Color Star Technology(ADD) - 2024 Q4 - Annual Report

PART I Item 1. Identity of Directors, Senior Management and Advisers This section is not applicable as per the report - The company has indicated that this section is not applicable[13] Item 2. Offer Statistics and Expected Timetable This section is not applicable as per the report - The company has indicated that this section is not applicable[13] Item 3. Key Information This section details significant investment risks related to the company's business model, financial condition, and platform reliance Risk Factors The company faces business risks from its limited operating history and platform dependency, alongside ownership risks like potential delisting - The company has a limited operating history with its current metaverse business model, having entered the industry in January 2022[14][15] - Business success is heavily dependent on the 'Color World' metaverse platform, and failure to achieve market acceptance could materially harm the business[23][25][27] - The company faces significant cybersecurity and data privacy risks, requiring compliance with Singapore's PDPA and evolving PRC data laws[37][44][45] - The company faces intense competition from established online entertainment and metaverse companies with greater resources[55][130] - The company previously failed to meet Nasdaq's minimum bid price requirement but regained compliance, though delisting risk remains[89][90][91] - As a foreign private issuer, the company is exempt from certain SEC rules, potentially offering less protection for investors[105][106][107] Item 4. Information on The Company This section provides an overview of the company's history, business evolution, metaverse platform, and operational segments History and Development of the Company The company transformed from a concrete business to an entertainment technology firm focused on its 'Color World' metaverse platform - The company transitioned from a concrete business to its current entertainment technology focus, completing the disposition in May 2020[113][115] - The 'Color World' online platform launched in 2020 and transformed into a metaverse platform in January 2022[118][128] - On March 24, 2023, the company created Class A (700M) and Class B (100M) Ordinary Shares with a par value of $0.04[123] - The company engaged in significant non-cash transactions, issuing 30.4 million Class A shares for concert rights and copyright acquisition in 2023[124][125] Business Overview The company operates as an entertainment technology firm centered on its 'Color World' metaverse platform integrating AI and celebrity content - The core business is the 'Color World' metaverse platform, focusing on 'artificial intelligence + celebrity entertainment'[127][128] - The Color World platform generates revenue from paid fees for star teachers' video classes and had over 300,000 registered users[136] - The company has expanded into offline events, including organizing World Boxing Association (WBA) approved competitions[142] Customer and Supplier Concentration (FY 2024) | Category | Concentration | Source | | :--- | :--- | :--- | | Customer | One customer accounted for 94% of total sales | For the fiscal year ended June 30, 2024 | | Supplier | One vendor accounted for 90% of total purchases | For the fiscal year ended June 30, 2024 | Organizational Structure This section contains a chart illustrating the company's organizational structure - The report includes an organizational structure chart showing the parent company and its subsidiaries[178] Property, Plants and Equipment The company's principal U.S. executive office is located in a leased shared office space in New York, NY - The company leases a shared office for its U.S. executive offices at 80 Broad Street, 5th Floor, New York, NY 10005[179] Item 5. Operating and Financial Review and Prospects The company's financial review shows a shift in revenue, a reduced net loss, and substantial liquidity challenges and going concern uncertainty Operating Results The company generated $2.8 million in revenue in FY2024 and reduced its net loss to $26.9 million from $37.8 million in FY2023 Consolidated Results of Operations (in USD) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenue | $2,830,442 | $0 | $16,519,081 | | Gross Profit | $837,042 | $0 | $7,972,241 | | Loss from operations | $(27,007,555) | $(37,840,548) | $(78,898,070) | | Net loss | $(26,864,340) | $(37,849,665) | $(77,208,118) | - In FY2024, revenue of approximately $2.8 million was generated from concerts and consulting services, compared to no revenue in FY2023[192] - Net loss decreased by 29% to $26.9 million in FY2024, primarily due to lower Selling, General and Administrative expenses[192][199][202] - Provision for expected credit losses increased by 72% to $16.9 million in FY2024 due to provisions on aged receivables[197] Liquidity and Capital Resources The company's liquidity is critical with minimal cash, and it faces a going concern uncertainty reliant on future financing - As of June 30, 2024, the company had cash and cash equivalents of approximately $20,000[213] - The company's financial statements have been prepared with a going concern uncertainty due to recurring losses and negative cash flows[216][398][435] Summary of Net Cash Flow (in USD) | Activity | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(2,780,452) | $(7,878,729) | $(29,403,078) | | Net cash used in investing activities | $0 | $0 | $(14,219,652) | | Net cash provided by financing activities | $2,561,197 | $7,245,889 | $44,320,854 | - In FY2024, the company raised approximately $2.6 million from financing activities, including a private placement and a convertible note[215][224] Research and Development, Patents and Licenses, etc. R&D expenses were zero in FY2024, and the company holds significant intangible assets, primarily copyrights valued at $17.0 million - Research and development expenses were $0 in FY2024, down from $0.1 million in FY2023 and $68.3 million in FY2022[230] - As of June 30, 2024, the company held copyrights valued at approximately $17.0 million, net of amortization[231] Critical Accounting Estimates Critical accounting policies involve management estimates for long-lived asset impairment, stock-based compensation, and income taxes - Critical accounting estimates include accounting for long-lived assets, stock-based compensation, and income taxes[233][235][238][239] Item 6. Directors, Senior Management and Employees This section details the company's leadership, compensation, board committee structure, and share ownership information Directors and Senior Management The report identifies the key executive officers and the board of directors, which includes five independent directors Executive Officers and Directors | Name | Position/Title | | :--- | :--- | | Wei Zhang | Chairman of the Board and Director | | Louis Luo | Director and Chief Executive Officer | | Lili Jiang | Chief Financial Officer | | Ahmed Essa Mohammad Saleh | Independent Director | | Muhammad Irfan | Independent Director | | Ahmad Khalfan Ahmad Saeed Almansoori | Independent Director | | Hung-Jen Kuo | Independent Director | | Honglei Jiang | Independent Director | Compensation This subsection details executive and non-executive director compensation for fiscal years 2024 and 2023 Named Executive Officer Compensation (Total) | Name and Principal Position | Year | Total Compensation ($) | | :--- | :--- | :--- | | Wei Zhang, Chairman | 2024 | 195,696 | | | 2023 | 449,450 | | Louis Luo, CEO | 2024 | 116,937 | | | 2023 | 53,175 | | Lili Jiang, CFO | 2024 | 124,283 | | | 2023 | 300,663 | - Each of the five non-executive directors earned $36,000 in cash fees for their service in the fiscal year ended June 30, 2024[257] Board Practices The company has established three fully independent board committees: Audit, Compensation, and Corporate Governance and Nominating - The company has three board committees: Audit, Compensation, and Corporate Governance and Nominating, all composed of independent directors[261] - The Audit Committee members are Ahmad Khalfan Ahmad Saeed Almansoori, Hung-Jen Kuo, and Honglei Jiang (Chairman)[262] Share Ownership No director or executive officer beneficially owns 1% or more of the company's shares as of October 14, 2024 - As of October 14, 2024, there were 60,263,696 Class A and 1,200,000 Class B Ordinary Shares outstanding[269] - No director or executive officer beneficially owns 1% or more of the company's shares; the largest shareholder listed is Vast Ocean, Inc. at 3.85%[269] Item 7. Major Shareholders and Related Party Transactions This section discloses related party transactions, primarily consisting of outstanding loans from company executives totaling $761,197 Other Payables - Related Parties (as of June 30) | Name of Related Party | Relationship | 2024 | 2023 | | :--- | :--- | :--- | :--- | | Wei Zhang | Chairman of the Board | $198,110 | $0 | | Hui Xu | General Manager of CACM | $560,000 | $580,000 | | Louis Luo | CEO | $3,087 | $0 | | Total | | $761,197 | $580,000 | Item 8. Financial Information The company has no material legal proceedings and does not plan to pay dividends, retaining earnings for business expansion - The company has never declared or paid any dividends and does not anticipate doing so, intending to retain all future earnings[274] - There are no material legal proceedings against the company as of the report date[273] Item 9. The Offer and Listing The company's Class A ordinary shares are listed on the Nasdaq Capital Market under the ticker symbol 'ADD' - The company's Class A ordinary shares are traded on the Nasdaq Capital Market under the symbol 'ADD'[276] Item 10. Additional Information This section details the company's corporate governance as a Cayman Islands entity and outlines material tax consequences for investors Memorandum and Articles of Association The company is a Cayman Islands entity with Class A (1 vote) and Class B (10 votes) shares and anti-takeover provisions - The company is a Cayman Islands exempted company with authorized share capital of $32,000,000, divided into 700,000,000 Class A and 100,000,000 Class B shares[278][279] - Class A ordinary shares have one vote per share, while Class B ordinary shares have ten votes per share and are convertible into Class A shares[514] - Anti-takeover provisions include the Board's authority to issue preferred shares without shareholder vote[296] Taxation This subsection details tax implications, including a significant risk of the company being classified as a Passive Foreign Investment Company (PFIC) - The Cayman Islands does not levy taxes on profits, income, gains, or appreciation[332] - There is a risk the company could be classified as a PRC resident enterprise, subjecting non-PRC shareholders to withholding taxes[333] - The company may be classified as a Passive Foreign Investment Company (PFIC) for U.S. tax purposes, which could result in adverse tax rules for U.S. Holders[350][351][356] Item 11. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risks are liquidity risk, inflation risk, and interest rate risk - The company is exposed to liquidity risk, which is the risk of being unable to provide sufficient capital to meet its commitments[365] - Other identified market risks include inflation and interest rate risk related to cash deposits and future debt[365][366] Item 12. Description of Securities Other than Equity Securities This section is not applicable as per the report - The company has indicated that this section is not applicable[366] PART II Item 13. Defaults, Dividend Arrearages and Delinquencies This section is not applicable as per the report - The company has indicated that this section is not applicable[367] Item 14. Material Modifications to the Rights of Security Holders and Use Of Proceeds No material modifications to security holder rights were reported for the year ended June 30, 2022 - The company re-domiciled from Nevada to the Cayman Islands in 2018 but reported no material modifications to security holder rights for the year ended June 30, 2022[368] Item 15. Controls And Procedures Management concluded that disclosure controls and procedures were not effective due to material weaknesses in internal control - Management concluded that disclosure controls and procedures were not effective as of June 30, 2024, due to material weaknesses[369] - Identified material weaknesses include a lack of personnel with U.S. GAAP expertise and ineffective supervision of controls[369] - The remediation plan includes establishing an internal audit function or engaging an external consulting firm[371] Item 16A. Audit Committee Financial Expert The board has determined that Honglei Jiang, an independent director, qualifies as an 'audit committee financial expert' - The board has identified Honglei Jiang as the audit committee financial expert[372] Item 16B. Code Of Ethics The company has adopted a Code of Conduct and Ethics that applies to all directors, officers, and employees - A Code of Conduct and Ethics has been adopted and applies to all directors, officers, and employees[373] Item 16C. Principal Accountant Fees and Services This section details fees paid to external auditors, which totaled $148,110 in 2024 and $293,230 in 2023 Principal Accountant Fees (in USD) | Fee Category | Year Ended June 30, 2024 | Year Ended June 30, 2023 | | :--- | :--- | :--- | | Audit fees | $148,110 | $279,000 | | Audit related fees | $0 | $0 | | Tax fees | $0 | $0 | | All other fees | $0 | $14,230 | | Total | $148,110 | $293,230 | Item 16G. Corporate Governance As a foreign private issuer, the company follows home country practices in lieu of certain Nasdaq corporate governance rules - The company, as a foreign private issuer, follows its home country practice instead of Nasdaq's shareholder approval requirements for certain share issuances[380] Item 16K. Cybersecurity The board oversees cybersecurity risk, and no material incidents occurred in FY2024, though formal policies are not yet implemented - The Board of Directors oversees cybersecurity risk, while the R&D team handles day-to-day management[385] - In fiscal year 2024, the company did not encounter any material cybersecurity incidents and intends to adopt formal policies[383] PART III Item 17. Financial Statements The company has elected to provide financial statements pursuant to Item 18 - The company has elected to provide financial statements as required by Item 18, rather than Item 17[387] Item 18. Financial Statements This section contains the company's audited consolidated financial statements, which include a going concern uncertainty warning Report of Independent Registered Public Accounting Firm The auditor's report expresses substantial doubt about the company's ability to continue as a going concern - The auditor's report includes an explanatory paragraph raising substantial doubt about the Company's ability to continue as a going concern[398][403] - The audit identified two critical audit matters: the going concern evaluation and the impairment assessment on intangible assets[403][404][405] Consolidated Balance Sheets The balance sheet shows total assets of $27.6 million, total liabilities of $9.1 million, and shareholders' equity of $18.5 million Consolidated Balance Sheet Highlights (as of June 30, in USD) | Account | 2024 | 2023 | | :--- | :--- | :--- | | Total current assets | $10,473,112 | $16,047,031 | | Intangible assets, net | $17,006,083 | $13,966,083 | | Total assets | $27,591,648 | $30,042,203 | | Total current liabilities | $9,057,321 | $5,325,768 | | Total liabilities | $9,065,904 | $5,325,768 | | Total shareholders' equity | $18,525,744 | $24,716,435 | Consolidated Statements of Operations For FY2024, the company reported revenues of $2.8 million and a net loss of $26.9 million, or $(0.71) per share Consolidated Statement of Operations (for the year ended June 30, in USD) | Metric | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Revenue | $2,830,442 | $0 | $16,519,081 | | Gross Profit | $837,042 | $0 | $7,972,241 | | Loss from Operations | $(27,007,555) | $(37,840,548) | $(78,898,070) | | Net Loss | $(26,864,340) | $(37,849,665) | $(77,208,118) | | Loss per share (basic and diluted) | $(0.71) | $(4.13) | $(19.90) | Consolidated Statements of Cash Flows Net cash used in operations was $2.8 million, while financing activities provided $2.6 million, ending the year with $20,218 in cash Consolidated Statement of Cash Flows (for the year ended June 30, in USD) | Cash Flow Category | 2024 | 2023 | 2022 | | :--- | :--- | :--- | :--- | | Net cash used in operating activities | $(2,780,452) | $(7,878,729) | $(29,403,078) | | Net cash used in investing activities | $0 | $0 | $(14,219,652) | | Net cash provided by financing activities | $2,561,197 | $7,245,889 | $44,320,854 | | Net change in cash and cash equivalents | $(219,255) | $(632,840) | $698,124 | | Cash and cash equivalents, end of year | $20,218 | $239,473 | $872,313 | Notes to Consolidated Financial Statements The notes detail accounting policies, going concern uncertainty, significant risk concentrations, and subsequent financing events - A going concern uncertainty is disclosed, citing recurring losses and an accumulated deficit of approximately $212.1 million[435] - For FY2024, one customer accounted for 94% of sales and one vendor accounted for 90% of purchases, indicating significant concentration risk[538][539] - In July 2023, the company issued a convertible promissory note for gross proceeds of $1.0 million[495] - Subsequent to the fiscal year-end, the company raised approximately $8.0 million through additional convertible note financing[540][542] Item 19. Exhibits This section lists all exhibits filed with the annual report, including articles of association, material contracts, and required certifications - The report includes a list of all filed exhibits, such as the Fifth Amended and Restated Memorandum and Articles of Association and required CEO/CFO certifications[389]