VIE Structure and Regulatory Risks - The company operates primarily through a Variable Interest Entity (VIE) structure, which allows it to consolidate financial results under U.S. GAAP despite not holding direct equity interests in its subsidiaries[22]. - The VIE Agreements were established on March 30, 2020, and amended on February 19, 2021, to provide the company with operational control over Xiamen Pop Culture[27]. - The company faces regulatory risks associated with the VIE structure, including potential changes in PRC laws that could impact its operations and the value of its Class A Ordinary Shares[41]. - The company is subject to uncertainties regarding the enforcement of the VIE Agreements, which have not been tested in a court of law in the PRC[41]. - The VIE structure provides exposure to foreign investment in China-based companies, where direct foreign investment is prohibited[22]. - The company may face severe penalties or be forced to relinquish its interests in operations if the VIE Agreements are deemed non-compliant with PRC regulations[81]. - The VIE Agreements may not effectively provide control over Xiamen Pop Culture, potentially impacting the ability to consolidate its financial results[83]. - If the PRC government finds the VIE Agreements in violation of laws, the company may lose the right to consolidate Xiamen Pop Culture's financial results, adversely affecting its financial condition[82]. - The company relies on the performance of Xiamen Pop Culture and its shareholders under the VIE Agreements to exercise control, which may not be guaranteed[86]. - The legal environment in the PRC poses uncertainties that could limit the company's ability to enforce the VIE Agreements, affecting its control over Xiamen Pop Culture[87]. Financial Performance - Total revenue for the fiscal year ended June 30, 2023, was $18,543,243, a significant decrease compared to $32,281,543 in the previous year, representing a decline of approximately 42.5%[72]. - Net income for the fiscal year ended June 30, 2023, was $(25,257,696), compared to a net income of $687,888 in the previous year, indicating a substantial loss[72]. - Total assets as of June 30, 2023, amounted to $39,045,328, a decrease from $64,367,968 in the previous year, reflecting a decline of approximately 39.4%[74][75]. - Total liabilities as of June 30, 2023, were $12,867,180, compared to $11,595,616 in the previous year, showing an increase of approximately 11%[74][75]. - Cash and cash equivalents as of June 30, 2023, were $2,751,309, down from $14,396,032 in the previous year, indicating a decrease of approximately 80.9%[74][75]. - The company reported net cash used in operating activities of $(3,390,075) for the fiscal year ended June 30, 2023, compared to $(11,376,196) in the previous year, showing an improvement[76]. - The company incurred net cash used in investing activities of $(4,600,000) for the fiscal year ended June 30, 2023, compared to $(8,791,583) in the previous year, indicating a reduction in investment outflows[76]. Dividend and Earnings Distribution - As of the annual report date, no earnings have been distributed or settled under the VIE Agreements, and there are no plans to do so in the foreseeable future[57]. - No dividends or distributions have been made to shareholders, and future earnings are intended to finance business expansion[61]. - Under PRC law, dividends can only be paid from retained earnings, and companies must set aside at least 10% of after-tax profits for statutory reserves[63]. - The Company may face restrictions on dividend payments due to PRC foreign exchange regulations, which could limit the ability to pay dividends in foreign currencies[64]. - The Company has not made any cash dividends and does not anticipate paying any in the foreseeable future[61]. Compliance and Regulatory Environment - The company is not currently subject to any cybersecurity review by the Cyberspace Administration of China (CAC) as it does not possess personal information of over one million users[44]. - The company has not received any inquiries, notices, or sanctions from the CSRC, CAC, or other PRC authorities regarding its operations or securities offerings[55]. - The revised Provisions on Strengthening Confidentiality and Archives Administration require domestic companies to obtain approval for disclosing documents containing state secrets[52]. - The company is not required to obtain additional permissions from PRC authorities to maintain its listing status on U.S. exchanges[48]. - The company has not been involved in any investigations related to cybersecurity review initiated by PRC regulatory authorities[44]. - The company may be required to complete filing procedures for future offerings or fundraising activities under the Trial Measures[51]. - There remains uncertainty regarding the interpretation and implementation of new regulatory requirements that may affect the company's future capital-raising activities[53]. - The PCAOB has access to inspect the auditor, WWC, P.C., and if it cannot inspect for three consecutive years, trading may be prohibited under the Holding Foreign Companies Accountable Act[56]. - The company has not received permission from Chinese authorities to list on U.S. exchanges, and future permissions remain uncertain[121]. - New regulations from the CSRC require domestic companies to complete filing procedures for overseas listings within three working days[125]. - The company completed its initial public offering on July 2, 2021, and is currently not required to complete filing procedures under the new Trial Measures[127]. - The Chinese government may impose stricter regulations that could require additional compliance costs for the company[120]. - The company may face increased costs due to compliance with existing and newly adopted laws and regulations[118]. - The legal system in the PRC may present challenges in enforcing legal rights and obtaining necessary information for investigations[109]. - Future government actions could significantly limit the company's ability to offer securities to investors[122]. - The company may incur penalties for failing to comply with new filing requirements set by the CSRC[125]. Market and Operational Risks - The COVID-19 pandemic has significantly impacted the PRC operating entities' business, leading to delays in event execution and a decrease in advertising budgets from clients[204]. - The PRC operating entities' revenue from sponsorship in the Event Hosting business is expected to grow, contingent on the popularity of their hip-hop events and the offline advertising market[201]. - The PRC operating entities have shifted focus to hip-hop events, which may introduce risks and uncertainties in adapting to the evolving hip-hop ecosystem[195]. - The PRC operating entities' ability to retain existing clients is critical, as a significant portion of revenue is derived from a small number of customers[196]. - The PRC operating entities may face sanctions if CSRC approval is required for their offerings in the U.S., which could adversely affect their operations and financial condition[190]. - The popularity of hip-hop events is crucial for the PRC operating entities' success, as changes in consumer preferences could impact sponsorship and advertising demand[207]. - The PRC operating entities' financial performance may continue to be adversely affected by the COVID-19 pandemic in the upcoming fiscal periods[204]. - The PRC operating entities rely on a portfolio of concerts and hip-hop events for revenue generation through sponsorships and ticket sales, which is critical for their growth strategy[208]. - The PRC operating entities face risks related to their contractual obligations, including future payment obligations and minimum attendance guarantees for events, which could adversely affect their financial condition if not met[209]. - The success of live entertainment events is crucial for the PRC operating entities, but these events are susceptible to various risks such as security threats and logistical challenges, which could impact profitability[211]. - The PRC operating entities must maintain strong relationships with local authorities and third-party service providers to ensure successful event execution, as disruptions could harm their operations[219]. - Brand recognition is vital for the PRC operating entities, as failure to enhance their brands could hinder their ability to attract sponsors and clients, affecting overall business performance[220]. - The PRC operating entities' business model is heavily dependent on the success of live events, which require significant logistical capabilities and resources[212]. - Any adverse changes in relationships with third-party service providers could lead to service interruptions and increased costs, negatively impacting the PRC operating entities' financial results[216]. - The PRC operating entities are subject to complex contractual arrangements that impose numerous obligations, and any breach could result in penalties or termination of rights[211]. - The PRC operating entities focus on creating memorable experiences for fans, and any factors that negatively impact these experiences could lead to declining popularity of their events[213].
Pop Culture (CPOP) - 2023 Q4 - Annual Report