UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
Commission file number
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
| Beijing, People’s Republic of | ||
| (Address of principal executive offices) | (Zip Code) |
| (Registrant’s telephone number, including area code) |
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol | Name of each exchange on which registered | ||
Indicate by check mark whether the registrant
(1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements
for the past 90 days.
Indicate by check mark whether the registrant
has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405
of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
| ☐ | Large accelerated filer | ☐ | Accelerated filer |
| ☒ | Smaller reporting company | ||
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No
As of February 13, 2024,
DATASEA INC.
TABLE OF CONTENTS
| Page No. | ||
| Part I - Financial Information | ||
| Item 1 | Financial Statements | 1 |
| Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 30 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 52 |
| Item 4 | Controls and Procedures | 52 |
| Part II - Other Information | ||
| Item 1 | Legal Proceedings | 55 |
| Item 1A | Risk Factors | 55 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 55 |
| Item 3 | Defaults Upon Senior Securities | 55 |
| Item 4 | Mine Safety Disclosures | 55 |
| Item 5 | Other Information | 55 |
| Item 6 | Exhibits | 55 |
i
PART I - FINANCIAL INFORMATION
DATASEA INC.
CONSOLIDATED BALANCE SHEETS
| DECEMBER 31, 2023 (UNAUDITED) | JUNE 30, 2023 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Value-added tax prepayment | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Long-term investment | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Right-of-use assets, net | ||||||||
| Total noncurrent assets | ||||||||
| TOTAL ASSETS | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS’ EQUITY | ||||||||
| CURRENT LIABILITIES | ||||||||
| Accounts payable | $ | $ | ||||||
| Unearned revenue | ||||||||
| Accrued expenses and other payables | ||||||||
| Due to related parties | ||||||||
| Operating lease liabilities | ||||||||
| Bank loan payable | ||||||||
| Loan payable | - | |||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Operating lease liabilities | ||||||||
| Loan payable | ||||||||
| Bank loan payable | ||||||||
| Total noncurrent liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY (DEFICIT) | ||||||||
| Common stock, $ | ||||||||
| Additional paid-in capital | ||||||||
| Accumulated comprehensive income | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIT) | ( | ) | ||||||
| Noncontrolling interest | ( | ) | ( | ) | ||||
| TOTAL EQUITY (DEFICIT) | ( | ) | ||||||
| TOTAL LIABILITIES AND EQUITY (DEFICIT) | $ | $ | ||||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
1
DATASEA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(UNAUDITED)
| THREE MONTHS ENDED DECEMBER 31, | SIX MONTHS ENDED DECEMBER 31, | |||||||||||||||
| 2023 | 2022 | 2023 | 2022 | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of goods sold | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses | ||||||||||||||||
| Selling | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Research and development | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Loss from operations | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Non-operating income (expenses) | ||||||||||||||||
| Other expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Interest income | ||||||||||||||||
| Total non-operating expenses, net | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax | ||||||||||||||||
| Loss before noncontrolling interest from continuing operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income (loss) before noncontrolling interest from discontinued operation | ( | ) | ( | ) | ||||||||||||
| Less: loss attributable to noncontrolling interest from continuing operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: loss attributable to noncontrolling interest from discontinued operation | ( | ) | ( | ) | ||||||||||||
| Net loss attribute to noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss to the Company from continuing operation | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) to the Company from discontinued operation | ( | ) | ( | ) | ||||||||||||
| Net loss to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive item | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to the Company | ( | ) | ( | ) | ( | ) | ||||||||||
| Foreign currency translation gain attributable to noncontrolling interest | ||||||||||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive income (loss) attributable to noncontrolling interest | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | |||||
| * |
The accompanying notes are an integral part of these consolidated financial statements.
2
DATASEA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX AND THREE MONTHS ENDED DECEMBER 31, 2023 AND 2022
(UNAUDITED)
| Common Stock | Additional paid-in | Accumulated | Accumulated other comprehensive | Noncontrolling | ||||||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | interest | ||||||||||||||||||||||
| Balance at July 1, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Issuance of common stock for equity financing | ||||||||||||||||||||||||||||
| Shares issued for stock compensation expense | - | |||||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2023 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Shares issued for stock compensation expense | - | |||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| Balance at December 31, 2023 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Shares issued for stock compensation expense | - | |||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Shares issued for stock compensation expense | - | |||||||||||||||||||||||||||
| Purchase of minority interest ownership | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2022 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
DATASEA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| SIX MONTHS ENDED DECEMBER 31 |
||||||||
| 2023 | 2022 | |||||||
| Cash flows from operating activities: | ||||||||
| Loss including noncontrolling interest | $ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities: | ||||||||
| Gain on disposal of subsidiary | ( |
) | ( |
) | ||||
| Depreciation and amortization | ||||||||
| Operating lease expense | ||||||||
| Stock compensation expense | ||||||||
| Changes in assets and liabilities: | ||||||||
| Accounts receivable | ( |
) | ( |
) | ||||
| Inventory | ( |
) | ||||||
| Value-added tax prepayment | ( |
) | ( |
) | ||||
| Prepaid expenses and other current assets | ( |
) | ( |
) | ||||
| Accounts payable | ( |
) | ||||||
| Unearned revenue | ( |
) | ( |
) | ||||
| Accrued expenses and other payables | ( |
) | ||||||
| Payment on operating lease liabilities | ( |
) | ( |
) | ||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| Cash flows from investing activities: | ||||||||
| Acquisition of property and equipment | ( |
) | ( |
) | ||||
| Acquisition of intangible assets | ( |
) | ( |
) | ||||
| Cash disposed due to disposal of subsidiary | ( |
) | ||||||
| Long-term investment | ( |
) | ||||||
| Net cash used in investing activities | ( |
) | ( |
) | ||||
| Cash flows from financing activities: | ||||||||
| Due to related parties | ( |
) | ||||||
| Proceeds from loan payables | ||||||||
| Repayment of loan payables | ( |
) | ||||||
| Net proceeds from issuance of common stock | ||||||||
| Net cash provided by financing activities | ||||||||
| Effect of exchange rate changes on cash | ( |
) | ( |
) | ||||
| Net increase (decrease) in cash | ( |
) | ||||||
| Cash, beginning of period | ||||||||
| Cash, end of period | $ | $ | ||||||
| Supplemental disclosures of cash flow information: | ||||||||
| Cash paid for interest | $ | $ | ||||||
| Cash paid for income tax | $ | $ | ||||||
| Supplemental disclosures of non-cash financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Transfer of debt owing to the Company’s’ CEO to Mr. Wanli Kuai | $ | |||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
DATASEA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2023 (UNAUDITED) AND JUNE 30, 2023
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Datasea
Inc. (the “Company,” “Datasea,” or “we,” “us,” “our”) was incorporated in
the State of Nevada on September 26, 2014 under the name Rose Rock Inc. and changed its name to Datasea Inc. on May 27, 2015. On May 26,
2015, the Company’s founder, Xingzhong Sun, sold
On October
29, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”)
of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company (“LLC”) incorporated
on May 15, 2015 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”).
Pursuant to the terms of the Exchange Agreement, the Shareholders, who own
Following
the Share Exchange, the Shareholders, Zhixin Liu and her father, Fu Liu, owned approximately
After the Share Exchange, the Company, through its consolidated subsidiaries and VIE provide smart security solutions primarily to schools, tourist or scenic attractions and public communities in China.
On October 16, 2019, Shuhai Beijing incorporated a wholly owned subsidiary, Heilongjiang Xunrui Technology Co. Ltd. (“Xunrui”), which develops and markets the Company’s smart security system products.
On December
3, 2019, Shuhai Beijing formed Nanjing Shuhai Equity Investment Fund Management Co. Ltd. (“Shuhai Nanjing”), a joint venture
in PRC, in which Shuhai Beijing holds a
In January 2020, the Company acquired ownership in three entities for no consideration from the Company’s management, which set up such entities on the Company’s behalf (described below).
On January
3, 2020, Shuhai Beijing entered into two equity transfer agreements (the “Transfer Agreements”) with the President, and a
Director of the Company.
On January
7, 2020, Shuhai Beijing entered into another equity transfer agreement with the President, the Director described above and an unrelated
individual.
5
On August 17, 2020, Beijing Shuhai formed a new wholly-owned subsidiary Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd (“Jingwei”), to expand the security oriented systems developing, consulting and marketing business overseas.
On November 16, 2020, Guohao
Century formed Hangzhou Zhangqi Business Management Limited Partnership (“Zhangqi”) with ownership of
On November 19, 2020, Guohao
Century formed a
On February
16, 2022, Shuhai Jingwei formed Shenzhen Acoustic Effect Management Limited Partnership (“Shenzhen Acoustic MP”) with
On February
16, 2022, Shuhai Jingwei formed Shuhai (Shenzhen) Acoustic Effect Technology Co., Ltd (“Shuhai Shenzhen Acoustic Effect”),
a PRC Company, in which Shuhai Jingwei holds
On March
4, 2022, Shuhai Beijing formed Beijing Yirui Business Management Development Center (“Yirui”) with
On March
4, 2022, Shuhai Beijing formed Beijing Yiying Business Management Development Center (“Yiying”) with
On July 31, 2023, Datasea established a wholly owned subsidiary Datasea Acoustic, LLC (“Datasea Acoustic”) in the state of Delaware for expanding the products to the market in North America.
On January 10, 2024, the Company’s
Board of Directors approved a reverse stock split of its authorized and issued and outstanding shares of common stock, par value $
6
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The accompanying consolidated
financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months
ended December 31, 2023 and 2022, the Company had a net loss of approximately $
On August
1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company
sold an aggregate of
On August
15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell
and the investor agreed to purchase an aggregate of
On September
13, 2023, the Company closed an underwritten public offering of
During the six months ended December
31, 2023, the Company made total prepayments of $
If deemed necessary, management could seek to raise additional funds by way of admitting strategic investors, or private or public offerings, or by seeking to obtain loans from banks or others, to support the Company’s research and development (“R&D”), procurement, marketing and daily operation. While management of the Company believes in the viability of its strategy to generate sufficient revenues and its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern depends upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its initiatives or attain profitable operations. If the Company is unable to raise additional funding to meet its working capital needs in the future, it may be forced to delay, reduce or cease its operations.
7
BASIS OF PRESENTATION AND CONSOLIDATION
The CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding CFS. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and six months ended December 31, 2023 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, previously filed with the Securities Exchange Commission (“SEC”) on September 27, 2023.
The accompanying CFS include
the financial statements of the Company and its
8
VARIABLE INTEREST ENTITY
Pursuant to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its CFS, the financial statements of Shuhai Beijing, its VIE. ASC 810 requires a VIE to be consolidated if the Company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. A VIE is an entity in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards of such entity, and therefore the Company is the primary beneficiary of such entity.
Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. Shuhai Beijing’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.
Through the VIE agreements, Tianjin Information, an indirect subsidiary of Datasea is deemed the primary beneficiary of Shuhai Beijing and its subsidiaries. Accordingly, the results of Shuhai Beijing and its subsidiaries were included in the accompanying CFS. Shuhai Beijing has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shuhai Beijing do not have recourse to the Company’s general credit.
VIE Agreements
Operation and Intellectual Property Service Agreement – The Operation and Intellectual Property Service Agreement allows Tianjin Information Sea Information Technology Co., Ltd (“WFOE”) to manage and operate Shuhai Beijing and collect an operating fee equal to Shuhai Beijing’s pre-tax income, per month. If Shuhai Beijing suffers a loss and as a result does not have pre-tax income, such loss shall be carried forward to the following month to offset the operating fee to be paid to WFOE if there is pre-tax income of Shuhai Beijing the following month. Furthermore, if Shuhai Beijing cannot pay off its debts, WFOE shall pay off the debt on Shuhai Beijing’s behalf. If Shuhai Beijing’s net assets fall lower than its registered capital balance, WFOE shall provide capital for Shuhai Beijing to make up for the deficit.
Under the terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations, manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its stockholders shall not make any decisions nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.
Stockholders’ Voting Rights Entrustment Agreement – Tianjin Information has entered into a stockholders’ voting rights entrustment agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing Stockholders”) have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s). The Entrustment Agreement does not have an expiration date, but the parties can agree in writing to terminate the Entrustment Agreement. Zhixin Liu, is the Chairman of the Board, President, CEO of DataSea and Corporate Secretary, and Fu Liu, a Director of the DataSea (Fu Liu is the father of Zhixin Liu).
9
Equity
Option Agreement – the Shuhai Beijing Stockholders and Tianjin Information entered into an equity option agreement (the
“Option Agreement”), pursuant to which the Shuhai Beijing Stockholders have granted Tianjin Information or its designee(s)
the irrevocable right and option to acquire all or a portion of Shuhai Beijing Stockholders’ equity interests in Shuhai Beijing
for an option price of RMB
Equity Pledge Agreement – Tianjin Information and the Shuhai Beijing Stockholders entered into an equity pledge agreement on October 27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge Agreement, Shuhai Beijing Stockholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Stockholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise the right to enforce the pledge.
As of this
report date, there were no dividends paid from the VIE to the U.S. parent company or the shareholders of the Company. There has been no
change in facts and circumstances to consolidate the VIE.
| December 31, 2023 | June 30, 2023 | |||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible asset, net | ||||||||
| Right-of-use asset, net | ||||||||
| Other non-current assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| Accounts payable | $ | $ | ||||||
| Accrued liabilities and other payables | ||||||||
| Lease liability | ||||||||
| Loans payable | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Lease liability - noncurrent | ||||||||
| Long term long payable | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
10
| For the Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Gross profit | $ | $ | ||||||
| Net loss | $ | ( | ) | $ | ( | )* | ||
| For the Six Months Ended December 31, 2023 | For the Six Months Ended December 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Gross profit | $ | $ | ||||||
| Net income (loss) | $ | $ | ( | )* | ||||
| * |
USE OF ESTIMATES
The preparation of CFS 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. Actual results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and residual value of property, plant and equipment, provision for staff benefits, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to the CFS.
CONTINGENCIES
Certain conditions may exist as of the date the CFS are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. As of December 31, 2023 and June 30, 2023, the Company has no such contingencies.
CASH
Cash includes cash on hand and demand deposits that are highly liquid in nature and have original maturities when purchased of three months or less.
11
ACCOUNTS RECEIVABLE
The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit losses on financial instruments later codified as Accounting Standard codification (“ASC”) 326 (“ASC 326”), on July 1, 2023. The guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. There was no significant impact on the date of adoption of ASC 326.
Under ASC 326, Accounts receivable are recorded at the invoiced amount, net of allowance for expected credit losses. The Company’s primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the Accounts receivable balance to the estimated net realizable value. The Company regularly reviews the adequacy of the allowance for credit losses based on a combination of factors. In establishing any required allowance, management considers historical losses adjusted for current market conditions, the Company’s customers’ financial condition, the amount of any receivables in dispute, the current receivables aging, current payment terms and expectations of forward-looking loss estimates.
All provisions
for the allowance for doubtful accounts are included as a component of general and administrative expenses on the accompanying consolidated
statements of operations and comprehensive loss. Accounts receivable deemed uncollectible are charged against the allowance for credit
losses when identified. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered. As of
December 31, 2023 and June 30, 2023, the Company had a $
INVENTORY
Inventory
is comprised principally of intelligent temperature measurement face recognition terminal and identity information recognition products,
and is valued at the lower of cost or net realizable value. The value of inventory is determined using the first-in, first-out method.
The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are
reported net of such allowances. There were $
PROPERTY AND EQUIPMENT
Property
and equipment are stated at cost, less accumulated depreciation. Major repairs and improvements that significantly extend original useful
lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred.
When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective
accounts, and any gain or loss is included in operations.
| Furniture and fixtures | ||
| Office equipment | ||
| Vehicles | ||
| Leasehold improvement |
Leasehold improvements are depreciated utilizing the straight-line method over the shorter of their estimated useful lives or remaining lease term.
INTANGIBLE ASSETS
Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet date.
Intangible
assets include licenses, certificates, patents and other technology and are amortized over their useful life of
12
FAIR VALUE (“FV”) OF FINANCIAL INSTRUMENTS
The carrying value of the Company’s short-term financial instruments, such as cash, accounts receivable, prepaid expenses, accounts payable, unearned revenue, accrued expenses and other payables approximates their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.
FAIR VALUE MEASUREMENTS AND DISCLOSURES
FASB ASC Topic 820, “Fair Value Measurements,” defines FV, and establishes a three-level valuation hierarchy for disclosures that enhances disclosure requirements for FV measures. The three levels 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 other than those in level 1 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 and significant to the FV measurement. |
As of December 31, 2023 and June 30, 2023, the Company did not identify any assets or liabilities required to be presented on the balance sheet at FV on a recurring basis.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance with FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset.
If such assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its FV. FV generally is determined using the asset’s expected future undiscounted cash flows or market value, if readily determinable. Assets to be disposed of are reported at the lower of the carrying amount or FV less cost to sell. For the three and six months ended December 31, 2023 and 2022, there was no impairment loss recognized on long-lived assets.
UNEARNED REVENUE
The Company records payments received in advance from its customers or sales agents for the Company’s products as unearned revenue, mainly consisting of deposits or prepayment for 5G products from the Company’s sales agencies. These orders normally are delivered based upon contract terms and customer demand, and the Company will recognize it as revenue when the products are delivered to the end customers.
LEASES
The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842. Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of December 31, 2023 and June 30, 2023.
13
REVENUE RECOGNITION
The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).
The core principle underlying FASB ASC 606 is that the Company will recognize 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 will require 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 are identified when possession of goods and services is transferred to a customer.
FASB ASC Topic 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires 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 each performance obligation.
The Company derives its revenues from product sales and 5G messaging service contracts with its customers, with revenues recognized upon delivery of services and products. Persuasive evidence of an arrangement is demonstrated via product sale contracts and professional service contracts, with performance obligations identified. The transaction price, such as product selling price, and the service price to the customer with corresponding performance obligations are fixed upon acceptance of the agreement. The Company recognizes revenue when it satisfies each performance obligation, the customer receives the products and passes the inspection and when professional service is rendered to the customer, collectability of payment is probable. These revenues are recognized at a point in time after each performance obligations is satisfied. Revenue is recognized net of returns and value-added tax charged to customers.
| For the Three Months Ended December 31, 2023 | For the Three Months Ended December 31, 2022 | |||||||
| 5G Multimodal communication | $ | $ | ||||||
| 5G Multimodal communication | ||||||||
| Cloud platform construction cooperation project | ||||||||
| Acoustic Intelligence Business | ||||||||
| Ultrasonic Sound Air Disinfection Equipment | ||||||||
| Smart City business | ||||||||
| Smart community | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
| For the Six Months Ended December 31, 2023 | For the Six Months Ended December 31, 2022 | |||||||
| 5G Multimodal communication | $ | $ | ||||||
| 5G Multimodal communication | ||||||||
| Cloud platform construction cooperation project | ||||||||
| Acoustic Intelligence Business | ||||||||
| Ultrasonic Sound Air Disinfection Equipment | ||||||||
| Smart City business | ||||||||
| Smart community | ||||||||
| Other | ||||||||
| Total revenue | $ | $ | ||||||
14
SEGMENT INFORMATION
FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the method a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations constitutes a single reportable segment in accordance with ASC 280. The Company’s only business and industry segment is high technology and advanced information systems (“TAIS”). TAIS includes smart city solutions that meet the security needs of residential communities, schools and commercial enterprises, and 5G messaging services including 5G SMS, 5G MMCP and 5G multi-media video messaging.
All of the Company’s customers are in the PRC and all revenues for the three and six months ended December 31, 2023 and 2022 were generated from the PRC. All identifiable assets of the Company are located in the PRC. Accordingly, no geographical segments are presented.
INCOME TAXES
The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.
The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the
provisions of FASB ASC Topic 740, when tax returns are filed, it is likely some positions taken would be sustained upon examination by
the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that
would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based
on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax
positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than
RESEARCH AND DEVELOPMENT EXPENSES
Research and development expenses are expensed in the period when incurred. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department, and fees paid to third parties.
15
NONCONTROLLING INTERESTS
The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.
The net
Income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss).
Losses attributable to NCI in a subsidiary may exceed a non-controlling interest’s interests in the subsidiary’s equity. The
excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that
attribution results in a deficit NCI balance. On December 20, 2022, Guohao Century acquired a
Zhangqi
was
CONCENTRATION OF CREDIT RISK
The Company
maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks less than RMB
Cash held
in accounts at U.S. financial institutions is insured by the Federal Deposit Insurance Corporation or other programs subject to certain
limitations up to $
FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS)
The accounts of the Company’s Chinese entities are maintained in RMB and the accounts of the U.S. parent company are maintained in United States dollar (“USD”). The financial statements of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.
The Company follows FASB ASC Topic”220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.
| December 31, | December 31, | June 30, | ||||||||||
| 2023 | 2022 | 2023 | ||||||||||
| Period-end date USD: RMB exchange rate | ||||||||||||
| Average USD for the reporting period: RMB exchange rate | ||||||||||||
16
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (EPS)
Basic EPS
is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would
have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS is
based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying
the treasury stock method. Under this method, options and warrants are assumed to have been 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 common stock at the average market price during
the period. For the three and six months ended December 31, 2023 and 2022, the Company’s basic and diluted loss per share are the
same as a result of the Company’s net loss.
STATEMENT OF CASH FLOWS
In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.
RECLASSIFICATION
Certain prior period accounts have been reclassified to be in conformity with current period presentation, including reclassification of non-current loan payable to non-current bank loan payable.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this guidance on July 1, 2023, there was no significant impact on the date of adoption of ASC 326.
The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.
NOTE 3 – PROPERTY AND EQUIPMENT
| December 31, 2023 | June 30, 2023 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Vehicle | ||||||||
| Leasehold improvement | ||||||||
| Office equipment | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ||||||||
| Total | $ | $ | ||||||
Depreciation
for the three months ended December 31, 2023 and 2022 was $
The Company
disposed $
17
NOTE 4 – INTANGIBLE ASSETS
| December 31, 2023 | June 30, 2023 | |||||||
| Software registration or using right | $ | $ | ||||||
| Patent | ||||||||
| Software and technology development costs | ||||||||
| Value-added telecommunications business license | ||||||||
| Subtotal | ||||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
Software registration or using right represented the purchase cost of customized software with its source code from third party software developer.
Software and technology development cost represented development costs incurred internally after the technological feasibility was established and a working model was produced and was recorded as intangible asset.
Amortization
for the three months ended September 30,
2023 and 2022 was $
The Company
disposed $
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
| December 31, 2023 | June 30, 2023 | |||||||
| Security deposit | $ | $ | ||||||
| Prepaid expenses | ||||||||
| Other receivables – Heqin | ||||||||
| Advance to third party individuals, no interest, payable upon demand | ||||||||
| Others | ||||||||
| Total | ||||||||
| Less: allowance for other receivables – Heqin | ||||||||
| Total | $ | $ | ||||||
As of December
31, 2023, prepaid expenses mainly consisted of prepaid marketing expense of $
18
Prepaid marketing expense
On September 14, 2023, Tianjin
Information entered into a service agreement with Beijing Guorui Innovation Enterprise Management Consulting Co., Ltd (“Guorui Innovation”)
for a duration of three years from September 15, 2023 to September 14, 2026. Under this agreement, Guorui Innovation is responsible for
generating annual revenue of at least RMB
On September
16, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jincheng Haoda Construction
Engineering Co., Ltd (“Jincheng Haoda”), for marketing and promoting the sale of acoustic intelligence series products in
oversea market. The cooperation term is from September 16, 2023 through September 15, 2026. Jincheng Haoda is committed to complete RMB
On September
18, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jiajia Shengshi Trading Co.,
Ltd (‘Jiajia Shengshi”), for marketing and promoting the sale of acoustic intelligence series products in domestic market.
The cooperation term is from September 18, 2023 through September 17, 2026. Jiajia Shengshi is committed to complete RMB
Other receivables – Heqin
On February 20, 2020, Guozhong Times entered an Operation Cooperation Agreement with an unrelated company, Heqin (Beijing) Technology Co, Ltd. (“Heqin”), for marketing and promoting the sale of Face Recognition Payment Processing equipment and related technical support, and other products of the Company including Epidemic Prevention and Control Systems. Heqin has a sales team which used to work with Fortune 500 companies and specializes in business marketing and sales channel establishment and expansion, especially in education industry and public area.
19
The cooperation
term is from February 20, 2020 through March 1, 2023; however, Heqin is the exclusive distributor of the Company’s face Recognition
Payment Processing products for the period to July 30, 2020. During March and April 2020, Guozhong Times provided operating funds to Heqin,
together with a credit line provided by Guozhong Times to Heqin from May 2020 through August 2020, for a total borrowing of RMB
No profits
will be allocated and distributed before full repayment of the borrowing. After Heqin pays in full the borrowing, Guozhong Times and Heqin
will distribute profits of sale of Face Recognition Payment Processing equipment and related technical support at
In November
2022, Hangzhou Yuetianyun Data Technology Company Ltd (“Yuetianyun”) agreed and acknowledged a Debt Transfer Agreement, wherein
Heqin transferred its debt from Yuetianyun to Guozhong Times in the amount of RMB
NOTE 6 – LONG TERM INVESTMENT
In November
2021, Shuhai Nanjing invested RMB
In August
2022, Shuhai Nanjing invested RMB
The Company
accounts for investments with less than
NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES
| December 31, 2023 | June 30, 2023 | |||||||
| Other payables | $ | $ | ||||||
| Due to third parties | ||||||||
| Social security payable | ||||||||
| Salary payable– employees | ||||||||
| Total | $ | $ | ||||||
Due to third parties were the short-term advance from third party individual or companies, bear no interest and payable upon demand.
NOTE 8 – LOANS PAYABLE
Loan from banks
On December
12, 2022, Beijing Shuhai entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB
On January
13, 2023, Shenzhen Jingwei entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB
20
On April
25, 2023, Shuhai Beijing entered a loan agreement with China Bank Co., Ltd for the
amount of RMB
| Loan | Borrowing | Loan term | Interest | Balance due | ||||||||||||||||||
| Lender | amount | date | in month | rate | Current | Non-current | ||||||||||||||||
| Shenzhen Qianhai WeBank Co., Ltd | % | |||||||||||||||||||||
| Shenzhen Qianhai WeBank Co., Ltd | % | - | ||||||||||||||||||||
| China Bank Co., Ltd | % | |||||||||||||||||||||
| Total | ||||||||||||||||||||||
Loan from the unrelated parties
On April 24, 2022, the Company
entered a loan agreement with an unrelated party Mr. Wanli Kuai for $
On September
21, 2023, the Company entered a loan agreement with another unrelated party for $
NOTE 9 – RELATED PARTY TRANSACTIONS
On October 1, 2020, the Company’s
CEO (also the president) entered into an office rental agreement with Xunrui. Pursuant to the agreement, the Company rents an office in
Harbin city with a total payment of RMB
21
On July
1, 2021, the Company’s CEO entered into a car rental agreement with the Company for one year. Pursuant to the agreement, the Company
rents a car from the Company’s CEO for a monthly rent of RMB
On September
1, 2022, the Company entered a six-month lease for senior officers’ dormitory in Beijing for a total rent of RMB
Due to related parties
As of December
31, 2023 and June 30, 2023, the Company had due to related parties of $
NOTE 10 – COMMON STOCK AND WARRANTS
Registered Direct Offering and Concurrent Private Placement in July 2021
On July
20, 2021, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company
agreed to sell to such investors an aggregate of
Concurrently
with the sale of the shares of the common stock, the Company also sold warrants to purchase
22
The closing
of the sales of these securities under the securities purchase agreement took place on July 22, 2021. The net proceeds from the transactions
were approximately $
Registered Direct Offering in August and September 2023
On August
1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company
sold aggregate of
On August
15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell
and the investor agreed to purchase an aggregate of
On September
13, 2023, the Company closed an underwritten public offering of
| Number of Warrants * | Average Exercise Price * | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding as of June 30, 2023 | $ | |||||||||||
| Exercisable as of June 30, 2023 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Expired | ||||||||||||
| Outstanding as of September 30, 2023 | ||||||||||||
| Exercisable as of September 30, 2023 | ||||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Expired | ||||||||||||
| Outstanding as of December 31, 2023 | $ | |||||||||||
| Exercisable as of December 31, 2023 | $ | |||||||||||
| * |
23
Shares to Independent Directors as Compensation
During the
three months ended December 31, 2023 and 2022, the Company recorded $
Shares to Officers as Compensation
Shares to Employee and consultants under the 2018 Equity Incentive Plan
During the
year ended June 30, 2023, the Company issued
NOTE 11 – INCOME TAXES
The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities. The Company conducts all of its businesses through its subsidiaries and affiliated entities, principally in the PRC.
The Company’s U.S. parent
company is subject to U.S. income tax rate of
The Company’s
offshore subsidiary, Shuhai Skill (HK), a HK holding company is subject to
As of December
31, 2023 and June 30, 2023, the Company has approximately $
24
| 2023 | 2022 | |||||||
| US federal statutory rates | ( | )% | ( | )% | ||||
| Tax rate difference – current provision | ( | )% | ( | )% | ||||
| Effect of PRC tax holiday | % | % | ||||||
| Valuation allowance | % | % | ||||||
| Effective tax rate | % | % | ||||||
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| US federal statutory rates | ( | )% | ( | )% | ||||
| Tax rate difference – current provision | ( | )% | ( | )% | ||||
| Effect of PRC tax holiday | % | % | ||||||
| Valuation allowance | % | % | ||||||
| Effective tax rate | % | % | ||||||
| December 31, 2023 | June 30, 2023 | |||||||
| Deferred tax asset | ||||||||
| Net operating loss | $ | $ | ||||||
| R&D expense | ||||||||
| Depreciation and amortization | ||||||||
| Bad debt expense | ||||||||
| Social security and insurance accrual | ||||||||
| Inventory impairment | ||||||||
| ROU, net of lease liabilities | ( | ) | ||||||
| Total | ||||||||
| Less: valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax asset | $ | $ | ||||||
NOTE 12 – COMMITMENTS
Leases
On July
30, 2019, the Company entered into an operating lease for its office in Beijing. Pursuant to the lease, the delivery date of the
property was August 8, 2019 but the lease term started on October 8, 2019 and expires on
On November 8, 2023, Shuhai Beijing
entered into a new lease agreement for its office in Beijing. Pursuant to the agreement, the agreement commenced on November 8, 2023 and
will expire on December 7, 2024, and has a monthly rent of RMB
25
On November 8, 2023, Tianjin
information entered into a lease agreement for its office in Beijing. Pursuant to the agreement, the agreement commenced on November 8,
2023 and will expire on December 7, 2024, and has a monthly rent of RMB
In August
2020, the Company entered into a lease for an office in Shenzhen City, China for three years from August 8, 2020 through August 7,
2023, with a monthly rent of RMB
On August
26, 2020, Tianjin Information entered into a lease for the office in Hangzhou City, China from September 11, 2020 to October 5, 2022. The
first year rent is RMB
| Start Date | End Date | Rent expense | ||||||||
| RMB | USD | |||||||||
| $ | ||||||||||
| $ | ||||||||||
On September 30, 2023, the lease was early terminated due to the management’s decision of transferring operations in Hangzhou to Beijing headquarter office for maximizing the efficiency and cost saving.
| Three Months Ended December 31, 2023 | Three Months Ended December 31, 2022 | |||||||
| Operating lease expense | $ | $ | ||||||
| Six Months Ended December 31, 2023 | Six Months Ended December 31, 2022 | |||||||
| Operating lease expense | $ | $ | ||||||
| December 31, 2023 | June 30, 2023 | |||||||
| Right-of-use assets | $ | $ | ||||||
| Lease liabilities - current | ||||||||
| Lease liabilities - noncurrent | ||||||||
| Weighted average remaining lease term | ||||||||
| Weighted average discount rate | % | % | ||||||
26
| 12 Months Ending December 31, | Minimum Lease Payment | |||
| 2024 | $ | |||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ||||
| Present value of lease liabilities | $ | |||
NOTE 13 – DISPOSAL OF SUBSIDIARY
On
July 20, 2023, the Company’s shareholders decided to sell Zhangxun to a third party at a price of RMB
| Cash | $ | |||
| Accounts receivable | ||||
| Other current assets | ||||
| Fixed assets, net | ||||
| Intangible assets, net | ||||
| Total assets | ||||
| Accounts payable | $ | |||
| Advance from customers | ||||
| Accrued liability and other payables | ||||
| Loan payables | ||||
| Intercompany payables to existing entities | ||||
| Total liabilities | ||||
| Non-controlling interest | $ | ( | ) |
27
| THREE MONTHS ENDED DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling | ||||||||
| General and administrative | ||||||||
| Research and development | ||||||||
| Total operating expenses | ||||||||
| Loss from operations | ( | ) | ||||||
| Gain on disposal | ||||||||
| Other income, net | ( | ) | ||||||
| Gain (loss) before income tax | ( | ) | ||||||
| Income tax | ||||||||
| Gain (loss) before noncontrolling interest | ( | ) | ||||||
| Less: loss attributable to noncontrolling interest | ( | ) | ||||||
| Net gain (loss) to the Company | $ | $ | ( | ) | ||||
28
The following table shows the results of operations relating to discontinued operations Zhangxun for the six months ended December 31, 2023 and 2022, respectively.
| SIX MONTHS ENDED DECEMBER 31, | ||||||||
| 2023 | 2022 | |||||||
| Revenues | $ | $ | ||||||
| Cost of goods sold | ||||||||
| Gross profit | ||||||||
| Operating expenses | ||||||||
| Selling | ||||||||
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| Less: loss attributable to noncontrolling interest | ( | ) | ||||||
| Net gain (loss) to the Company | $ | $ | ( | ) | ||||
NOTE 14 – SUBSEQUENT EVENTS
The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company had no material subsequent events to be disclosed.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management’s current expectations, which it believes are reasonable. However, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to several factors, including:
| ● | uncertainties relating to our ability to establish and operate our business and generate revenue; |
| ● | uncertainties relating to general economic, political, and business conditions in China; |
| ● | industry trends and changes in demand for our products and services; |
| ● | uncertainties relating to customer plans and commitments and the timing of orders received from customers; |
| ● | announcements or changes in our advertising model and related pricing policies or that of our competitors; |
| ● | unanticipated delays in the development, market acceptance, or installation of our products and services; |
| ● | changes in Chinese government regulations; and |
| ● | availability, terms and deployment of capital, relationships with third-party equipment suppliers. |
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Overview
Company Structure
Datasea Inc. (“Datasea,” the VIE, as defined below, and our subsidiaries, collectively, the “Company” or “we” or “us” or “our”) is a global technology company incorporated in Nevada USA on September 26, 2014, with subsidiaries and operating entities located in Delaware and China, that provides intelligent acoustics (including ultrasound, infrasound, directional sound, and Schumann resonance), 5G messaging and other products and services to various corporate and individual customers. The acoustic business offers a wide range of cutting-edge precision manufacturing products including high-quality sound air disinfection solutions, sound sleep-aid devices, as well as skin repair and beauty solutions. Our products find extensive applications across various industries and sectors, including acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things. Our common stocks currently listed on the Nasdaq Capital Market are shares of our Nevada holding company that maintains service agreements with the associated operating companies which instead enable us to consolidate the financial results of the VIE and its subsidiaries with Datasea’s corporate group under U.S. GAAP, making Datasea the primary beneficiary of the VIE for accounting purposes.
Datasea is not a Chinese operating company, but a Nevada-based holding company. Its subsidiary, Datasea Acoustics LLC, located in Delaware, serves as the global hub for our acoustic business operations, catering to the U.S. and international markets by providing acoustic technologies and application products, and there is no sales outside of PRC yet as of the report date. Additionally, the Company conducts business activities in China through its subsidiary, Tianjin Information Sea Information Technology Co., Ltd. (“Shuhai Tianjin”), and its VIE entity, Shuhai Information Technology Co., Ltd. (“Shuhai Beijing”), along with their subsidiary entities. Shuhai Beijing offers cutting-edge products and solutions in intelligent acoustics and 5G messaging applications, catering to a wide spectrum of commercial enterprises, households, and individuals in China.
As of the date of this report, its revenue for the first six months, ended December 31, 2023, of its fiscal year ended June 30, 2024, was $18,229,212. This would represent an increase of $18,097,753 and growth of approximately 13,766.84% as compared to $131,459 in revenue that the Company recorded for the first half of its fiscal year ended June 30, 2023. This is also approximately 160% higher than the approximately $7.0 million in revenue recorded for the full fiscal year ended June 30, 2023.
The Company is one of the pioneers in introducing the global concept of “acoustic effects.” And our intelligent acoustics products business represents where we want to go as a company. Our acoustic effects are derived by reverse engineering sound characteristics and developing processing mechanisms from the perspective of how sound impacts on people and objects. This has led us to develop acoustic products that address real-world problems across a range of industries, including acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things. During the reporting period, the company continued to upgrade its existing series of soundwave disinfection products, including the HAILIJIA sound waves smart Clokroom (physical/electronic) dehumidifier and degerming, bathroom model deodorizing and sterilizing special and the HAILIJIA Sleep Assurance (Non-contact assistance for sleep). Currently, the HAILIJIA series comprises nine flagship products, started promoting in the Chinese market through direct sales, channel agents, and live streaming.
Internationalization of acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things has always been a crucial strategy for the Company. In July 2023, Datasea established a wholly-owned subsidiary, Datasea Acoustics LLC, in Delaware, in a strategic move to mark its global presence. This underlies Datasea’s commitment to intelligent acoustics and its intent to offer leading-edge acoustic solutions to the U.S. market. As of the date of this report, the Company collaborated with the globally renowned testing organization, Intertek Inc., to conduct ETL safety and functional certifications for the air disinfection products intended for sale in the United States. This included certifications related to ozone and Aspergillus flavus. We anticipate completing these certifications in the next quarter and commencing the sales of these products in the U.S. market on a larger scale. Furthermore, we entered into cooperation agreements with several well-known American local distributors of smart products. We successfully registered and established an online sales store on the Amazon platform. Additionally, in partnership with the renowned U.S. intellectual property firm, Paul & Paul, we actively pursued various U.S. patents and international patents. We aim to build a strong intellectual property portfolio in the United States and even internationally through patent applications and the acquisition of high-quality patents. With a focus on the primary track of acoustic intelligence, we are seeking potential merger and acquisition targets in areas of acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical healthy, acoustic Internet of Things, such as acoustic disinfection, acoustic medical aesthetics, acoustic health, acoustic agriculture, and acoustic industrial applications. This is part of our strategy for international expansion through mergers and acquisitions.
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Technology and Innovation
Datasea is the global initiator, promoter and practitioner of the concept of acoustic intelligence. Our commitment to technological advancement and global reach positions us at the forefront of delivering cutting-edge intelligent acoustics solutions, especially focusing on ultrasound, infrasound, directional sound and Schumann resonance technology, to meet the evolving needs of our customers and communities worldwide. The research and development of intelligent acoustics technology plays a vital role for the Company and is what makes us different. The Company has non-visual intelligent algorithms and techniques, intelligent acoustics technologies such as ultrasound and directional sound, and 5G messaging related technology, etc. Combined with artificial intelligence (AI), machine learning and data analytics, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises of all types (over 99% are small and medium enterprises (“SMEs”)) and households in China. Acoustic technology and products will also create a healthy living environment for approximately 30.7 million businesses of various types and over 130 million households in the United States.
As of the date of this report, Shuhai Beijing and its subsidiaries own 27 patents and 116 software copyrights in the PRC, which include 13 pending patent applications in core technologies, to empower and grow the business. In addition, the U.S. subsidiary, Datasea Acoustics, is actively acquiring U.S. patents, as well as international patents, and collaborating with U.S. universities and world-renowned research institutions.
The Company holds an outstanding position in the field of acoustics, particularly in the areas such as ultrasound, infrasound, and directional sound. To promote research and innovation in these areas, the Company actively collaborates with several prominent research institutions and universities to enhance the integration and collaboration of research resources. These collaborations and the establishment of these laboratories further solidify the Company’s leading position in the field of acoustics, providing a strong foundation for future innovations and development. In particular, our collaboration with the Chinese Academy of Sciences is worth highlighting. Since signing a cooperation agreement with the Institute of Acoustics at the Chinese Academy of Sciences in 2022, we have been jointly advancing research projects and establishing collaborative laboratories.
The Company, in collaboration with the Ministry of Industry and Information Technology (MIIT), the Key Laboratory of Artificial Intelligence Key Technology and Application Evaluation, and the China Academy of Information and Communications Technology (CAICT) Cloud Computing & Big Data Research Institute, has jointly unveiled China’s inaugural “White Paper on the Acoustic Intelligence Industry.” This groundbreaking document presents compelling analyses and factual insights into the realm of intelligent acoustics technology, its commercialization, and the industry’s future prospects. The white paper extensively explores the applications of acoustic intelligence at an industry level and underscores the expectation that Datasea will take the lead in driving initiatives within the Chinese acoustic applications field. It also emphasizes the Company’s prominent position within the broader acoustic industry landscape.
Operational goals
The primary operational goals for the Company, its subsidiaries, and VIE include:
Sustained Revenue Growth: Implement strategic initiatives such as expanding the sales team, enhancing distribution networks, exploring new markets in both domestic and U.S. regions, and offering value-added services to drive continuous revenue expansion.
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Technological Innovation: Continuously improve the technological capabilities of the ultrasonic antivirus product line and services. Proactively introduce innovations like sound sleep monitors and other acoustic technologies in various health-related fields to meet global market demands and establish an International Patent Matrix.
Customer Satisfaction: Provide customers with high-quality acoustic products and exceptional services to foster loyalty and maintain a positive reputation.
International Expansion: Focus on international growth, particularly in the U.S. market. Leverage the operations of U.S. subsidiaries, engage in mergers and acquisitions, ensure compliance, adapt to market dynamics, and practice effective cross-cultural management.
Partnerships and Collaborations: Cultivate strategic partnerships, collaborating with suppliers, partners, and research institutions to enhance overall business capabilities.
Risk Management: Diligently identify, evaluate, and manage various risks, including those related to the market, legal compliance, and the supply chain.
Shareholder Returns: Generate robust cash flow and provide satisfactory returns to shareholders through effective and sustainable business operations.
Our Business Summary
We deeply understand that the market needs new application areas, new technologies, and new requirements. Therefore, through the tireless efforts of our team, we have continued to research and upgrade from visual algorithms to acoustic-based non-visual algorithms. After achieving significant breakthroughs in the field of acoustics, we have further expanded product applications and market development into areas such as ultrasound, subsonic, and directional sound.
Acoustic intelligence is a new field that integrates fundamental acoustic theory with artificial intelligence to gather and process acoustic data and solve problems. Datasea leverages cutting-edge technologies, precision manufacturing in the realm of intelligent acoustics, especially harnessing the power of ultrasonic sterilization to combat viruses and prevent human infections. This technology capitalizes on the mechanical, thermal, and cavitation effects of ultrasound. When stimulated by ultrasound, microorganisms, including the coronavirus, undergo significant vibration strains, disrupting the virus’s outer shell and internal RNA. The rapid movement of protons in the ultrasound eventually devastates microbial structures, annihilating harmful pathogens.
Leveraging Datasea’s cutting-edge intelligent acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia” series air sterilizer products. We continue to develop new technologies and new products in the acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things. Existing product includes solutions tailored for in-door (Desktop and Floor), in-vehicle, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public places, including hospitals, educational institutions and Elderly Care and Healthcare Institutions. We started to launch those new products in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic shift and process are aimed at offering people more effective solutions for purifying their environments and healthier lifestyles for people not only in China, but also the United States and globally, particularly in the post-pandemic era when people have raised higher demands for protection and quality of life.
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Besides, the Company makes innovations in Schumann frequency, directional sound and others acoustic technology, launching ultrasonic Skin Repair with artificial intelligence diagnosis and Schumann frequency sleep monitors and further creating more industry applications for customers in application fields such as acoustic beauty, acoustic agriculture and acoustic industry. Also, with a diverse technological innovation and precision manufacturing product lineup, we strive to achieve a global market brand, with a certain proportion of market share within three years.
To showcase the Company’s technology and products on the global market, Datasea, through its wholly-owned subsidiary, Datasea Acoustics LLC, based in Delaware, U.S., operates as the primary entity to offer advanced intelligent acoustic precision manufacturing products and solutions, including acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical healthy, acoustic Internet of Things, and more. After obtaining certification from internationally renowned testing organizations for our sound disinfection products, we will launch large-scale sales of these products in the U.S. market. This strategy aims to tap into the continuously growing consumer audience worldwide. Additionally, the establishment of sales channels, collaboration with local U.S. channels, emphasis on technological advancements, partnerships with international technology laboratories, production assembly and the pursuit of multiple channels for obtaining US patents and potential acquisitions are conducive to the sustainable development of Datasea Acoustics LLC.
5G Multimodal communication:
Ⅰ. Definition of 5G multimodal communication
5G Multimodal communication refers to a technology that transmits information through a variety of signal transmission methods. In other words, it is different from the traditional single means of communication, but in many different ways to transmit, receive and process information. 5G Multimodal communication technology integrates sound, image, text, touch and other information to realize information exchange across media platforms.
5G multi-modal communication is an upgrade of 5G messaging services and an extension of RCS (Rich Communication Suite). It features high connectivity, rich media, strong interactivity, convenient services, and high security.
The applications of 5G multi-modal communication technology primarily focus on the following areas:
Cross-modal Information Processing: This involves integrating signals of different forms to facilitate cross-media information exchange. It encompasses various domains such as speech, image, text, and tactile communication; Human-Machine Interaction Technology: Multi-modal communication technology plays a crucial role in enhancing interactions between humans and machines, enabling more intuitive and seamless communication interfaces; Multi-language Processing: With globalization, multi-language processing has become a critical direction and core functionality of multi-modal communication technology. It enables efficient communication and understanding across different languages and cultures; Large language models, including models with enormous parameter sizes and complex structures like the GPT (Generative Pre-trained Transformer) series. These large language models are primarily utilized for natural language understanding and generation tasks such as text generation, language comprehension, and more. These applications demonstrate the versatility and significance of 5G multi-modal communication technology in facilitating diverse forms of communication and interaction across various domains.
Ⅱ. The application trend of 5G multimodal communication
With the rapid development of 5G multimodal communication in the Chinese market, its application trend will show the characteristics of intelligence, strong connectivity, immersive experience, enabling thousands of industries, personalized service and border blurring, and promote the digital transformation and intelligent development of all walks of life. Includes: Intelligence and automation:、 Internet of Things and edge computing、Augmented Reality and virtual reality、 Personalized and customized services、Boundary blurring. In addition, with the popularization of mobile communication technology, people need to realize real-time communication and remote collaboration more and more. The main application of 5G multimodal communication technology enables industries in many scenarios: such as smart home, smart agriculture, medical field, education, enterprise production, smart city and Internet of things entertainment and media: retail and consumer consumption, transportation and logistics, as well as finance and payments. To sum up, 5G multimodal communication technology has a wide range of industry application prospects, can bring more efficient and intelligent solutions to various industries, and promote digital transformation and intelligence in all areas of society
Ⅲ. Datasea's industry position and existing products
As one of the leading service providers in the field of 5G multimodal communications in China, Datasea has several major products and services for different customers and needs. 1, including 5G multi-modal smart agriculture (digital countryside) service platform 2, 5G multi-modal small and medium-sized enterprises service platform 3, 5G multi-modal logistics express service platform 4, 5G multi-modal new media marketing service platform; 5, 5G integrated messaging marketing cloud platform (" 5G IMMCP "), Smart Push (precision marketing solution) 6. 5G message top up platform of the three major operators; 7. Sinopec 5G fuel card consumption platform, 5G multi-modal communication business applications applicable to various industries in China, and payment system applications combined with artificial intelligence (AI), big prediction mode and data analysis capabilities.
Ⅳ. Application and empowerment of the company's existing 5G multimodal communication products in segmented industries
1. 5G multi-modal new media marketing service platform: Using the Internet, mobile communication, social media and other new media platforms to promote brand image and product sales through diversified content communication and interactive marketing means, and help enterprises transform and upgrade. The platform can do online brand building, short video marketing, and promote online sales of products. It mainly targets the retail, entertainment, tourism, education and automotive industries
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2.5G Multi-modal Smart Agriculture (Digital Rural) Service Platform: This platform utilizes sensors for agricultural data collection (including monitoring agricultural environmental parameters such as soil moisture, temperature, and sunlight), precision agriculture management (integrating 5G multi-modal communication technology and data analysis to achieve precise fertilization, irrigation, and prevention of pests and diseases, thereby enhancing crop yield and quality), traceability and traceability of agricultural products (realizing the traceability and traceability of agricultural products to ensure product quality and safety, and enhance consumer trust), data analysis, and characteristic sales of agricultural products. This platform typically covers multiple areas, including but not limited to agricultural production, rural e-commerce, rural education, healthcare, and cultural entertainment. Through the application of digital technology, it provides more convenient and intelligent services for rural areas, promoting the sustainable development of rural social economy.
3. 5G multi-modal service platform for micro, small and medium-sized enterprises: This product is a product independently developed by the company, comprehensively empowering micro, small and medium-sized enterprises, and providing services such as product promotion, brand building, data analysis and traffic collection for micro, small and medium-sized enterprises. The scope of application can cover micro, small and medium-sized enterprises in basically all industries.
4, The three major operators 5G phone charge recharge platform: the company independently developed 5G message phone charge recharge system, after a series of technical debugging, has been put into practical use. The 5G message charge top-up system is a network-based voice charge transaction analysis and management system, which can provide fast, safe and convenient voice charge management services, and analyze the data records of terminal customers of agents for risk prevention and control and big data analysis through the technical interface, so as to further obtain more precise customers.
With the company's production, operation and development, through the steady channel construction, continue to increase product development and increase industry applications, for the sustainable development of enterprises to obtain a broader market space.
Ⅴ. 5G multimodal communication sustainable development
5G multi-modal communication has garnered significant attention due to its wide-ranging applicability, marking the true starting point of the commercial ambition in the AI era. It enables interconnection, real-time communication, and remote collaboration across different forms. In the future, 5G multi-modal communication technology and its application functionalities will become integral components of technologies such as artificial intelligence, deep learning, virtual reality, and augmented reality. Furthermore, as society develops and people's needs continue to grow, the scope of 5G multi-modal communication technology will expand, bringing more convenience and innovation to people's lives.5G multi-modal communication is more aligned with the real-world production needs and is expected to enhance productivity in industries such as e-commerce, marketing, finance, and education. It truly aids enterprises in reducing costs and increasing efficiency, allowing them to allocate saved resources towards improving product/service quality or technological innovation, thus further driving productivity.
Ⅵ. The future can be gradually realized with multi-industry market application product and sales development
A wide range of industry application potential, including smart agriculture, smart home, health care, smart city, industrial manufacturing, education and training, entertainment media, retail consumption, etc. As a result, the company can develop customized products and solutions for different industries to meet the needs of customers in various industries.
Technology innovation and product differentiation: Companies can continuously innovate and optimize the application end of 5G multi-modal communication technology, developing more advanced, reliable, and competitive products and solutions. This will help the company establish a brand image in the market and attract more customers.
Datasea's leading industry position in 5G multimodal communications is made possible by Datasea's deep cooperation with the three major operators in China. The relationship between Datasea 5G multimodal communication and the three major operators is not only a simple business cooperation, but a more closely related business closed-loop, including close cooperation in technology, business model, resource sharing and so on. Datasea based on 5G multimodal communication field and telecom operator network for our acoustic intelligent technology and precision manufacturing products are able to provide digital and intelligent services and various value-added services with 5G multimodal communication intelligent product solutions for China's smart agriculture and more than 48.42 million various enterprises and enterprises and institutions (more than 99% for micro, small and medium-sized enterprises) as well as families Service.
Recent Developments
Our Products and Future Plans of Intelligent Acoustics
General Information
As of the date of this report, we continued to enhance our range of nine acoustic products, including a series of ultrasonic air disinfection machine products. the company continued to upgrade its existing series of soundwave disinfection products, including the HAILIJIA sound waves smart Cloakroom physical dehumidification, deodorization and sterilization special, bathroom deodorization and fresh air special dehumidifier, and the HAILIJIA Sleep Assurance (Non-contact assistance for sleep). Currently, the HAILIJIA series comprises nine flagship products, started promoting in the Chinese market through direct sales, channel agents, and live streaming.
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HAILIJIA sound waves smart Cloakroom (physical/electronic) dehumidifier
| ● |
Key Feature:
Mite remover, Effective Sterilization, Dampness remover, intimidated by AI, Warm Light and Colors |
HAILIJIA Sleep Assurance
| ● |
Key Features:
Non-contact assistance for sleep, No wearing assistance for sleep, IA Warm Light accompaniment |
Sales and Distribution
Domestic channels and sales
As of the date of this report, our acoustic products are mainly developed and produced in China, and the products we sell in China are mainly through multi-modal communication platforms and extensively cooperating with new media. We have established marketing channels and increased revenue capacity.
1) The sales department of Shuhai Beijing and its subsidiaries directly sign sales contracts with customers.
During the reporting period, Shuhai Beijing and its subsidiaries have formed a complete marketing system, promotion strategies and models, including the Company’s own sales team and innovative partner models. The sales team of Shuhai Beijing and its subsidiaries cover the core economic zones of China in Beijing, Northeast China, the Yangtze River Delta, and the Guangdong Hong Kong Macao Greater Bay Area, promoting various products and services.
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2) Online Distributors and Living Stream
The Company expands its coverage and increases market penetration by collaborating with multiple online distributors, living stream platform and selling innovative products on major e-commerce platforms, such as signing a sales partnership with the well-known Chinese e-commerce platform Hunan Jimei, to launch customized e-commerce products to expand its coverage and increase market penetration.
3）Sales Channels
Shuhai Beijing and its subsidiaries have established cooperative relationships with multiple domestic sales and channel merchants and established a nationwide marketing channel network through a partnership system.
International Business Expansion
October 16, 2023, the Company’s Delaware operating subsidiary, Datasea Acoustics LLC, has entered into a marketing promotion and sales cooperation agreement with Meglio Interiors LLC (“Meglio”), based in Chamblee, Georgia, to develop, promote and distribute the Company’s intelligent acoustics products in the U.S.
Meglio has sales channels that include Atlanta, Dallas and New Jersey and broad experience in increasing sales for its clients in the U.S. Meglio has know-how in business development, marketing, sales, branding, and channel development in the U.S. furniture market, which the Company believes is an ideal fit for the Company’s home health products that include air disinfection machines, bathroom and wardrobe deodorization devices, as well as sleep-enhancing products. The Agreement is designed to increase our penetration into new markets worldwide and introduce our products to consumers that effectively address everyday health and living needs. Increase market influence for the Company’s subsequent acoustic industry development including acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical healthy, acoustic Internet of Things.
Key Customers and Agreements
In September 2023, Shuhai Jingwei (Shenzhen) Information Technology Co, Ltd signed a procurement and sales agreement with Hunan Jimei Biotechnology Development Co., Ltd. (hereinafter referred to as “Jimei”), aiming to expand the online sales of Shuhai’s “Hailijia” brand’s acoustic Air Disinfection Machine, Disinfectant and Odor Eliminator series products in China through Jimei’s innovative e-commerce platform and user base. Jimei is a high-tech product research and development, production, and sales enterprise. At the same time, it also has a direct sales license issued by the Ministry of Commerce of China. Its Yunchuang Space APP is a comprehensive e-commerce product intelligent shopping platform that combines private domain traffic and public domain traffic, with a million level user base, providing a rich e-commerce sales channel and options.
5G Mutimodal Communication
Key Customers and Agreements
As of December 31, 2023, Datasea’s Chinese operating entities, Shuhai Information Technology Co., Ltd. (“Shuhai Beijing”), and Heilongjiang Xurui Technology Co., Ltd. (“Xurui Technology”) Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”) and Guozhong Times (Beijing) Technology Co., Ltd. (“Guozhong Times”) have reached agreements with two important new clients: Hainuo Xintong (Qingdao) Network Technology Co., Ltd. (hereinafter referred to as “Hainuo”) and Xiamen Duoqiao Mai Network Technology Co., Ltd. (hereinafter referred to as “Xiamen Duoqiao”). These agreements allow Hainuo Xintong and Xiamen Duoqiao to purchase various denominations of 5G Multimodal communication top up cards within 12 months of the agreement, ranging from RMB10 to RMB500 ($1.38 to $69.4). In just a few months after signing agreements with Hainuo Xintong and Xiamen Duoqiao, Shuhai Beijing and its subsidiaries provided a 5G Multimodal communication service worth approximately $10.49 million (equivalent to RMB 75.07 million). From May 2023 to December 2023, the revenue from Maiduoqiao is $5.54million (equivalent to RMB 39.68 million). From August 2023 to December 2023, the revenue from Hainuo Xintong is $4.95 million (equivalent to RMB 35.40 RMB).
As of December 31, 2023, Datasea’s Chinese operating entity, Guozhong Times (Beijing) Technology Co., Ltd. (hereinafter referred to as the “subsidiary”), has reached an agreement with an important new client, Qingdao OSaidi Network Technology Co., LTD. According to the agreement, Qingdao OSaidi will purchase 5G Multimodal communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023, Shuhai Beijing and its subsidiaries have provided 5G multimodal communication services worth approximately $4.66 million (equivalent to RMB33.35 million).
On December 8, 2023, Datasea’s Chinese operating entity, Guozhong Times (Beijing) Technology Co., Ltd. (hereinafter referred to as the “subsidiary”), has reached an agreement with an important new client, Weihai Hongyun Shi Hao Information Technology Co., Ltd. According to the agreement, Ruicheng Lida will purchase 5G Multimodal communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023, Guozhong Times has provided 5G multimodal communication services worth approximately $0.91 million (equivalent to RMB6.52 million).
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On December 8, 2023, Datasea’s Chinese operating entity, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd (hereinafter referred to as the “subsidiary”), has reached an agreement with an important new client, Qingdao Kapu Information Co., Ltd. According to the agreement, Ruicheng Lida will purchase 5G Multimodal communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023, Shuhai Jingwei has provided 5G multimodal communication services worth approximately $0.78 million (equivalent to RMB 5.59 million).
Market Results
In terms of customer acquisition and marketing, the Company has continuously taken a series of strong measures to promote sales, which has truly achieved explosive growth in sales.
First, we optimize our products and services. We deliberately start from the needs of customers, and constantly optimize and improve products and services to make them more in line with customer needs. We independently developed internal systems such as the 5G multimodal communication service platform, one of them works with the three major carriers, making the 5G Multimodal communication business more accurate and convenient, and the process more scientific and smoother.
Secondly, through its own sales team, the Company vigorously promotes and publicizes the Company’s research and development results and technology display in 5G sales, actively participates in important seminars and business fairs around the country, and deeply explores the target customers related to 5G news. Through painstaking efforts and keen business acumen, we have obtained a stable customer flow.
Thirdly, the Company also hired a professional 5G news business promotion team, and signed 5G communication marketing service agreements with some marketing companies that have many years of advantages in Internet of Things market development, operation and promotion services, have effective integration with mobile Internet enterprises, Internet of Things industry chain and other resources, and have strong channel expansion and sales and operation capabilities, to carry out in-depth cooperation. Quickly and effectively recruit high-quality partners for the Company to achieve rapid economic value transformation. Third party marketing companies bring us a large number of customers, which is our total sales growth engine.
Finally, we have also carried out some preferential activities and implemented different discount policies for customers. Through preferential activities to attract customers to participate in cooperation, increase customer participation and loyalty, thereby increasing sales artery.
ESG Management
Datasea is committed to aligning with global ESG (Environmental, Social, and Governance) standards and best practices, given their growing significance in the business landscape. We understand the importance of this approach in managing risks effectively, identifying opportunities for growth, and fortifying our long-term resilience. Moreover, it enables us to foster positive relations with stakeholders and gain a competitive edge in the ever-evolving high-tech sector, specifically within the field of acoustic intelligence.
As part of our unwavering dedication to ESG, Datasea has adopted a comprehensive SASB framework designed to ensure that our operations remain consistent with our core values and priorities. This framework serves as a guide for our decision-making processes, emphasizing the importance of sustainable growth and enduring success.
Transparency and accountability are at the core of our ESG strategy. Datasea is committed to providing meaningful and accurate information about our ESG practices and performance to our stakeholders. This information will be disclosed through regular ESG reports along with accompanying sustainability statements. In line with this commitment, Ms. Zhixin Liu, the CEO of the Company, has been honored as an Integrity Entrepreneur and Integrity Manager in 2020, serving as a representative.
Supporting Employee Growth
The Company consistently strengthens employee hiring standards, improves the talent development management system, establishes a platform for employee development, and helps outstanding talents enhance their skills and create extraordinary results, enabling each employee to find their personal value within the company. Additionally, the company emphasizes safeguarding employee rights, creating a positive work environment and corporate atmosphere, and collaborating with all employees to share development achievements and jointly create a better future.
The Company respects and values employees of different ages, ethnicities, regions, political affiliations, religions, sexual orientations, marital and reproductive statuses, educational backgrounds, work styles, work experiences, and personal viewpoints. With an attitude of “diversity, fairness, and inclusiveness,” the Company attracts and gathers talents. It strictly adheres to the Labor Law of the People’s Republic of China and the Labor Contract Law of the People’s Republic of China, establishing internal regulations such as the “Onboarding Management System” and “Labor Contract Management System.” The Company signs labor contracts in accordance with the law, pays social insurance and housing provident fund, and respects and protects everyone’s legitimate rights and interests. In 2023, the Company conducted a review based on the latest revision of the “Law of the People’s Republic of China on the Protection of Women’s Rights and Interests” to ensure the legal and compliant implementation of internal policies. It aims to create an equal, respectful, healthy, safe, and harmonious working environment, fostering collective growth together. Compared to 2022, the proportion of female employees in the company increased by 11% in 2023. Ms. Zhixin Liu, the CEO of the Company, as a representative, was elected as the Vice President of the Women Entrepreneurs Association in Jinghai District, Tianjin, and became a member of the China Women Entrepreneurs Association.
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Employment and Rights Protection
Diversity and Equality. We have established a top-down talent attraction system for different groups. In 2023, the company provided employment opportunities for tens of thousands of people in three cities, including recent graduates and retired veterans. Additionally, the company actively leveraged its technological advantages to develop a series of systems and platforms dedicated to improving the efficiency of talent recruitment. Through internal and external channels and with a focus on the differences in various industries and talent distribution maps, the company strengthened talent attraction and reserves to enhance recruitment efficiency in line with the company’s strategy.
Compensation and Benefits
The company has formulated regulations such as the “Performance Bonus Assessment Management Measures,” “Performance Incentive Management Measures,” and “Stock and Shareholding Platform Incentive Management Measures,” providing employees with competitive compensation and benefits. The employee compensation system consists of basic salary, performance salary, position salary, welfare subsidies, and bonuses. Based on regional competitive conditions, local economic development levels, and considering factors such as employees’ work experience, knowledge and skill levels, job responsibilities, and performance levels, the Company has comprehensively constructed the compensation system.
In 2023, the Company implemented a team stock incentive plan, where a total of more than 70 people, including R&D, marketing, and management department employees, enjoyed stock incentives from the listed company. This effectively retained core employees, attracted more high-end talents, deeply stimulated the vitality of corporate development, and formed a “value co-creation, risk sharing, and benefit sharing” community of interests and business community.
Public Welfare Activities, Giving Back to Society
The Company has been actively involved in various public welfare activities, including the “Love to Send You to School” charity assistance program, Sunshine Volunteer Charity Club, and other charitable activities. Ms. Zhixin Liu, the CEO of the Company, as a representative, was awarded the title of Charity Ambassador for the year 2020 by the China Charity Federation and received the title of Loving Entrepreneur for her participation in the “Love to Send You to School” charity assistance program and the Sunshine Volunteer Charity Club in 2021.
Competition
It is essential to recognize that acoustic technology is a broad and diverse field. Different acoustic attributes find extensive applications in various niche sectors, and distinct competitive landscapes exist across different application areas. Major tech companies like Baidu, Alibaba, Tencent, and others have also invested in acoustic-related technologies, potentially impacting future market dynamics. We anticipate that competition in the markets we engage in will continue to intensify as existing competitors enhance or broaden their product offerings, and as new companies enter the market. Moreover, our ability to compete effectively depends on various factors, including technological innovation, product safety, as well as attributes such as price and brand reputation.
New software Copyright acquired from July 1, 2023 to December 31, 2023
| Software Copyright Owned by Shuhai Beijing |
| No. | Certification | Certificate No. | ||
| 1 | Big data precise analysis sales promotion system | Ruan Zhu Deng Zi No. 11933115 | ||
| 2 | Multimodal Customer Relationship Management System | Ruan Zhu Deng Zi No. 11938599 | ||
| 3 | 5G Multimodal communication Data Exchange Center System |
Ruan Zhu Deng Zi No. 11893684 | ||
| 4 | Enterprise Digital Employee Management System | Ruan Zhu Deng Zi No. 11548880 |
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| Software Copyright owned by Xunrui Technology |
| No. | Certification | Certificate No. | ||
| 1 | Xunrui IoT Terminal Service Gateway Platform V1.0 | Ruan Zhu Deng Zi No. 10357761 | ||
| 2 | Xunrui Smart Community Comprehensive Management Platform V2.0 | Ruan Zhu Deng Zi No. 10357535 | ||
| 3 | Xunrui Smart Community Comprehensive Management Client Platform V1.0 | Ruan Zhu Deng Zi No. 10312678 | ||
| 4 | “CoAI CPaaS”Interactive Artificial Intelligence Precision Touch Analysis Platform v1.0 | Ruan Zhu Deng Zi No. 11659754 | ||
| 5 | Cloud Customer Resource Management System v1.0 | Ruan Zhu Deng Zi No. 11652683 | ||
| 6 | Big data attribute label analysis marketing push system | Ruan Zhu Deng Zi No. 11877356 |
Going Concern
The accompanying unaudited consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months ended December 31, 2023 and 2022, the Company had a net loss of approximately $1.83 million and $1.29 million, respectively. For the six months ended December 31, 2023 and 2022, the Company had a net loss of approximately $1.86 million and $2.63 million, respectively. The Company had an accumulated deficit of approximately $29.92 million as of December 31, 2023, and negative cash flow from operating activities of approximately $5.63 million and $1.77 million for the six months ended December 31, 2023 and 2022, respectively. The historical operating results indicate the Company has recurring losses from operations which raise the question related to the Company’s ability to continue as a going concern although the range of such recurring operating losses has narrowed in recent years. There can be no assurance the Company will become profitable or obtain necessary financing for its business and investments or that it will be able to continue in business and investments. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As of December 31, 2023, the Company had cash of $437,716.
We continue to bring in additional investors to support our company’s research and development, marketing and operations. On August 1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company agreed to sell and the investor agreed to purchase an aggregate of 4,760,000 shares of common stock price at a $1.2 per share purchase price. Such shares must be held for a period of 365 days. In accordance with such two agreements, Investor shall pay a total purchase price of $5,712,000 in RMB, at an amount of RMB 40,000,000, no later than September 30, 2023. On September 21, the Company has received all of the payment of RMB 40,000,000. On August 15, 2023, the Company entered into a subscription agreement with a non-U.S. investor to purchase an aggregate of 2,962,963 shares of common stock price at a $1.35 per share purchase price, with a total subscription price of $4,000,000. The shares must be held for a period of 180 days. On September 13, 2023, our Company announced the closing of an underwritten public offering of 5,000,000 shares of common stock at a public offering price of $0.40 per share, for aggregate gross proceeds of $1,635,000, after deducting underwriting discounts and other offering expenses. We believe these fundings demonstrate our investors’ confidence in our strategy and business.
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The Company recorded $0.83 million gain on disposal of the subsidiary, which was the difference between the selling price of US$0.28 and the carrying value of the negative net assets of $2.34 million of the disposal entity, and further netting off the inter-company receivables from Zhangxun of $1.48 million due to uncertainty of the repayment from Zhangxun. In addition, the Company incurred an additional $32,236 intercompany receivables from Zhangxun during the three months ended September 30, 2023, for which, the Company also netted off with gain on disposal of Zhangxun.
If deemed necessary, management could seek to raise additional funds by the way of introducing strategic investors or private or public offerings, or by obtaining loans from banks or others, to support the Company’s research and development, procurement, marketing and daily operation. However, there can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings. Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in the future capital transactions may be more favorable for new investors. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.
Sustainable operation can help enterprises improve operating efficiency, enhance the competitiveness of enterprises, and enhance the market share of enterprises.
Sustainable operation can help enterprises better control risks, reduce operating costs, and ensure the safety of enterprises.
Sustainable operation can help enterprises enhance their social image and enhance their sense of social responsibility.
Sustainable operation can help enterprises better grasp market opportunities, grasp market trends, and achieve a win-win situation between enterprises and society.
Significant Accounting Policies
Please refer to our significant accounting policies in Note 2 to our consolidated financial statements included in this report.
Results of Operations
Comparison of the three Months ended December 31, 2023 and 2022
The following table sets forth the results of our operations for the three months ended December 31, 2023 and 2022, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.
| 2023 | % of Revenues | 2022 | % of Revenues | |||||||||||||
| Revenues | $ | 11,348,469 | $ | 131,459 | ||||||||||||
| Cost of revenues | 11,246,234 | 99.1 | % | 96,030 | 73.0 | % | ||||||||||
| Gross profit | 102,235 | 0.9 | % | 35,429 | 27.0 | % | ||||||||||
| Selling expenses | 1,149,944 | 10.1 | % | 45,588 | 34.7 | % | ||||||||||
| Research and development | 117,371 | 1.0 | % | 148,812 | 113.2 | % | ||||||||||
| General and administrative expenses | 623,456 | 5.5 | % | 866,399 | 659.1 | % | ||||||||||
| Total operating expenses | 1,890,771 | 16.7 | % | 1,060,799 | 806.9 | % | ||||||||||
| Loss from operations | (1,788,536 | ) | (15.8 | )% | (1,025,370 | ) | (780.0 | )% | ||||||||
| Non-operating expenses, net | (44,564 | ) | (0.4 | )% | (34,297 | ) | (26.1 | )% | ||||||||
| Loss before income taxes | (1,833,100 | ) | (16.2 | )% | (1,059,667 | ) | (806.1 | )% | ||||||||
| Income tax expense | - | - | % | - | - | % | ||||||||||
| Loss before noncontrolling interest from continuing operation | (1,833,100 | ) | (16.2 | )% | (1,059,667 | ) | (806.1 | )% | ||||||||
| Income (loss) before noncontrolling interest from discontinued operation | - | - | % | (351,418 | ) | (267.3 | )% | |||||||||
| Less: income (loss) attributable to noncontrolling interest from continuing operation | (61 | ) | (0.001 | )% | (14,002 | ) | (10.7 | )% | ||||||||
| Less: income (loss) attributable noncontrolling interest from discontinued operation | - | - | % | (106,093 | ) | (80.7 | )% | |||||||||
| Net loss to the Company from continuing operation | (1,833,039 | ) | (16.2 | )% | (1,045,665 | ) | (795.4 | )% | ||||||||
| Net loss to the Company from discontinued operation | - | - | % | (245,325 | ) | (186.6 | )% | |||||||||
| Net loss to the Company | $ | (1,833,039 | ) | (16.2 | )% | (1,290,990 | ) | (982.0 | )% | |||||||
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Revenues
We had revenues of $11,348,469 and $131,459 for the three months ended December 31, 2023 and 2022, respectively, which shows a $11,217,010 increase by comparing with the same period of 2022. The increase in revenues was mainly due to the rapid increase of 5G messaging business in China. For the three months ended December 31, 2023, revenues mainly consisted of service fees from our 5G Multimodal communication service.
From October 1, 2023 to December 31, 2023, the Company generated revenue of $11,348,469, including $11,276,319 from the 5G messaging business, $2,862 from the acoustic intelligence and $69,288 from other. From October 1, 2022 to December 31, 2022, the Company generated revenue of $131,459, including $42,700 from Smart Public broadcasting projects, $85,161 from Hailijia series air purification and sterilizers, and $3,598 from others.
Cost of Revenues
We recorded $11,246,234 and $96,030 cost of revenues for the three months ended December 31, 2023 and 2022, respectively, which shows a $11,150,204 increase by comparing with the same period of 2022. For the three months ended December 31, 2023, cost of revenues was mainly the 5G Multimodal communication service platform fees and Cloud Platform construction to suppliers. The increase in cost of revenues was due mainly to the increased revenue of 5G Multimodal communication. For the three months ended December 31, 2023, the cost of 5G Multimodal communication was $11.18 million, the cost of intelligent acoustics business was $1,719, and the cost of other was $68,142. For the three months ended December 31, 2022, the cost of Smart Public broadcasting projects was $35,906, and the cost of Hailijia series air purification and sterilizers was $60,124.
Gross Profit
Gross profit for the three months ended December 31, 2023 was $102,235 compared to $35,429 for the three months ended December 31, 2022, which shows a $66,806 increase by comparing with the same period of last fiscal year. The increase in gross profit was mainly due to the increase in sales for the three months ended December 31, 2023.
Gross margin is 0.9% and 27.0% for the three months ended December 31, 2023 and 2022. The decrease in gross profit margin was mainly due to the lower gross profit margin of 5G Multimodal communication service.
Measures to improve the gross profit margin of enterprises:
| 1. | Reasons for the Company’s choice of temporary cost leadership strategy: Due to the fierce competition in the 5G Multimodal communication business market, the Company has established a good cooperative relationship with major customers in order to quickly occupy the market, promote the Company’s 5G Multimodal communication business, and temporarily yield profits at this stage, which is a period of market expansion. |
| 2. | Sales rebate and marketing reasons: In the marketing of 5G Multimodal communication business, centralized procurement is made for customers’ prepaid accounts to ensure the security of the Company’s funds. At this stage, sales to customers have a certain amount of sales rebates and marketing expenses. In order to reduce the simplicity of financial accounting and the simplicity of settlement, the Company has reached an agreement with customers and directly included in the cost. |
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| 3. | According to the progress of the Company’s strategic development, the cost of marketing promotion and sales rebate will be reduced and the gross profit rate will gradually increase after the customer group is stable and competitive. |
| 4. | The Company vigorously expands 5G related businesses, the most important purpose is to obtain market traffic and improve market brand influence. It can let more people know about the Company, and increase its exposure and visibility. 5G related services have become a tool to attract traffic and improve brands, which can drive revenue of other projects. |
| 5. | Actively carrying out 5G Multimodal communication related business can attract more users’ attention and establish a good interactive relationship with users, which can firmly obtain a large number of loyal long-term user groups for the company, which has great potential for us to expand other revenue businesses and obtain new profit growth. It can drive business and revenue expansion in 5G refueling cards, 5G Internet of Things and other fields. |
| 6. | Upgrade the business model, add new acoustic intelligent products, different industry application fields, and high additional fields to improve the gross profit margin. |
From the perspective of market prospects, according to the prediction of Global Association for Mobile Communication Systems, by 2025, the number of 5G connections in China will exceed the sum of North America and Europe, ranking first in the world. The number of 5G connections will reach 460 million, accounting for 28% of the total connections in the country. 5G messaging has become an international standard. According to the Global System for Mobile Communications Association, as of September 2020, 90 mobile network operators worldwide have launched RCS, with 473 million global monthly active users; it is expected that the RCS market will be approximately $74 billion by the end of 2021. Mobile squared predicts that by 2023, 74.6% of smartphone users will use RCS channels for communication. China will become one of the largest single contributors to the global growth of mobile internet users in the coming years, accounting for nearly 20% of the total global increase.
Combining the advantages of “Internet of Things+” intelligent terminals and 5G messaging industry chain, Shuhai Beijing is advancing with the time, taking the train of the 5G era, and developing 5G Multimodal communication/phone top up business. At this stage, Shuhai Beijing is carrying out the development, operation and promotion services of the Internet of Things market and increasing the effective combination of resources with Mobile Internet enterprises and the Internet of Things industrial chain.
In 2023, the 5G Multimodal communication business of Shuhai Beijing accounts for a relatively big proportion of the total revenue, because, at this stage, the business belongs to the early stage of the development, operation and promotion services of the Internet of Things market, and the investment in all aspects is large. In addition, the gross profit of the phone charge recharging business is generally low. As a result, the annual gross profit margin decreased from the previous year. The Company’s focus in this business is to integrate new resources, expand new businesses related to 5G, combine the Company’s years of deep cultivation and accumulation in 5G news, and take this opportunity to open up more 5G-related businesses to increase the Company’s revenue and new business.
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In China’s mature and transparent market today, gross margins on services are far greater than those on hardware sales. The improvement of gross profit margin shows that the Company’s measures to improve gross profit margin are gradually showing effect: 1) costs will be reduced by economic scale over a larger number of customers base and the increase in production; 2) the Company, by adopting the differentiation strategy, grows brand recognition and customer loyalty, strengthening the Company’s pricing power; 3) as the scale of 5G recharge services and the number of serviced customers, along with service quality, continue to improve, customized and value-added services, as well as service fees, will gradually increase. This will boost the profitability of the Company’s related businesses. The Company will continue to increase the share of high gross profit products in the sales while increasing the revenue, so as to further improve the gross profit rate and give investors a better return on investment.
Selling, General and Administrative, and Research and Development Expenses
Selling expenses were $1,149,944 and $45,588 for the three months ended December 31, 2023 and 2022, respectively, representing an increase of $1,104,356 or 2,422.5%. The increase was mainly due to the increased advertising and marketing expenses by $1,129,550, which was partly offset by a decrease in payroll expense of salespersons by $22,484 and decreased meal and entertainment expense by $3,326.
Currently, we are focusing on expanding the Company’s leading intelligent acoustics technologies and products and continuing to develop 5G-related applications. We incurred R&D expenses of $117,371 and $148,812 during the three months ended December 31, 2023 and 2022, respectively, which shows a $31,441 or 21.1% decrease by comparing with the same period of 2022.
Research and development expenses of $117,371 for three months ended December 31, 2023. The Company’s research and develop results include but are not limited to the following:
As one of the leading service providers in China’s 5G communication field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated Messaging Marketing Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G Multimodal communication business related applications applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data analytic capability, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and businesses of all types (over 99% are SMEs) and households in China with digital and intelligent services.
Leveraging Datasea’s cutting-edge intelligent acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia” series air sterilizer products. This lineup includes solutions tailored for indoor (desktop and floor), car use, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public places, including offices, educational institutions, transportation, hospitals, etc. We started to launch those new products in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic transformation and process not only provide safer and healthier lifestyles for Chinese users, but also for users in the United States and globally.
General and administration expenses decreased $242,943, or 28.0% from $866,399 during the three months ended December 31, 2022 to $623,456 during the three months ended December 31, 2023. The decrease was mainly attributed to decreased rent expense by $74,406, decreased consulting and director compensation by $158,255, and decreased auto expense by $11,993.
The Company has more accurate and scientific management methods in personnel costs and risk control. We take human capital as a key indicator to promote business growth and technological innovation by improving efficiency. By downsizing the numbers of non-core position staff, the Company manages to control expenses, while does not affect the work efficiency and efficiency in any way. At the same time the Company strives to pursue better integration channel with related industries, i.e., outsourcing sales branch for acoustic products and establishing joint venture to obtain the investment to 5G messaging technology area.
We are treating human capital as a key indicator to drive the business growth and technical innovation, also pursuing better integrated channels with related industries.
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Non-Operating Income (Expenses), net
Non-operating expenses were $44,564 for the three months ended December 31, 2023, consisting mainly of interest income of $1,623 and other expenses of $46,187. Non-operating expenses were $34,297 for the three months ended December 31, 2022, consisting mainly of interest income of $29 and other expenses of $34,326.
Net Loss from Discontinued Operation
We generated net loss from discontinued operation of $ nil and net loss of $245,325 for the three months ended December 31, 2023 and 2022, respectively.
Net Loss from continuing operation
We generated net losses from continuing operation of $1,833,039 and $1,045,665 for the three months ended December 31, 2023 and 2022, respectively, an $787,374 or 75.3% increase by comparing with the same period of 2022. The increase in net loss was mainly due to the increase in operating expenses as explained above.
Comparison of the Six Months ended December 31, 2023 and 2022
The following table sets forth the results of our operations for the six months ended December 31, 2023 and 2022, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.
| 2023 | % of Revenues | 2022 | % of Revenues | |||||||||||||
| Revenues | $ | 18,229,212 | $ | 131,459 | ||||||||||||
| Cost of revenues | 18,052,242 | 99.0 | % | 96,030 | 73.0 | % | ||||||||||
| Gross profit | 176,970 | 1.0 | % | 35,429 | 27.0 | % | ||||||||||
| Selling expenses | 1,234,391 | 6.8 | % | 149,702 | 113.9 | % | ||||||||||
| Research and development | 272,375 | 1.5 | % | 255,440 | 194.3 | % | ||||||||||
| General and administrative expenses | 1,316,516 | 7.2 | % | 1,751,359 | 1,332.2 | % | ||||||||||
| Total operating expenses | 2,823,282 | 15.5 | % | 2,156,501 | 1,640,4 | % | ||||||||||
| Loss from operations | (2,646,312 | ) | (14.5 | )% | (2,121,072 | ) | (1,613.5 | )% | ||||||||
| Non-operating expenses, net | (52,322 | ) | (0.3 | )% | (35,472 | ) | (27.0 | )% | ||||||||
| Loss before income taxes | (2,698,634 | ) | (14.8 | )% | (2,156,544 | ) | (1,640.5 | )% | ||||||||
| Income tax expense | - | - | % | 8 | (0.01 | )% | ||||||||||
| Loss before noncontrolling interest from continuing operation | (2,698,634 | ) | (14.8 | )% | (2,156,552 | ) | (1,640.5 | )% | ||||||||
| Income (loss) before noncontrolling interest from discontinued operation | 833,546 | 4.6 | % | (688,480 | ) | (523.7 | )% | |||||||||
| Less: loss attributable to noncontrolling interest from continuing operation | (9,993 | ) | (0.1 | )% | (8,867 | ) | (6.7 | )% | ||||||||
| Less: loss attributable noncontrolling interest from discontinued operation | - | - | % | (207,852 | ) | (158.1 | )% | |||||||||
| Net loss to the Company from continuing operation | (2,688,641 | ) | (14.7 | )% | (2,147,685 | ) | (1,633.7 | )% | ||||||||
| Net income (loss) to the Company from discontinued operation | 833,546 | 4.6 | % | (480,628 | ) | (365.6 | )% | |||||||||
| Net loss to the Company | $ | (1,855,095 | ) | (10.2 | )% | (2,628,313 | ) | (1,999.3 | )% | |||||||
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Revenues
We had revenues of $18,229,212 and $131,459 for the six months ended December 31, 2023 and 2022, respectively, which shows a $18,097,753 increase by comparing with the same period of 2022. The increase in revenues was mainly due to the rapid increase of 5G messaging business in China. For the six months ended December 31, 2023, revenues mainly consisted of service fees from our 5G Multimodal communication.
From July 1, 2023 to December 31, 2023, the Company generated revenue of $18,229,212, including $18,156,782 from the 5G messaging business, $69,288 from other services and $3,142 from the acoustic intelligence. From July 1, 2022 to December 31, 2022, the Company generated revenue of $131,459, including $42,700 from Smart Public broadcasting projects, $85,161 from Hailijia series air purification and sterilizers, and $3,598 from others.
This is inseparable from the Company’s research and development support and personnel support over the years, the Company’s upstream and downstream chain maintenance and experience accumulation and precipitation eventually formed a huge loyal customer base, but also closely related to the thriving vitality of the 5G market.
Through its own sales team, the Company vigorously promotes and publicizes its research and development results and technology display in 5G sales, actively participates in important seminars and business fairs around the country, and deeply explores the target customers related to 5G news. Through painstaking efforts and keen business acumen, we have actually obtained a stable customer flow.
The Company’s top five customers for 5G Multimodal communication business at this stage are Xiamen Duoqiao Mai Network Technology Co., LTD., Hainuo Xintong (Qingdao) Network Technology Co., LTD., Qingdao Osaidi Network Technology Co., LTD., Qingdao Ruicheng Lida Network Technology Co., LTD., and Weihai Hongyun Shihao Information Technology Co., LTD.. Through close business cooperation, the above customers have become stable and loyal partners of the Company, and will work together in the future.
In terms of marketing promotion, the Company has hired a professional cooperative marketing team to introduce and recruit suitable and high-quality stable customers for the Company. From the fourth quarter of 2023, the sales of the Company’s 5G Multimodal communication business has witnessed explosive growth, and the sales in the second quarter of 2024 have significantly increased compared with the previous quarter.
At present, the Company’s research and development technology in 5G Multimodal communication is leading in the industry. After long-term expansion of customer groups, it has formed a stable customer group. At present, the Company has also hired a professional 5G Multimodal communication business promotion team. We signed 5G communication marketing service agreements with some marketing companies that have many years of advantages in iot market development, operation and promotion services, have effective integration with mobile Internet enterprises, iot industry chain and other resources, and have strong channel expansion and sales and operation capabilities to carry out in-depth cooperation. This business segment belongs to the stable growth of the company’s business, and in the future, the company will continue to grow steadily, steadily and rapidly in the 5G Multimodal communication business segment.
Cost of Revenues
We recorded $18,052,242 and $96,030 cost of revenues for the six months ended December 31, 2023 and 2022, respectively, which shows a $17,956,212 increase by comparing with the same period of 2022. For the six months ended December 31, 2023, cost of revenues was mainly the 5G Multimodal communication platform fees and Cloud Platform construction to suppliers. The increase in cost of revenues was due mainly to the increased revenue of 5G Multimodal communication. For the six months ended December 31, 2023, the cost of 5G Multimodal communication was $17.98 million, the cost of other services was $68,142 and the cost of intelligent acoustics business was $141. For the six months ended December 31, 2022, the cost of Smart Public broadcasting projects was $35,906, and the cost of Hailijia series air purification and sterilizers was $60,124.
Gross Profit
Gross profit for the six months ended December 31, 2023 was $176,970 compared to $35,429 for the six months ended December 31, 2022, which shows a $141,541 increase by comparing with the same period of last fiscal year. The increase in gross profit was mainly due to the increase in sales for the six months ended December 31, 2023.
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Gross margin is 1.0% and 27.0% for the six months ended December 31, 2023 and 2022. The decrease in gross margin was mainly due to the lower gross profit margin of 5G Multimodal communication service.
In 2023, the 5G Multimodal communication business of Shuhai Information accounts for a relatively big proportion of the total revenue, because, at this stage, the business belongs to the early stage of the development, operation and promotion services of the Internet of Things market, and the investment in all aspects is large. In addition, the gross profit of the phone charge recharging business is generally low. As a result, the annual gross profit margin decreased from the previous year. The Company’s focus in this business is to integrate new resources, expand new businesses related to 5G, combine the Company’s years of deep cultivation and accumulation in 5G news, and take this opportunity to open up more 5G-related businesses to increase the Company’s revenue and new business.
In China’s mature and transparent market today, gross margins on services are far greater than those on hardware sales. The improvement of gross profit margin shows that the Company’s measures to improve gross profit margin are gradually showing effect: 1) costs will be reduced by economic scale over a larger number of customers base and the increase in production; 2) the Company, by adopting the differentiation strategy, grows brand recognition and customer loyalty, strengthening the Company’s pricing power; 3) As the scale of 5G recharge services and the number of serviced customers, along with service quality, continue to improve, customized and value-added services, as well as service fees, will gradually increase. This will boost the profitability of the Company’s related businesses. The Company will continue to increase the share of high gross profit products in the sales while increasing the revenue, so as to further improve the gross profit rate and give investors a better return on investment.
Selling, General and Administrative, and Research and Development Expenses
Selling expenses were $1,234,391 and $149,702 for the six months ended December 31, 2023 and 2022, respectively, representing an increase of $1,084,689 or 724.6%. The increase was mainly due to the increased advertising and marketing expenses by $1,196,158, which was partly offset by decreased in payroll expense of salespersons by $102,283, and decreased service fee by $9,647.
Currently, we are focusing on expanding the Company’s leading intelligent acoustics technologies and products and continuing to develop 5G-related applications. We incurred R&D expenses of $272,375 and $255,440 during the six months ended December 31, 2023 and 2022, respectively, which shows a $16,935 or 6.6% increase by comparing with the same period of 2022.
Research and development expenses of $272,375 for six months ended December 31, 2023. The Company’s research and develop results include but are not limited to the following:
As one of the leading service providers in China’s 5G Multimodal communication field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated Messaging Marketing Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G messaging Top Up business related applications applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data analytic capability, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and businesses of all types (over 99% are SMEs) and households in China with digital and intelligent services.
Leveraging Datasea’s cutting-edge intelligent acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia” series air sterilizer products. This lineup includes solutions tailored for in-door (Desktop and Floor), in-vehicle, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public places, including hospitals, educational institutions and Elderly Care and Healthcare Institutions. We started to launch those new products in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic shift and process are aimed at offering people more effective solutions for purifying their environments and healthier lifestyles for people not only in China, but also the United States and globally, particularly in the post-pandemic era when people have raised higher demands for protection and quality of life.
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General and administration expenses decreased $434,843, or 24.8% from $1,751,359 during the six months ended December 31, 2022 to $1,316,516 during the six months ended December 31, 2023. The decrease was mainly attributed to decreased rent expense by $188,226, and decreased consulting and director compensation by $281,996, decreased payroll expense by $15,180 and decreased leaseholder improvement expense by $29,054, which was partly offset by increased legal expenses by $84,733.
The Company has more accurate and scientific management methods in personnel costs and risk control. We take human capital as a key indicator to promote business growth and technological innovation by improving efficiency. By downsizing the numbers of non-core position staff, the Company manages to control expenses, while does not affect the work efficiency and efficiency in any way. At the same time the Company strives to pursue better integration channel with related industries, i.e., outsourcing sales branch for Acoustic products and establishing joint venture to obtain the investment to 5G messaging technology area.
We are treating human capital as a key indicator to drive business growth and technical innovation, also pursuing better integrated channels with related industries.
Non-Operating Expenses, net
Non-operating expenses were $52,322 for the six months ended December 31, 2023, consisting mainly of interest income of $1,729 and other expenses of $54,051. Non-operating expenses were $35,472 for the six months ended December 31, 2022, consisting mainly of interest income of $93 and other expenses of $35,565.
Net (Income) Loss from Discontinued Operation
We generated net income from discontinued operation of $833,546, which was the gain on disposal of Zhangxun, and net loss of $688,480 for the six months ended December 31, 2023 and 2022, respectively.
Net Loss from continuing operation
We generated net loss from continuing operation of $2,688,641 and $2,147,685 for the six months ended December 31, 2023 and 2022, respectively, an $540,956 or 25.1% increase by comparing with the same period of 2022. The increase in net loss was mainly due to the increase in operating expenses which was partly offset by increased gross profit as explained above.
Accounts receivable
The operating revenue of the six months ended December 31, 2023 was $18,229,212, the balance of accounts receivable was $54,123 at December 31, 2023. In the same period last year, the operating revenue was $131,459, and the accounts receivable balance was $388,316 at December 31, 2022. This quarter, the Company further segmented the market, planned eight regional headquarters, strengthened the collection control, and promoted the fund collection of contracted delivery projects, which led to the benign return of funds and had a far-reaching impact on the future.
Liquidity and Capital Resources
Historically, we have funded our operations primarily through the sale of our common stock and shareholder loans. To enhance our ability to continue to operate as a going concern, we are dedicating resources to generate recurring revenues and sustainable operating cash flows.
We expect to generate revenues through expanding our current 5G messaging and acoustic intelligence business, and through continuous product innovation and development as well as various types of value-added services. In order to maintain working capital sufficient to support our operations and finance the future growth of our business, we expect to fund any cash flow shortfall through financial support from our majority stockholders (who are also our board members or officers) and public or private issuance of securities. However, such additional cash resources may not be available to us on desirable terms, or at all, if and when needed by us.
As of December 31, 2023, we had a working capital of $1,646,072 or a current ratio of 1.68:1, and our current assets were $4,058,251. As of June 30, 2023, we had a working capital deficit of $3,617,058 or a current ratio of 0.26:1. Our current assets were $1,289,517.
We expect the Company to continue to support its ongoing operations and financing through revenue growth and increased financing activities. However, there is no assurance that the Company will be able to secure such additional working capital on commercially viable terms or at all.
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The following is a summary of cash provided by or used in each of the indicated types of activities during the six months ended December 31, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (5,633,282 | ) | $ | (1,766,490 | ) | ||
| Net cash used in investing activities | $ | (71,816 | ) | $ | (33,025 | ) | ||
| Net cash provided by financing activities | $ | 6,241,781 | $ | 1,683,208 | ||||
Cash Flow from Operating Activities
Net cash used in operating activities was $5,633,282 during the six months ended December 31, 2023, compared to net cash used in operating activities of $1,766,490 during the six months ended December 31, 2022, an increase in cash outflow of $3,866,792. The increase in cash outflow was mainly due to increased cash outflow on prepaid expenses and other current assets by $2,543,369, decreased cash inflow on accounts payable by $573,457, decreased cash inflow on accrued expenses and other payables by $431,192, increased cash outflow on unearned revenue by $305,510, which was partly offset by decreased net loss by $979,944 with noncash adjustments to net loss from decreased stock compensation expense by $191,047 and gain on sale of Zhangxun of $833,546.
Cash Flow from Investing Activities
Net cash used in investing activities totaled $71,816 for the six months ended December 31, 2023, which consisted of cash paid for the acquisition of office furniture and equipment of $3,683, cash paid for acquisition of intangible assets by $68,098, and cash loss due to disposal of subsidiary of $35. Net cash used in investing activities totaled $33,025 for the six months ended December 31, 2022, which consisted of cash paid for the acquisition of office furniture and equipment of $2,276, cash paid for acquisition and development of software systems of $1,985, and payment of long-term investment into high-tech companies of $28,764.
Cash Flow from Financing Activities
Net cash provided by financing activities was $6,241,781 during the six months ended December 31, 2023, which was the net proceeds from loans payable of $153,659, net proceeds from due to related parties of $116,841 and net proceeds from sale of our common stock through an equity financing of $8,061,286, which was partly offset by repayment of loan payables of $2,090,005. Net cash provided by financing activities was $1,683,208 during the six months ended December 31, 2022, which was the net proceeds of loans payable of $1,684,595, but partly offset by a decrease in due to related parties of $1,387.
Loan from the unrelated parties
On April 24, 2022, the Company entered a loan agreement with an unrelated party Mr. Wanli Kuai for $596,001, the loan had no interest, and was required to be repaid any time before December 31, 2022. The Company repaid $447,001 to the unrelated party by June 30, 2022. On July 1, 2022, the Company entered into a new loan agreement with the same unrelated party for RMB 5,603,000 ($789,177), the loan had no interest, and was required to be repaid any time before December 31, 2022, the Company didn’t make any payment as of December 31, 2022 and signed an extension agreement to extend the maturity date to June 30, 2023. On October 1, 2022, the Company entered into a new loan agreement with the same unrelated party for RMB 3,970,000 ($642,779), the loan had no interest, and was required to be repaid any time before June 30, 2023. On May 24, 2023, the Company entered into a loan extension agreement with the lender, wherein both parties agreed to settle the loan in full by December 31, 2024. On September 15, 2023, the Company, its CEO and Mr. Wanli Kuai entered a Debt Transfer Agreement, wherein the Company’s CEO transferred the Company’s debt of RMB 5,207,962 ($0.73 million) that was owed to her to Mr. Wanli Kuai. On October 9, 2023, the Company entered into a Debt Transfer and Offset Agreement with Mr. Wanli Kuai and Guorui Innovation. This agreement was resulted from the termination of a Marketing and Promotion agreement among the Company and Guorui Innovation, which Guorui Innovation needs to repay the Company in full for RMB 13,000,600 ($1,810,719) due to cancellation of the agreement (see Note 5). Following the negotiations, the Company, Mr. Wanli Kuai and Guorui Innovation agreed and entered a Debt Transfer and Offset Agreement, wherein Guorui Innovation will repay the prepayment of RMB 13,000,600 ($1,810,719) to Mr. Wanli Kuai for settling the debt that the Company owed to Mr. Kuai (See Note 5). During the three and six months ended December 31, 2023, the Company repaid $1.8 million and $2.0 million to this unrelated party. As of December 31, 2023 and June 30, 2023, the outstanding loan balance to the unrelated party was $nil and $1,310,306, respectively as a result of the Debt Transfer and Offset Agreement.
On September 21, 2023, the Company entered a loan agreement with another unrelated party for $155,308, the loan had no interest, and was required to be repaid any time before December 31, 2024.
As of December 31, 2023, the total liabilities of Datasea are $2,412,851, which shows a 61.9% decrease from June 30, 2023. The decrease of liability is due to the repayment to related party by $594,364, decreased accrued expenses and other payables by $739,343, decreased lease liability by $34,495, decreased unearned revenue by $550,719, and decreased accounts payable by $665,162, and decreased loan payable by $1,337,611.
Cash inflows generated from financing activities for the six months ended December 31, 2023 were $6,241,781, compared to $1,683,208 in the same period last year. This year’s net cash inflows are 271% more than last year’s net cash inflows from financing activities, this is entirely due to the Company’s better financing outlook and more mature financing attitude. We pay more attention to financing planning issues and the cost of financing.
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Analysis of several index
For the six months ended December 31, 2023 and 2022, revenue was $18,229,212 and $131,459, respectively. Operating income increased by $18,097,753 over the same period of last year, an increase of 13,766.84% over the same period of last year, the growth rate is mainly due to the fact that the company is currently leading in the research and development of 5G Multimodal communication technology, and has formed a stable customer base after long-term expansion of customer base. This is related to the Company’s technological research and development achievements over the years, personnel support, market promotion, the Company’s upstream and downstream chain opening up, customer maintenance and technical experience accumulation, and ultimately the formation of a huge loyal customer base, but also closely related to the thriving vitality of the 5G market.
For the six months ended December 31, 2023 and 2022, the Company’s administrative expenses were $1,316,516 and $1,751,359, respectively, a decrease of $434,843 or 24.83%, compared to the same period last year. The main reason is that the Company continues to optimize the management structure, strengthen administrative expenses, improve the efficiency and competitiveness of the enterprise, improve operational efficiency, reduce expenses, reduce unnecessary administrative expenses, and improve the granularity of management expenses to improve management efficiency and reduce management expenses.
For the six months ended December 31, 2023 and the six months ended December 31, 2022, the Company’s research and development expenses were $272,375 and $255,440, respectively, an increase of $16,935, an increase of 6.63%, compared with the same period last year. During the period, the Company increased its investment in research and development, enhanced its core competitiveness, and contributed to new products and technologies, laying the foundation for the layout of new products and technologies.
As of December 31, 2023 and June 30, 2023, the Company’s cash balance was $437,716 and $19,728, respectively, an increase of $417,988, or 21.19 times, from the previous period. The main reason is that the Company absorbs social funds, expands the scale of the enterprise, enhances the visibility of the enterprise, enhances the competitiveness of the enterprise, provides strong financial support for the company’s business expansion and projects, and is used for technology research and development, market expansion, corporate brand building, etc., laying a solid foundation for the sustainable development of the enterprise. The increased demand for products and services brought about by the Company’s increased sales revenue and the expansion of financing channels brought about by a number of capital inflows, the Company to optimize the asset structure, enhance the corporate capital capacity and liquidity.
As of December 31, 2023 and June 30, 2023, the Company’s accounts receivable balance was $54,123 and $255,725, respectively, a decrease of $201,602 and 78.84% from the prior period. Mainly, the Company reduces the occurrence of bad debts by strengthening the credit evaluation of customers, and strengthens the collection work of customers, improving the collection efficiency, shortening the account period, increasing cash liquidity, and improving the management efficiency of accounts receivable.
As of December 31, 2023 and June 30, 2023, the Company’s inventory balance was $185,806 and $241,380, respectively, a decrease of $55,574 or 23.02% from the previous period, mainly due to the expansion of the Company’s sales market. By developing new sales channels, expanding new markets, strengthening advertising and other ways, the Company expands the sales scale of products, so that the inventory can be quickly realized and the efficiency of capital use can be improved.
As of December 31, 2023 and June 30, 2023, the capital reserve balance was $32,251,708 and $24,148,905, respectively, an increase of $8,102,803 from the prior year or an increase of 33.55% from the prior period, primarily due to an increase in the Company’s share issuance. An increase in stock issuance can provide a company with more capital reserves to help it meet future challenges. For the Company, the increase in stock issuance has introduced a large number of high-quality funds, which is conducive to the integration of upstream and downstream enterprises and can promote the growth of the Company’s performance. The Company’s financial strength, market competitiveness and corporate reputation have also been greatly improved.
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As of December 31, 2023 and June 30, 2023, the Company’s operating lease liabilities were $116,594 and $124,640, respectively, a decrease of $8,046 or 6.46% from the previous period, mainly due to the Company’s actual operating needs in order to achieve the purpose of saving resources, reducing expenses and reducing liabilities. Reasonable overall planning has been made for the operating leasing area and leasing cost of each parent and subsidiary company of the Company, so as to reduce the use area as much as possible, reduce unnecessary expenses, optimize resource allocation and improve efficiency while meeting the daily office needs, which save costs and improve the overall profits of the Company.
As of December 31, 2023 and June 30, 2023, the Company’s accounts payable were $339,897 and $1,005,059, respectively, a decrease of $665,162 or 66.18% from the previous period, mainly due to the Company’s optimization of liabilities and reduction of debt ratio according to the capital situation. The Company maintains a good and stable relationship with suppliers, enhances the capital turnover ability and supplies chain management ability.
Going forward
Datasea is currently in the process of transitioning from a China-centric company to a global entity. Our commitment is to evolve into an international technology firm, with manufacturing facilities, intellectual property presence, sales networks, and customer bases strategically positioned in the United States. We aspire to attain international leadership in research and development, technological collaborations, talent development, and solidify our footprint in the U.S. market. Our primary objective is to deliver cutting-edge artificial intelligence solutions, particularly in acoustic intelligence, contributing to the advancement of the global digital landscape. To realize this vision, the Company’s management has outlined the following plans:
| ● | Continuing Advancements in 5G Multimodal Communication Business: |
| ● | Actively pursuing market share capture. | |
| ● | Improving gross profit margins. |
| ● | Expansion of Acoustic Intelligence Products: |
| ● | Diversifying applications in acoustic engineering, agriculture, medicine, beauty, and healthcare. |
| ● | Strategic Mergers and Acquisitions (M&A): |
| ● | Obtaining a leading position and greater control over the supply chain in the acoustic intelligence industry, with a focus on the U.S. market. | |
| ● | Facilitating ongoing beneficial vertical integration. |
| ● | Collaborations with Technical Institutions: |
| ● | Sustaining partnerships with top-tier domestic and international technical institutions. | |
| ● | Conducting research and development in acoustic intelligence to stimulate demand through supply-side innovation. |
| ● | Global Sales Expansion: |
| ● | Achieving localization of core products. | |
| ● | Aligning with diverse customer demands on a global scale. |
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| ● | Advancing Internationalization Strategy: |
| ● | Fostering innovation. | |
| ● | Strengthening our position within the acoustic intelligence sector. |
| ● | Brand Enhancement: |
| ● | Elevating the Company’s brand awareness through omni-channel marketing. | |
| ● | Obtaining PCT international patents to enhance the value of intangible assets. |
| ● | Client Loyalty and Customer Service: |
| ● | Maintaining client loyalty through outstanding customer service. | |
| ● | Offering an exclusive service experience with appropriate transparency and publicity. |
These initiatives collectively drive our commitment to internationalization, innovation, and fortifying our leadership in the dynamic field of acoustic intelligence.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective. This conclusion was reached in light of the following material weaknesses in internal control over financial reporting:
| (i) | inadequate segregation of duties and effective risk assessment; |
| (ii) | lack of personnel adequately trained in U.S. GAAP; and |
| (iii) | insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines. |
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Management’s Strategies for Enhancing Internal Control:
In the previous fiscal year, we recognized the weaknesses in our internal control over financial reporting and have taken proactive steps to enhance and refine our internal control framework. These initiatives primarily include:
| 1. | Continuous Improvement of Internal Control Procedures: We remain committed to refining our internal control processes, encompassing various aspects such as the budget approval process, procurement and asset management, credit control, internal audits, and cost accounting. Additionally, we have compiled a comprehensive internal control policy, incorporating guidelines for procurement control, inventory management, and fraud prevention. |
| 2. | Collaborative Oversight Mechanism: To strengthen internal control implementation, we have established a collaborative mechanism between the internal control department and the legal department. This mechanism involves conducting interviews with department heads, promptly addressing identified risk areas, and ensuring corrective actions are taken. |
| 3. | Engagement with Financing Underwriters: We have engaged financing underwriters to work closely with our international department to facilitate the company’s financing efforts. This partnership aims to improve our understanding of investor backgrounds and identify financing methods that align best with our objectives. |
| 4. | Enhanced Collaboration with Legal Professionals: We are reinforcing collaboration between our internal and external legal teams to proactively mitigate risks. |
In addition to these efforts, we have adopted various internal control policies, including the review of accounting personnel duties and responsibilities, travel allowances, reimbursement procedures, receivable management, asset control, internal audit processes, and cost accounting. Furthermore, we have established an internal audit department under the leadership of a director of internal audit, along with a legal team, to ensure compliance and effective risk management.
Further Enhancements Include:
| 1. | Personnel Training: We are committed to training our staff to ensure the proper execution of internal control policies and procedures. |
| 2. | Regular Reporting to the Audit Committee: We will continue to provide quarterly summaries of internal control and audit reports to the Audit Committee. |
| 3. | Quarterly Review with U.S. CPA: Each quarter, we will conduct a trial balance review in collaboration with a U.S. Certified Public Accountant (CPA) after their review or audit. |
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Specifically we have also implemented the following practices to enhance Datasea featured internal control system:
1. Projects Pre-approval:
We have carried out project development at irregular intervals according to the needs of business development. Before the project is officially initiated, we have organized the setup of the project review group. The project review group has mainly reviewed the project’s market development prospect report, project proposal, project report and other documentations that are prepared by the project development team. After communication and discussion by the review team, the project will be formally approved.
2. Significant Issues:
Significant issues will go through meetings of the President’s Office. During those meetings, the Company’s strategic adjustments of the business and major projects or events will be discussed. Only after the board meeting or the resolution of the board of directors, the decisions will be implemented in accordance with the meetings.
3. HR Management, Responsibility, Rewards and Penalties System:
We have strict control over talents and their efficiency, from the probation period to the conversion to regular employees. After the employees pass the strict evaluation, they will be included in the regular employees pool and sign the job responsibility letter and performance commitment letter. They will go through monthly performance assessment and evaluation as the basis for salary settlement. We will give rewards to employees with excellent performance from time to time, and the rewards are not limited to cash and stocks. We also give certain penalty measures for employees’ work mistakes, such as deduction of performance-based salary.
4. Budget Management:
The internal control department organizes all departments to participate in the full budget formulation and budget implementation, and comprehensively develop and implement the annual full budget data according to funds, assets, project initiation, business line revenue, and costs. The internal control center strictly controls the budget. The execution department, the finance department, the CEO and the chairman of the board jointly approve and execute the budget. In the process of budget implementation, we adopt the monthly rolling budget system, and the Company’s financial management internal control center makes statistical analysis of the implementation results to help each business unit complete the performance targets and strive to achieve the annual target of the Company.
5. Operation Management:
We combine centralized and decentralized management styles according to the business line types and operating characteristics of each subsidiary of the Company. We will give our subsidiaries certain management rights so that we will not miss any business opportunities. In terms of production and operation, from project initiation, procurement to sales, we have a complete control process. For example, before purchasing, we need to look around in the market and select high-quality suppliers after the audit of the Company’s financial management internal control center. We are willing to build long-term stable and friendly cooperation with high-quality suppliers. We will develop a complete process from the product check-in to check-out. After the approval of all parties, the procedure of product check-out will be completed to avoid risks.
6. Business Development Personnel Management:
For excellent business development personnel, we formulate relevant royalty management measures with comprehensive considerations about different lines of business, different products combined with different market conditions. We distribute salary and bonus according to performance. Business development personnel who successfully complete the sales target can get generous remuneration. These measures actively motivate business development personnel to complete the Company’s annual performance goals.
Changes in Internal Control over Financial Reporting
Other than as described above, there were no changes in our internal control over financial reporting during the quarter ending December 31, 2023 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any pending legal proceedings and no such proceedings are known to be contemplated.
ITEM 1A. RISK FACTORS
Not required of smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended December 31, 2023, there were no modifications, adoptions or terminations by any directors or officers to any contract, instruction or written plan for the purchase or sale of securities of the Company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or non-Rule 10b5-1 trading agreements.
ITEM 6. EXHIBITS.
| Exhibit | Description | |
| 31.1 | Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302 | |
| 31.2 | Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302 | |
| 32.1* | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350 | |
| 32.2* | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350 | |
| 101.INS | Inline XBRL Instance Document | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document XBRL | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | |
| 104 | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101). |
| * | The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| DATASEA INC. | ||
| Date: February 13, 2024 | By: | /s/ Zhixin Liu |
| Name: | Zhixin Liu | |
| Title: | President | |
| Chief Executive Officer | ||
| (principal executive officer) | ||
| Date: February 13, 2024 | By: | /s/ Mingzhou Sun |
| Name: | Mingzhou Sun | |
| Title: | Chief Financial Officer | |
| (principal financial officer and principal accounting officer) |
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