Zeta Network Group 6-K, filed Jun 29, 2022
Zeta Network Group (ZNB)
About this 6-K
Zeta Network Group filed this 6-K on June 29, 2022.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form
REPORT OF FOREIGN PRIVATE ISSUER PURSUANT TO RULE 13a-16 OR 15d-16
UNDER
THE SECURITIES EXCHANGE ACT OF 1934
For
the month of June
Commission
File Number:
(Translation of registrant’s name into English)
7
World Trade Center, Suite 4621
New York, NY 10007
Tel: +1 (929) 317-2699
(Address of principal executive office)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐
Note: Regulation S-T Rule 101(b)(1) only permits the submission in paper of a Form 6-K if submitted solely to provide an attached annual report to security holders.
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐
Note: Regulation S-T Rule 101(b)(7) only permits the submission in paper of a Form 6-K if submitted to furnish a report or other document that the registrant foreign private issuer must furnish and make public under the laws of the jurisdiction in which the registrant is incorporated, domiciled or legally organized (the registrant’s “home country”), or under the rules of the home country exchange on which the registrant’s securities are traded, as long as the report or other document is not a press release, is not required to be and has not been distributed to the registrant’s security holders, and, if discussing a material event, has already been the subject of a Form 6-K submission or other Commission filing on EDGAR.
EXPLANATORY NOTE
Color Star Technology Co., Ltd. (the “Company”) is furnishing this Form 6-K to provide six-month interim financial statements and incorporate such financial statements into the Company’s registration statements referenced below.
This Form 6-K is hereby incorporated by reference into the registration statements of the Company on Form S-8 (Registration Number 333-257918 and Registration Number 333-265067) and on Form F-3, as amended (Registration Number 333-256508 and Registration Number 333-236616), to the extent not superseded by documents or reports subsequently filed or furnished by the Company under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.
Financial Statements and Exhibits.
Exhibits
| Exhibit No. | Description | |
| 99.1 | Unaudited Interim Consolidated Financial Statements as of December 31, 2021 and June 30, 2021 and for the Six Months Ended December 31, 2021 and 2020. | |
| 99.2 | Operating and Financial Review and Prospects in Connection with the Interim Consolidated Financial Statements for the Six Months Ended December 31, 2021 | |
| 101.INS | XBRL Instance Document | |
| 101.SCH | XBRL Taxonomy Extension Schema Document | |
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
1
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: June 29, 2022
| COLOR STAR TECHNOLOGY CO., LTD. | ||
| By: | /s/ Lili Jiang | |
| Name: | Lili Jiang | |
| Title: | Chief Financial Officer | |
2
Exhibit 99.1
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
| December 31, | June 30, | |||||||
| 2021 | 2021 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| CURRENT ASSETS: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Other receivables | ||||||||
| Prepayments | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS | ||||||||
| Prepayments | ||||||||
| Property, plant and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Other payables and accrued liabilities | $ | $ | ||||||
| Other payables - related parties | ||||||||
| Deferred revenue | ||||||||
| Total current liabilities | ||||||||
| Total liabilities | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| SHAREHOLDERS’ EQUITY: | ||||||||
| Ordinary shares, $ | ||||||||
| Additional paid-in-capital | ||||||||
| Deferred stock compensation | ( | ) | ( | ) | ||||
| Deficit | ( | ) | ( | ) | ||||
| Total shareholders’ equity | ||||||||
| Total liabilities and shareholders’ equity | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
1
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| REVENUE | $ | $ | ||||||
| COST OF REVENUE | ( | ) | ( | ) | ||||
| GROSS PROFIT | ||||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | ( | ) | ( | ) | ||||
| RESEARCH AND DEVELOPMENT EXPENSES | ( | ) | ( | ) | ||||
| STOCK COMPENSATION EXPENSE | ( | ) | ( | ) | ||||
| LOSS FROM OPERATIONS | ( | ) | ( | ) | ||||
| OTHER INCOME (EXPENSE), NET | ||||||||
| Other income, net | ||||||||
| Interest income | ||||||||
| Finance expense | ( | ) | ( | ) | ||||
| TOTAL OTHER INCOME (EXPENSE), NET | ||||||||
| LOSS BEFORE PROVISION FOR INCOME TAXES | ( | ) | ( | ) | ||||
| PROVISION FOR INCOME TAXES | ||||||||
| NET LOSS | $ | ( | ) | ( | ) | |||
| LOSS PER ORDINARY SHARE | ||||||||
| Weighted average number of shares: | ||||||||
| Basic and diluted | ||||||||
| Loss per share: | ||||||||
| Basic and diluted | $ | ( | ) | $ | ( | ) | ||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
2
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
| Ordinary shares | Additional | Deferred | Total | |||||||||||||||||||||
| Number | Par | paid-in | stock | shareholders’ | ||||||||||||||||||||
| of shares | amount | capital | compensation | Deficit | equity | |||||||||||||||||||
| BALANCE, June 30, 2020 | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Sale of ordinary shares | - | - | ||||||||||||||||||||||
| Ordinary shares issued for warrants conversion | ||||||||||||||||||||||||
| Ordinary shares issued for acquisition of equipment | ||||||||||||||||||||||||
| Ordinary shares issued for services | ( | ) | ||||||||||||||||||||||
| Ordinary shares issued for compensation | ||||||||||||||||||||||||
| Unvested restricted ordinary shares issued to officer | - | - | ( | ) | ||||||||||||||||||||
| Forfeiture of unvested restricted ordinary shares | - | - | ( | ) | ||||||||||||||||||||
| Stock compensation expense | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||
| BALANCE, December 31, 2020 (Unaudited) | $ | $ | $ | ( | ) | $ | ( | ) | $ | |||||||||||||||
| Ordinary shares | Additional | Deferred | Total | |||||||||||||||||||||
| Number | Par | paid-in | stock | shareholders’ | ||||||||||||||||||||
| of shares | amount | capital | compensation | Deficit | equity | |||||||||||||||||||
| BALANCE, June 30, 2021 | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
| Sale of ordinary shares | ||||||||||||||||||||||||
| Ordinary shares issued for compensation | ( |
) | ||||||||||||||||||||||
| Forfeiture of unvested restricted ordinary shares | - | - | ( |
) | ||||||||||||||||||||
| Stock compensation expense | - | - | - | |||||||||||||||||||||
| Net loss | - | - | - | - | ( |
) | ( |
) | ||||||||||||||||
| BALANCE, December 31, 2021 (Unaudited) | $ | $ | $ | ( |
) | $ | ( |
) | $ | |||||||||||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
3
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| For the Six Months Ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | ( | ) | $ | ( | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Depreciation | ||||||||
| Amortization | ||||||||
| Stock compensation expense | ||||||||
| Gain on debt settlement | ( | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | ( | ) | ||||||
| Other receivables | ( | ) | ||||||
| Prepayments | ( | ) | ( | ) | ||||
| Other payables and accrued liabilities | ||||||||
| Deferred revenue | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Purchase of intangible assets | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Proceeds from sale of ordinary shares, net of offering costs | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Borrowings from related parties | ||||||||
| 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: | ||||||||
| Ordinary shares issued for acquisition of equipment | $ | $ | ||||||
| OTHER NON-CASH TRANSACTIONS: | ||||||||
| Other receivables offset with payments for equipment purchase | $ | $ | ||||||
| Prepayment offset with other payables for debt settlement | $ | $ | ||||||
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 1 – Organization and description of business
Color Star Technology Co., Ltd. (the “Company” or “Color Star”) is an entertainment and education company which provides online entertainment performances and online music education services via its wholly-owned subsidiary, Color China Entertainment Limited (“Color China”).
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
Baytao LLC (“Baytao”)
On March 10, 2020, CACM entered into a joint venture agreement (the “JV Agreement”) with Baydolphin, Inc. (“Baydolphin”), a company organized under the laws of New York. Pursuant to the JV Agreement,
| ● | CACM
and Baydolphin established a limited liability company under the laws of New York, Baytao, which will be the |
| ● | The business of Baytao shall be managed by the Board of Managers of Baytao. |
| ● | CACM shall appoint three designees to the Board of Managers of Baytao and Baydolphin shall appoint two designees. The General Manager of Baytao shall be appointed by CACM and report to the Board of Managers. |
| ● | CACM shall contribute necessary capital for the operating entities to fund their operations and obtain the right to use the software platform and other technologies from Color Star, which will be provided to the JV and its operating entities for no charge to facilitate their operations and provide online classes to their registered students, and Baydolphin shall be responsible for managing these entities with its expertise in after-school education, including but not limited to recruiting and training personnel and implementing all promotional and marketing activities. |
| ● | Eighty
percent ( |
On June 29, 2021, CACM (the “Seller”)
entered into a share purchase agreement (the “Agreement”) with Baydolphin (the “Buyer”). Pursuant to the Agreement,
the Seller agreed to sell, and the Buyer agreed to purchase
5
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Color China
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 China, a Hong Kong limited company, and shareholders of
Color China (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 China from the sellers (the “Acquisition”). Pursuant to
the Exchange Agreement, in exchange for all of the outstanding shares of Color China, the Company agreed to issue
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. As of the date of this report, Modern Pleasure has not commenced operations.
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.
Note 2 – Summary of significant accounting policies
Basis of presentation
The accompanying 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 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, 2021 on Form 20-F filed with the SEC on November 1, 2021.
Principles of consolidation
The consolidated financial statements reflect the activities of the following subsidiaries. All material intercompany transactions and balances have been eliminated.
| Subsidiaries | Place incorporated | Ownership percentage |
||||
| CACM | % | |||||
| Color China | % | |||||
| Modern Pleasure | % | |||||
6
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Use of estimates and assumptions
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. The significant estimates and assumptions made in the preparation of the Company’s consolidated financial statements include the allowance for doubtful accounts of other receivables, prepayments and advances and deferred income taxes, 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.
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.
With the acquisition of Color China, the Company plans to offer the following services:
| (a) | Online education academy |
The Company earns revenues from its customers for subscription and tuition fees in connection with online courses to be instructed by individuals with extensive experience in the entertainment and/or music industries. The Company offers membership services to subscribing members with various privileges, which primarily include access to free courses, exclusive VIP courses, on-demand contents (such as online concerts), and others.
When the receipt of membership fees is for services to be delivered over a period of time, the receipt is initially recorded as “deferred revenue” on the consolidated balance sheets and revenue is recognized ratably over the membership period as services are rendered, usually one year. Membership services revenue also includes fees earned from subscribing members for on-demand content purchases and early access to premium content. The Company is principal in its relationships where its partners, including artist agents, mobile operators, internet service providers and online payment agencies, provide access to the membership services or payment processing services as the Company retains control over its service delivery to its subscribing members. Typically, payments made to its partners, are recorded as cost of revenues and as research and development expenses prior to any revenues being generated in this revenue stream.
7
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
| (b) | Online concert |
The Company holds online concerts with its star partners. Sale of online concert via subscription fee is accounted for as a single performance obligation which is satisfied at a point in time on the day of the event. Online concert subscription fees are recognized net of App payment collections agent service fee. All ticket sales are final upon payment.
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.
Disaggregated information of revenues by services are as follows:
| For the Six Months Ended | ||||||||
| December 31, | ||||||||
| 2021 | 2020 | |||||||
| Online music education academy subscription | $ | $ | ||||||
| Online concert subscription | ||||||||
| Total revenue | $ | $ | ||||||
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.
8
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Other receivables
Other receivables primarily include security deposit and prepayment for online concert productions to be refunded. Management regularly reviews the age of these receivables and changes in payment trends and will record an allowance for uncollectible balances when management believes collection of amounts due is at risk. Accounts considered uncollectible are written off against the allowance after exhaustive efforts at collection are made.
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.
Prepayments, non-current
Prepayments, non-current represent cash deposited or advanced for software development expenditure.
Property, plant and equipment
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
The estimated useful lives of assets are as follows:
| Useful life | ||
| Performance equipment | ||
| Office equipment |
Intangible assets, net
Intangible assets are stated at cost, less accumulated
amortization. Amortization expense is recognized on the straight-line basis over the estimated useful lives of the assets. The Company
has obtained copyrights to use the online education academy courses for 3 years to unlimited years. The Company amortizes the copyrights
with limited useful life over their useful life using the straight-line method and amortizes the copyrights with unlimited useful life
over
Accounting for long-lived assets
The Company classifies its long-lived assets into: (i) performance equipment, (ii) office equipment and (iii) 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.
9
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2021 and 2020.
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.
Deferred revenue
Deferred revenue represents the Color World Platform subscription fees collected from its members in advance of the revenue being recognized in accordance with the Company’s revenue recognition policy as discussed above.
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.
As of December 31, 2021 and June 30, 2021, the Company does not have any lease with an initial term of more than 12 months.
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.
10
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The Company records stock-based compensation expense for non-employees at fair value on the grant date and recognizes the expense over the service provider’s requisite service period.
Income taxes
The Company accounts for income taxes in accordance with FASB ASC 740, “Income Taxes,” which requires the Company to use the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the tax consequences of temporary differences by applying enacted statutory tax rates applicable to future years to differences between financial statement carrying amounts and the tax bases of existing assets and liabilities and operating loss and tax credit carry forwards. Under this accounting standard, the effect on deferred income taxes of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recognized if it is more likely than not that some portion, or all of, a deferred tax asset will not be realized.
ASC 740-10, “Accounting for Uncertainty
in Income Taxes,” defines uncertainty in income taxes and the evaluation of a tax position as a two-step process. The first step
is to determine whether it is more likely than not that a tax position will be sustained upon examination, including the resolution of
any related appeals or litigation based on the technical merits of that position. The second step is to measure a tax position that meets
the more-likely-than-not threshold to determine the amount of benefit to be recognized in the financial statements. A tax position is
measured at the largest amount of benefit that has a greater than
Earnings (loss) per share
The Company reports earnings (loss) per share in accordance with U.S. GAAP, which requires presentation of basic and diluted earnings (loss) per share in conjunction with the disclosure of the methodology used in computing such earnings per share. Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average common shares outstanding during the period. Diluted earnings per share takes into account the potential dilution that could occur if securities or other contracts, such as warrants, options, restricted stock-based grants and convertible preferred stock, to issue ordinary shares were exercised and converted into ordinary shares. Ordinary share equivalents having an anti-dilutive effect on earnings per share are excluded from the calculation of diluted earnings per share.
Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase ordinary shares at the average market price during the period. When the Company has a loss, no potential dilutive items are included since they would be antidilutive.
Stock dividends or stock splits are accounted for retroactively if the stock dividends or stock splits occur during the period, or retroactively if the stock dividends or stock splits occur after the end of the period but before the release of the financial statements, by considering it effective as of the beginning of the earliest period presented.
Recent Accounting Pronouncements
In May 2019, the FASB issued ASU 2019-05, which is an update to ASU Update No. 2016-13, Financial Instruments—Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which introduced the expected credit losses methodology for the measurement of credit losses on financial assets measured at amortized cost basis, replacing the previous incurred loss methodology. The amendments in Update 2016-13 added Topic 326, Financial Instruments—Credit Losses, and made several consequential amendments to the Codification. Update 2016-13 also modified the accounting for available-for-sale debt securities, which must be individually assessed for credit losses when fair value is less than the amortized cost basis, in accordance with Subtopic 326-30, Financial Instruments— Credit Losses—Available-for-Sale Debt Securities. The amendments in this Update address those stakeholders’ concerns by providing an option to irrevocably elect the fair value option for certain financial assets previously measured at amortized cost basis. For those entities, the targeted transition relief will increase comparability of financial statement information by providing an option to align measurement methodologies for similar financial assets. Furthermore, the targeted transition relief also may reduce the costs for some entities to comply with the amendments in Update 2016-13 while still providing financial statement users with decision-useful information. ASU 2019-05 is effective for the Company for annual and interim reporting periods beginning July 1, 2023 as the Company is qualified as a smaller reporting company. The Company is currently evaluating the impact ASU 2019-05 may have on the Company’s consolidated financial statements.
11
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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 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 consolidated financial statements.
Note 3 – Accounts receivable
Accounts receivable consisted of the following:
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Color World platform subscription fees due from App payment collections agent | $ | $ | ||||||
No provision for allowance on doubtful accounts was recognized for the six months ended December 31, 2021 and 2020.
Note 4 – Other receivables
Other receivables consisted of the following:
| December 31, 2021 |
June 30, 2021 |
|||||||
| (Unaudited) | ||||||||
| Rent deposit | $ | $ | ||||||
| Total | $ | $ | ||||||
12
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 5 – Prepayments
Prepayments, current, consisted of the following:
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Prepayment for online concert productions | $ | $ | ||||||
| Prepayment for live concert productions | ||||||||
| Prepayment for program license fees | ||||||||
| Prepayment for rent | ||||||||
| Prepayment for advertisement | ||||||||
| Total | $ | $ | ||||||
Prepayments, non-current, consisted of the following:
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Prepayment for software development expenditure | $ | $ | ||||||
Note 6 – Property, plant and equipment, net
Property, plant and equipment consist of the following:
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Performance equipment | $ | $ | ||||||
| Office equipment | ||||||||
| Total | ||||||||
| Less: Accumulated depreciation | ( | ) | ( | ) | ||||
Carrying amount | $ | $ | ||||||
Depreciation expense was $
Note 7 – Intangible assets, net
Intangible assets consist of the following:
| December 31, 2021 |
June 30, 2021 |
|||||||
| (Unaudited) | ||||||||
| Copyrights of online education academy courses | $ | $ | ||||||
| Less: Accumulated amortization | ( |
) | ( |
) | ||||
| Carrying amount | $ | $ | ||||||
Amortization expense was $
13
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 8 – Related party transactions
Other payables – related parties
Other payables – related party consisted of the following:
| Name of Related Party | Relationship | Nature | December 31, 2021 | June 30, 2021 | ||||||||
| (Unaudited) | ||||||||||||
| Weili He | $ | $ | ||||||||||
| Hui Xu | ||||||||||||
| Jehan Zeb Khan | ||||||||||||
| Total | $ | $ | ||||||||||
Note 9 – Deferred revenue
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Color World platform subscription fees collected in advance of revenue recognition | $ | $ | ||||||
Note 10 – Leases
The Company determines if a contract contains a lease at inception. US GAAP requires that the Company’s leases be evaluated and classified as operating or finance leases for financial reporting purposes. The classification evaluation begins at the commencement date and the lease term used in the evaluation includes the non-cancellable period for which the Company has the right to use the underlying asset, together with renewal option periods when the exercise of the renewal option is reasonably certain and failure to exercise such option which result in an economic penalty.
The one-year maturity of the Company’s lease obligations is presented below:
| Twelve Months Ending December 31, | Operating Lease Amount | ||||
| 2022 | $ | ||||
| Total lease payments | $ | ||||
Operating lease expenses are included in general
and administrative expenses. Total operating lease expenses were approximately $
14
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 11 – Income taxes
| (a) | Corporate income tax |
Color Star
Under the current laws of the Cayman Islands, Color Star is not subject to tax on income or capital gains. Additionally, upon payments of dividends to the shareholders, no Cayman Islands withholding tax will be imposed.
CACM
CACM is organized in the New York State in the
United States. CACM had no taxable income for the U.S. income tax purposes for the six months ended December 31, 2021 and 2020. The applicable
tax rate is
Color China and Modern Pleasure
Color China and Modern Pleasure are organized
in Hong Kong and is subject to Hong Kong Profits Tax on the taxable income as reported in its statutory financial statements adjusted
in accordance with relevant Hong Kong tax laws. The applicable tax rate is
Loss before provision for income taxes consisted of:
| For the six months ended December 31, 2021 | For the six months ended December 31, 2020 | |||||||
| (Unaudited) | (Unaudited) | |||||||
| Cayman | $ | ( | ) | $ | ( | ) | ||
| United States | ( | ) | ( | ) | ||||
| Hong Kong | ( | ) | ||||||
| $ | ( | ) | $ | ( | ) | |||
Significant components of deferred tax assets were as follows:
| December 31, 2021 | June 30, 2021 | |||||||
| (Unaudited) | ||||||||
| Deferred tax assets | ||||||||
| Net operating loss carryforward in the U.S. | ||||||||
| Net operating loss carryforward in Hong Kong | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Total net deferred tax assets | $ | $ | ||||||
As of December 31, 2021 and June 30, 2021, CACM’s
net operating loss carry forward for the U.S. income taxes was approximately $
15
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2021 and June 30, 2021, Color China and Modern Pleasure’s net operating loss carry forward for the Hong Kong income taxes was approximately $0.6 million and $0.6 million, receptively. The net operating loss carry forwards are available to reduce future years’ taxable income for unlimited years. Management believes that the realization of the benefits from these losses appears uncertain due to the Company’s operating history and continued losses in Hong Kong. If the Company is unable to generate taxable income in its Hong Kong operations, it is more likely than not that it will not have sufficient income to utilize its deferred tax assets. Accordingly, the Company has provided a 100% valuation allowance on its net deferred tax assets of approximately $95,000 and $95,000 related to its Hong Kong operations as of December 31, 2021 and June 30, 2021, respectively.
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, 2021 and June 30, 2021, 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, 2021 and 2020, the Company did not incur any tax related interest or penalties.
Note 12 – Shareholders’ equity
Increase in Authorized Shares
Sale of Ordinary Shares
In July 2020, the Company sold
In September 2020, the Company entered into an
agreement to sell a Purchaser an aggregate of up to
In September 2020, the Company sold
On February 18, 2021, the Company entered into
certain securities purchase agreement (the “SPA”) with certain non-U.S. Persons (the “Purchasers”) as defined
in Regulation S of the Securities Act of 1933, as amended pursuant to which the Company agreed to sell an aggregate of
16
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On March 25, 2021, the Company entered into a
Securities Purchase Agreement (the “First Purchase Agreement”) with Wang MinYe (the “First Purchaser”), pursuant
to which the Company agreed to sell to the First Purchaser in a private placement
On March 25, 2021, the Company entered into a
Securities Purchase Agreement (the “Second Purchase Agreement”) with Lin YiHan (the “Second Purchaser”), pursuant
to which the Company agreed to sell to the Second Purchaser in a private placement
On March 27, 2021, the Company entered into a
Securities Purchase Agreement (the “Third Purchase Agreement”) with Zubair Ahsan (the “Third Purchaser”), pursuant
to which the Company agreed to sell to the First Purchaser in a private placement
On March 27, 2021, the Company entered into a
Securities Purchase Agreement (the “Fourth Purchase Agreement”) with Ullah Sabar (the “Fourth Purchaser”), pursuant
to which the Company agreed to sell to the Second Purchaser in a private placement
On March 27, 2021, the Company entered into a
Securities Purchase Agreement (the “Fifth Purchase Agreement”) with Li Yan (the “Fifth Purchaser”), pursuant to
which the Company agreed to sell to the Fifth Purchaser in a private placement
On March 27, 2021, the Company entered into a
Securities Purchase Agreement (the “Sixth Purchase Agreement”) with Ahmed Muhammad Abrar (the “Sixth Purchaser”),
pursuant to which the Company agreed to sell to the Sixth Purchaser in a private placement
On September 24, 2021, the Company and certain
institutional investors entered into a securities purchase agreement (“SPA”), pursuant to which the Company agreed to
sell such institutional investors units with each unit consisting of one ordinary share and one warrant to purchase
17
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Restricted Stock Grants
Restricted stock grants are measured based on the market price on the grant date. The Company has granted restricted ordinary shares to the members of the board of directors (the “Board”), senior management and consultants.
In July 2020, the Board granted an aggregate of
In June 2021, the Board granted an aggregate of
In December 2021, the Board granted an aggregate
of
For the six months ended December 31, 2021 and
2020, the Company recognized approximately $
Following is a summary of the restricted stock grants:
| Restricted stock grants | Shares | Weighted Average Grant Date Fair Value Per Share |
Aggregate Intrinsic Value |
|||||||||
| Unvested as of June 30, 2020 | $ | $ | ||||||||||
| Forfeited | ( |
) | $ | |||||||||
| Granted | $ | |||||||||||
| Vested | ( |
) | $ | |||||||||
| Unvested as of June 30, 2021 | $ | |||||||||||
| Forfeited | ( |
) | $ | |||||||||
| Granted | $ | |||||||||||
| Vested | ( |
) | $ | |||||||||
| Unvested as of December 31, 2021 (Unaudited) | $ | $ | ||||||||||
Ordinary Shares Issued for Compensation
In December 2020, the Board granted an aggregate
of
In January 2021, the Board granted an aggregate
of
In March 2021, the Board granted an aggregate
of
18
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
In August 2021, the Board granted an aggregate
of
For the six months ended December 31, 2021 and
2020, the Company recorded approximately $
Ordinary Shares Issued for Services
In October 2020, the Board granted an aggregate
of
For the six months ended December 31, 2021 and
2020, the Company amortized approximately $
Ordinary Shares Issued for Acquisitions
In August 2020, the Company issued
In February 2021, the Company issued
Conversion of Warrants into Ordinary Shares
During the six months ended December 31, 2020,
the Company’s warrants holders converted a total of
Warrants
In a connection with the private placement in July 2020 for the sale of 3,225,000 ordinary shares, the Company also sold warrants (“Direct Offering Warrants”) to purchase an aggregate of up to an aggregate of 2,096,252 ordinary shares to certain institutional investors on July 20, 2020. The warrants are exercisable immediately, at an exercise price of $1.50 per Ordinary Share and expire 5.5 years from the date of issuance. The fair value of this Direct Offering Warrants was $2,901,119, which was considered a direct cost of the direct offering and included in additional paid-in capital. The fair value has been estimated using the Black-Scholes pricing model with the following assumptions: market value of underlying share of $1.59, risk free rate of 0.34%; expected term of 5.5 years; exercise price of the warrants of $1.50, volatility of 128%; and expected future dividends of 0%.
In a connection with the private placement in September 2020 for the sale of 13,200,000 ordinary shares, the Company also sold warrants (“Direct Offering Warrants”) to purchase an aggregate of up to an aggregate of 11,880,000 ordinary shares to certain institutional investors on September 15, 2020. The warrants are exercisable immediately, at an exercise price of $0.55 per Ordinary Share and expire 5.5 years from the date of issuance. The fair value of this Direct Offering Warrants was $8,403,557, which was considered a direct cost of the direct offering and included in additional paid-in capital. The fair value has been estimated using the Black-Scholes pricing model with the following assumptions: market value of underlying share of $0.79, risk free rate of 0.32%; expected term of 5.5 years; exercise price of the warrants of $0.55, volatility of 130%; and expected future dividends of 0%.
19
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
On February 18, 2021, the Company entered into
certain securities purchase agreement (the “SPA”) with certain non-U.
On September 24, 2021, the Company and certain
institutional investors entered into a securities purchase agreement (“SPA”), pursuant to which the Company agreed to
sell such institutional investors units with each unit consisting of one ordinary share and one warrant to purchase
The summary of warrant activity is as follows:
| Warrants Outstanding | Weighted Average Exercise Price | Average Remaining Contractual Life | ||||||||||
| June 30, 2020 | $ | |||||||||||
| Granted | $ | |||||||||||
| Exercised | ( | ) | $ | |||||||||
| June 30, 2021 | $ | |||||||||||
| Granted | $ | |||||||||||
| December 31, 2021 (Unaudited) | $ | |||||||||||
Note 13 – Commitments and contingencies
Contingencies
From time to time, the Company is a party to various legal actions arising in the ordinary course of business. The Company accrues costs associated with these matters when they become probable and the amount can be reasonably estimated. Legal costs incurred in connection with loss contingencies are expensed as incurred. The Company’s management does not expect any liability from the disposition of such claims and litigation individually or in the aggregate would have a material adverse impact on the Company’s consolidated financial position, results of operations and cash flows.
Coronavirus (“COVID-19”)
In December 2019, a novel strain of coronavirus, or COVID-19, surfaced and it has spread rapidly to many parts of China and other parts of the world, including the United States. The epidemic has resulted in quarantines, travel restrictions, and the temporary closure of stores and facilities throughout the world. Substantially all of the Company’s new revenue streams are concentrated online. Consequently, the Company’s does not believe the COVID-19 outbreak would materially adversely affect the Company’s business operations, financial condition and operating results for fiscal year ended June 30, 2023.
20
COLOR STAR TECHNOLOGY CO., LTD. AND SUBSIDIARIES
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note 14 – Concentrations of risk
Credit Risk
The Company is exposed to credit risk from its cash in banks and advances on performance obligations.
As of December 31, 2021 and June 30, 2021, approximately
$
Prepayments and advances are subject to credit evaluation. An allowance will be made for estimated unrecoverable amounts which have been determined by reference to past default experience and the current economic environment.
Vendor Concentration Risk
For the six months ended December 31, 2021, one vendor accounted for
Note 15 – Subsequent events
Private Placement
On January 21, 2022, the Company and Hou Sing
International Business Limited (“Hou Sing”) entered into a securities purchase agreement (the “SPA”), pursuant
to which the Company agreed to issue and sell to Hou Sing an aggregate of
Sale of Ordinary Shares and Warrants
On February 21, 2022,
The Investor Warrants are exercisable immediately
upon the date of issuance and exercisable at $
The Company also entered into a placement agency
agreement dated February 24, 2022 (the “Placement Agency Agreement”) with Maxim Group, LLC, as exclusive placement agent (the
“Placement Agent”), pursuant to which the Placement Agent agreed to act as the placement agent in connection with the Offering.
The Company agreed to pay the Placement Agent an aggregate fee equal to
Conversion of Warrants into Ordinary Shares
On March 3, 2022, the Company’s warrants
holders converted a total of
Ordinary Shares Issued for Services
On March 18, 2022, the Compensation Committee
of the Board authorized the issuance to certain officers, directors and other employees an aggregate of
Establishment of a Subsidiary
On February 21, 2022, 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.
21
Exhibit 99.2
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
IN CONNECTION WITH THE UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED DECEMBER 31, 2021 AND 2020
In this report, as used herein, and unless the context suggests otherwise, the terms “Color Star,” “Company,” “we,” “us” or “ours” refer to the combined business of Color Star Technology Co., Ltd., its subsidiaries and other consolidated entities. References to “dollar” and “$” are to U.S. dollars, the lawful currency of the United States, and references to “Renminbi” and “RMB” are to the legal currency of China. References to “SEC” are to the Securities and Exchange Commission.
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our unaudited condensed consolidated financial statements and the related notes included elsewhere in this Report on Form 6-K and with the discussion and analysis of our financial condition and results of operations contained in our Annual Report on Form 20-F for the fiscal year ended June 30, 2021 filed with the Securities and Exchange Commission on November 1, 2021 (the “2021 Form 20-F”). This discussion may contain forward-looking statements based upon current expectations that involve risks and uncertainties. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those identified elsewhere in this report on Form 6-K, and those listed in the 2021 Form 20-F under “Item 1A. Risk Factors” or in other parts of the 2021 Form 20-F.
Results of Operations
The tables in the following discussion summarize our consolidated statements of operations for the periods indicated. This information should be read together with our unaudited condensed consolidated financial statements included elsewhere in this press release. The operating results in any period are not necessarily of the results that may be expected for any future period.
For the Six Months Ended December 31, 2021 vs. December 31, 2020
| For the six months ended December 31, | ||||||||||||||||
| Percentage | ||||||||||||||||
| 2021 | 2020 | Change | Change | |||||||||||||
| Revenue | $ | 9,430,508 | $ | 2,330,000 | $ | 7,100,508 | 305 | % | ||||||||
| Cost of revenue | (2,629,781 | ) | (1,936,520 | ) | $ | (693,261 | ) | (36 | )% | |||||||
| Gross profit | 6,800,727 | 393,480 | $ | 6,407,247 | 1,628 | % | ||||||||||
| Selling, general and administrative expenses | (4,426,383 | ) | (2,678,821 | ) | $ | (1,747,562 | ) | 65 | % | |||||||
| Research and development expenses | (192,720 | ) | (448,508 | ) | $ | 255,788 | 57 | % | ||||||||
| Stock compensation expense | (3,418,148 | ) | (2,261,308 | ) | $ | (1,156,840 | ) | (51 | )% | |||||||
| Loss from operations | (1,236,524 | ) | (4,995,157 | ) | $ | 3,758,633 | 75 | % | ||||||||
| Total other income (expense), net | 696,207 | 21,543 | $ | 674,664 | 3,132 | % | ||||||||||
| Loss before provision for income taxes | (540,317 | ) | (4,973,614 | ) | $ | 4,433,297 | 89 | % | ||||||||
| Provision for income taxes | - | - | $ | - | - | % | ||||||||||
| Net loss from continuing operations | (540,317 | ) | (4,973,614 | ) | $ | 4,433,297 | 89 | % | ||||||||
| Income (loss) from discontinued operations | - | - | $ | - | - | % | ||||||||||
| Net loss | $ | (540,317 | ) | $ | (4,973,614 | ) | $ | 4,433,297 | 89 | % | ||||||
| For the six months ended December 31, | ||||||||||||||||
| Percentage | ||||||||||||||||
| Revenue | 2021 | 2020 | Change | Change | ||||||||||||
| Online music education academy subscription | $ | 9,430,508 | $ | - | $ | 9,430,508 | 100 | % | ||||||||
| Online concert subscription | - | 2,330,000 | $ | (2,330,000 | ) | (100 | )% | |||||||||
| Total Revenue | $ | 9,430,508 | $ | 2,330,000 | $ | 7,100,508 | 305 | % | ||||||||
1
Revenue. We generated approximately $9.4 million online music education academy subscription revenue from our Color World App (the “App”). Our Color World App officially went live in January 2021 and over 300,000 paid subscribers joined our App from January to June 2021. Our App membership subscription fees will provide our members unlimited access for one year to our App except for on-demand contents with additional charge during the period from January 1 to June 30, 2021. In July 2021, we no longer required our subscribers to pay for the annual subscription fee. We had two on-demand contents going live in during the six months ended December 31, 2021, with over 700,000 subscribers paid for these two on-demand contents. During the six months ended December 31, 2020, we generated approximately $2.3 million subscription revenue from the online concert we held on September 10, 2020. Our sale of online concert via subscription fee is accounted for as a single performance obligation which is satisfied at a point in time on the day of the event. The online concert subscription revenue we recognized is net of App payment collections agent service fee.
| For the six months ended December 31, | ||||||||||||||||
| Percentage | ||||||||||||||||
| Cost of Revenue | 2021 | 2020 | Change | Change | ||||||||||||
| Online music education academy subscription | $ | 2,629,781 | $ | - | $ | 2,629,781 | 100 | % | ||||||||
| Online concert subscription | - | 1,936,520 | $ | (1,936,520 | ) | (100 | )% | |||||||||
| Total Cost of Revenue | $ | 2,629,781 | $ | 1,936,520 | $ | 693,261 | 36 | % | ||||||||
Cost of Revenue. Our online music education academy cost of revenue of approximately $2.6 million for the six months ended December 31, 2021 was mainly attributable to the amortization of copyrights of the total payments we made to purchase the online courses that were produced by our paid artists. We amortize the copyrights with limited useful life over their estimated expected useful life using the straight-line method and amortize the copyrights with unlimited useful life over 5 years, which is the estimated useful life that we expect will contribute to our App before we are required to renew the contents of such copyrights. Our online concert cost of revenue of approximately $1.9 million for the six months ended December 31, 2020 was the total payments we made to our partners of the online concert we held on September 10, 2020. The partners include artists, artist agents and online concert producers.
Gross Profit. We had a gross profit of approximately $6.8 million for the online education academy App during the six months ended December 31, 2021. We had a gross profit of approximately $0.4 million for the online concert business during the six months ended December 31, 2020.
Selling, General and Administrative Expenses. Selling, general and administrative expenses mainly consist of advertising and marketing costs, office rent and expenses, depreciation expense, costs associated with staff and support personnel who manage our business activities, and professional fees paid to third parties. We incurred selling, general and administrative expenses of approximately $4.4 million for the six months ended December 31, 2021 as compared to approximately $2.7 million for the six months ended December 31, 2020, an increase of approximately $1.7 million.
The increase was primarily due to approximately $0.3 million increase in salary expenses as we hired more employees for our online education academy business, approximately $0.2 million increase in service charges fee by our App payment collections agent, approximately $0.2 million increase in depreciation expense for our concert and music production equipment, approximately $0.9 million increase of advertising expenses on our events and APP products, and approximately $0.1 million increase in office expenses and other miscellaneous selling, general and administrative expenses.
Research and Development Expenses. Research and development expenses consist of costs associated with development of our online platforms. During the six months ended December 31, 2021, we spent approximately $0.2 million on maintaining our online education academy App, Color World internally. During the six months ended December 31, 2020, we incurred approximately $0.4 million of research and development expenses, which consists of approximately $0.1 million on developing our online education academy APP, Color World internally and approximately $0.3 million amortization expense of the online courses patent, and spent $48,000 on developing the online after-school tutoring program of Baytao. We discontinued the online after-school tutoring program as we shifted our focus to our online education academy business and sold our 80% equity interest of Baytao in June 2021.
2
Stock Compensation Expenses. Stock compensation expenses were approximately $3.4 million for the six months ended December 31, 2021 as compared to approximately $2.3 million for the six months ended December 31, 2020. The increase was mainly due to approximately $3.0 million expenses on the 3,755,000 ordinary shares issued to twenty-one employees under the 2021 Employee Incentive Plan offset by approximately $1.9 million expenses lower of its stock-based compensation expenses on vested services from our executive officers during the six months ended December 31, 2021 as compared to the same period in 2020.
Loss from Operations. We incurred losses from operations of approximately $1.2 million and approximately $5.0 million for the six months ended December 31, 2021 and 2020, respectively. The decrease of approximately $3.8 million in losses was primarily due to the reasons previously discussed.
Total Other Income (Expense), Net. Our total other income (expense), net, consists of other income, interest income and finance expense. We had a total other income (expense), net, of approximately $0.7 million and $22,000 during the six months ended December 31, 2021 and 2020, respectively. The change was mainly due to one of our vendor is no longer able to execute the pre-arranged artist performance contract and paid us a settlement fee of $700,000 during the six months ended December 31, 2021. During the six months ended December 31, 2021, we had a debt settled with a vendor resulted in a gain of approximately $25,000 and governmental subsidy of approximately $7,200.
Provision for Income Taxes. We did not incur income tax expense for the six months ended December 31, 2021 and 2020 as we had operating losses.
Net Loss. We incurred a net loss of approximately $0.5 million for the six months ended December 31, 2021, as compared to a net loss of approximately $5.0 million for the six months ended December 31, 2020. This change was the result of the combination of the changes as discussed above.
Liquidity and Capital Resources
As of December 31, 2021, we had cash and cash equivalents of approximately $7.9 million, which was held by our consolidated entities in the U.S. and Hong Kong.
In assessing our liquidity, we monitor and analyze our cash on-hand and our operating and capital expenditure commitments. Our liquidity needs are to meet our working capital requirements, operating expenses and capital expenditure obligations.
We engage in online entertainment performance and online music education services. Our business is capital intensive, and equity financing has been utilized to finance our working capital requirements and capital expenditures. Our working capital was approximately $24.1 million as of December 31, 2021 as compared to approximately $3.6 million as of December 31, 2020.
In addition, due to the nature of online entertainment performance and online education industries, we collect payments in advance so we should have minimal liquidity risk. We also completed a few rounds of equity financing, and received net proceeds of approximately $19.2 million from sales of our ordinary shares during the six months ended December 31, 2021. Subsequent to December 31, 2021, we completed two rounds of equity financing, and received gross proceeds of $26.0 million from sales of our ordinary shares and warrants to purchase ordinary share.
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The following table provides summary information about our net cash flow for financial statement periods presented in this report:
| For the six months ended December 31, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (7,005,682 | ) | $ | (4,674,723 | ) | ||
| Net cash used in investing activities | (4,785,129 | ) | (6,863,770 | ) | ||||
| Net cash provided by financing activities | 19,492,989 | 10,931,116 | ||||||
| Net increase (decrease) in cash and cash equivalents | $ | 7,702,178 | $ | (607,377 | ) | |||
Principal demands for liquidity are for working capital and general corporate purposes.
Operating Activities
Net cash used in operating activities totaled approximately $7.0 million for the six months ended December 31, 2021, which was mainly due to a net loss of approximately $0.5 million and non-cash adjustments to reconcile the net loss to net cash used in operating activities of approximately $3.4 million of stock compensation expense, approximately $0.9 million of depreciation expense, and approximately $2.4 million of amortization expense. Net cash from changes in operating assets and liabilities resulted in a net cash outflow, which mainly consists of the increase of prepayment of approximately $11.6 million as we prepaid service fees for both online and live concert productions and the prepayment of advisement fees, and the decrease of deferred revenues of approximately $2.3 million. The net cash outflow was offset by the decrease of accounts receivable of approximately $0.7 million for the Color World App subscription fees due from App payment collections agent and the increase of other payables and accrued liabilities of approximately $0.1 million.
Net cash used in operating activities totaled approximately $4.7 million for the six months ended December 31, 2020, which was mainly due to a net loss of approximately $5.0 million and non-cash adjustments to reconcile the net loss to net cash provided by operating activities of approximately $2.3 million of stock compensation expense, approximately $0.7 million of depreciation expense and approximately $0.2 million of amortization expense. Net cash from changes in operating assets and liabilities resulted in a net cash outflow, which mainly included cash outflow for increase of accounts receivable of approximately $1.9 million for the online concert subscription fees due from App payment collections agent, increase of prepayment of $0.9 million as we prepaid service fees for online concert performance and online artists agents, and the increase of other payables and accrued liabilities of approximately $0.1 million.
Investing Activities
Net cash used in investing activities was approximately $4.8 million for six months ended December 31, 2021, which was primarily attributable to the purchase of equipment of approximately $40,000 and purchase of intangible assets of approximately $4.7 million.
Net cash used in investing activities was approximately $6.9 million for the six months ended December 31, 2020, which was primarily attributable to the purchase of equipment of $2.0 million and purchase of intangible assets of approximately $4.9 million.
Financing Activities
Net cash provided by financing activities totaled approximately $19.5 million for the six months ended December 31, 2021, which was due to the sale of ordinary shares of approximately $19.2 million and the borrowings from shareholders of $0.3 million to pay for certain operating expenses.
Net cash provided by financing activities totaled approximately $10.9 million for the six months ended December 31, 2020, which was due to the sale of ordinary shares of approximately $10.3 million and the proceeds from warrants conversion of approximately $0.6 million.
Statement Regarding Unaudited Financial Information
The unaudited financial information set forth above is subject to adjustments that may be identified when audit work is performed on the Company’s year-end financial statements, which could result in significant differences from this unaudited financial information.
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