VIE Structure and Legal Risks - The company operates as a holding entity incorporated in the Cayman Islands, conducting most operations through a Variable Interest Entity (VIE) and its subsidiaries in China[24]. - The VIE structure allows the company to consolidate financial results under U.S. GAAP, despite not holding direct equity interests in the VIE or its subsidiaries[29]. - The company faces risks associated with the VIE structure, including potential changes in PRC laws that could affect the validity and enforcement of the VIE Agreements[44]. - The VIE Agreements have not been tested in a court of law in the PRC, raising uncertainties regarding their effectiveness in providing operational control[45]. - The company may face material disruption to its business if the VIE Agreements are deemed illegal or invalid by PRC authorities, affecting its ability to consolidate financial results under U.S. GAAP[80]. - If the VIE Agreements are found to violate PRC laws, the company could lose rights to direct activities and receive economic benefits from Xiamen Pop Culture, leading to a significant decline in the value of its securities[81]. - The company relies on VIE Agreements to consolidate financial results of Xiamen Pop Culture, but these agreements may not provide effective control, risking adverse impacts on operations[82]. - The VIE Agreements are governed by PRC law, which may limit the company's ability to enforce rights and could affect its control over Xiamen Pop Culture for accounting purposes[86]. Financial Performance - For the fiscal year ended June 30, 2024, consolidated total revenue was 18,543,243 in the previous year, representing a decline of approximately 255.5%[10]. - The net income for the fiscal year ended June 30, 2024, was (25,257,696) for the fiscal year ended June 30, 2023, indicating an improvement of approximately 50%[10]. - The company reported a gross profit of (3,662,815) in the previous year, marking a turnaround of approximately 178.6%[10]. - The company’s comprehensive income for the fiscal year ended June 30, 2024, was (26,932,336) for the fiscal year ended June 30, 2023, reflecting an improvement of approximately 53.2%[10]. - The cash balance as of June 30, 2024, was 2,751,309 as of June 30, 2023, indicating a growth of approximately 8.4%[73]. - The company reported net cash provided by financing activities of 683,277 in the previous year, marking an increase of approximately 394%[76]. Regulatory Environment - The company is not currently required to complete filing procedures under the Trial Measures, as its initial public offering was completed on July 2, 2021[49]. - The company may face fines ranging from RMB1 million to RMB10 million for failing to complete filing procedures for new offerings or fundraising activities in the future[49]. - The company has successfully obtained all requisite licenses and approvals needed to engage in its current business operations in the PRC[50]. - The company is not subject to cybersecurity review under the Cybersecurity Review Measures, as it does not possess personal information of over one million users[49]. - The Chinese government has strengthened anti-monopoly supervision, but this has not impacted the company's ability to conduct business or accept foreign investments[49]. - The revised Provisions on Strengthening Confidentiality and Archives Administration require domestic companies to obtain approval for disclosing documents containing state secrets[54]. - The company is not required to obtain additional permissions from PRC authorities to maintain its listing status on U.S. exchanges[51]. - There are uncertainties regarding the interpretation and implementation of new regulatory requirements that may affect the company's future capital-raising activities[55]. - Recent regulations require domestic companies to complete filing procedures with the CSRC within three working days for overseas listings[129]. - The Chinese government has indicated an intent to increase oversight over overseas public offerings, potentially affecting the ability to offer securities[127]. - The PRC operating entities may face penalties for failing to comply with new filing requirements, including warnings and fines[129]. - The company has not received permission from Chinese authorities to list on U.S. exchanges, and future permission is uncertain[108]. Operational Risks - The company must maintain various approvals, licenses, and permits to operate its business, and failure to do so could adversely affect its operations[151]. - The PRC operating entities face risks related to the retention of existing clients in their Event Planning and Execution and Brand Promotion businesses[200]. - Revenue from sponsorship in the Event Hosting business is crucial, and failure to attract sponsors could adversely affect revenue[205]. - The PRC operating entities' success is tied to the popularity of hip-hop events, which may fluctuate due to competition and changing consumer preferences[208]. - The PRC operating entities face potential risks from public live events, including security threats and logistical challenges, which could affect profitability and event success[214]. - Poor execution and adverse conditions during events could lead to declining popularity and brand reputation for the PRC operating entities[215]. - Relationships with local authorities and third-party providers are crucial for the successful execution of events, particularly hip-hop events[221]. - The PRC operating entities' business could suffer if third-party service providers increase prices or fail to deliver services effectively[218]. Tax and Currency Risks - The PRC Enterprise Income Tax Law classifies offshore enterprises with "de facto management bodies" in the PRC as "resident enterprises," subjecting them to a 25% enterprise income tax rate on worldwide income[170]. - Fluctuations in exchange rates could materially affect the company's results of operations and the value of investments[165]. - The RMB appreciated over 20% against the U.S. dollar from July 2005 to July 2008, but has since fluctuated unpredictably[166]. - Limited hedging options are available in China to mitigate exposure to exchange rate fluctuations, and the company has not entered into hedging transactions to date[168]. - Changes in the conversion rate between the U.S. dollar and RMB will affect the amount of proceeds available for the PRC operating entities' business[167]. - Dividends payable to investors may be subject to a withholding tax of 10% for non-PRC enterprises or 20% for non-PRC individuals if deemed from PRC sources[171]. - The PRC government imposes controls on currency conversion, which may affect the ability to pay dividends in foreign currencies[180]. - Under the EIT Law, profits distributed to holding companies outside the PRC are subject to a withholding tax rate of 10%, which may be reduced to 5% under certain conditions[186]. Client and Supplier Dependency - Two major customers accounted for approximately 34% and 10% of total revenue for the fiscal year ended June 30, 2024[203]. - The top five customers represented approximately 75% of accounts receivable as of June 30, 2024, compared to 68% in 2023 and 72% in 2022[203]. - The PRC operating entities' revenue is increasingly dependent on a small number of customers, raising risks if any experience disruptions[202]. - For the fiscal year ended June 30, 2024, the PRC operating entities purchased 27.00% of their services from two major suppliers, down from 40.08% in the previous year[217]. - The PRC operating entities' reliance on third-party services poses risks, as disruptions could negatively impact business operations and customer growth[216].
Pop Culture (CPOP) - 2024 Q4 - Annual Report