000 restricted Class A ordinary shares valued at $7,200,000 to acquire rights to 24 music works[121] - In May 2023, the company agreed to issue 6,400,000 restricted Class A shares valued at $8,000,000 as consideration for nine concert events[120] Warrants As of December 31, 2023, 3,224,983 warrants remained outstanding with a weighted average exercise price of $16.75 and a remaining contractual life of 2.8 years, with no activity during the period Warrant Activity Summary | Date | Warrants Outstanding | Weighted Average Exercise Price ($) | Average Remaining Contractual Life (Years) | | :--- | :--- | :--- | :--- | | June 30, 2023 | 3,224,983 | $16.75 | 3.30 | | December 31, 2023 | 3,224,983 | $16.75 | 2.8 | Note 13 – Loss per shares Basic and diluted loss per share for the six months ended December 31, 2023, was $0.86, a substantial decrease from $81.10 in the prior year, primarily due to a significant increase in weighted average shares outstanding Loss Per Share Calculation (Unaudited) | Item | Six Months Ended Dec 31, 2023 ($) | Six Months Ended Dec 31, 2022 ($) | | :--- | :--- | :--- | | Class A Shares | | | | Allocated undistributed loss | $(20,089,014) | $(12,177,212) | | Weighted average shares | 23,286,243 | 150,146 | | Basic and diluted loss per share | $(0.86) | $(81.10) | | Class B Shares | | | | Allocated undistributed loss | $(1,035,239) | N/A | | Weighted average shares | 1,200,000 | N/A | | Basic and diluted loss per share | $(0.86) | N/A | Note 14 – Commitments and contingencies Management does not anticipate a material adverse impact on the company's financial position, results of operations, or cash flows from various legal actions arising in the ordinary course of business - Management does not expect any material adverse impact from the disposition of various legal actions arising in the ordinary course of business[127] Note 15 – Concentrations of risk The company faces significant vendor concentration risk, with a single vendor accounting for 100% of accounts payable and two vendors for 99% of total purchases, while customer concentration remains low - A single vendor accounted for 100% of the Company's accounts payable as of December 31, 2023[128] - For the six months ended December 31, 2023, two vendors accounted for 76% and 23% of the Company's total purchases[128] - No customer accounted for more than 10% of the Company's total revenue for the six months ended December 31, 2023[129] Note 16 – Subsequent events On January 26, 2024, the company closed a securities purchase agreement, selling 1,500,000 Class A ordinary shares for approximately $600,000 in gross proceeds - On January 26, 2024, the company closed a securities purchase agreement, selling 1,500,000 Class A ordinary shares for gross proceeds of approximately $600,000[130]