UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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 May 12 , 2023,
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 | 25 |
| Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 46 |
| Item 4 | Controls and Procedures | 46 |
| Part II - Other Information | ||
| Item 1 | Legal Proceedings | 48 |
| Item 1A | Risk Factors | 48 |
| Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 48 |
| Item 3 | Defaults Upon Senior Securities | 48 |
| Item 4 | Mine Safety Disclosures | 48 |
| Item 5 | Other Information | 48 |
| Item 6 | Exhibits | 48 |
i
PART I - FINANCIAL INFORMATION
DATASEA INC.
CONSOLIDATED BALANCE SHEETS
| MARCH 31, 2023 (UNAUDITED) | JUNE 30, 2022 | |||||||
| ASSETS | ||||||||
| CURRENT ASSETS | ||||||||
| Cash | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Value-added tax prepayment | ||||||||
| Prepaid expenses and other current assets | ||||||||
| Right-of-use assets, net | - | |||||||
| Total current assets | ||||||||
| NONCURRENT ASSETS | ||||||||
| Security deposit for rents | ||||||||
| 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 party | ||||||||
| Loan payables - current | ||||||||
| Operating lease liabilities | ||||||||
| Total current liabilities | ||||||||
| NONCURRENT LIABILITIES | ||||||||
| Operating lease liabilities | ||||||||
| Loan payables - non-current | ||||||||
| Total noncurrent liabilities | ||||||||
| TOTAL LIABILITIES | ||||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| STOCKHOLDERS’ EQUITY | ||||||||
| 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)
| NINE MONTHS ENDED MARCH 31, | THREE MONTHS ENDED DECEMBER 31, | |||||||||||||||
| 2023 | 2022 | 2022 | 2021 | |||||||||||||
| 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 income (expense) | ( | ) | ||||||||||||||
| Interest income | ||||||||||||||||
| Total non-operating income (expenses), net | ( | ) | ||||||||||||||
| Loss before income tax | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Income tax | - | - | ||||||||||||||
| Loss before noncontrolling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Less: (loss) income attributable to noncontrolling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net loss to the Company | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other comprehensive item | ||||||||||||||||
| Foreign currency translation gain (loss) attributable to the Company | ( | ) | ( | ) | ||||||||||||
| Foreign currency translation gain (loss) attributable to noncontrolling interest | ( | ) | ||||||||||||||
| Comprehensive loss attributable to the Company | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
| Comprehensive (loss) income 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 (DEFICIENCY)
NINE AND THREE MONTHS ENDED MARCH 31, 2023 AND 2022
(UNAUDITED)
| Accumulated | ||||||||||||||||||||||||||||
| Additional | other | |||||||||||||||||||||||||||
| Common Stock | paid-in | Accumulated | comprehensive | Noncontrolling | ||||||||||||||||||||||||
| Shares | Amount | capital | deficit | income | Total | interest | ||||||||||||||||||||||
| Balance at July 1, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | |||||||||||||||||||||||||
| Balance at September 30, 2022 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Stock compensation expense | - | |||||||||||||||||||||||||||
| Purchase of minority interest ownership | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Foreign currency translation loss (gain) | - | ( | ) | ( | ) | |||||||||||||||||||||||
| Balance at December 31, 2022 | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | - | ( | ) | ( | ) | ||||||||||||||||||
| Stock compensation expense | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation (loss) gain | - | - | - | - | ( | ) | ( | ) | ||||||||||||||||||||
| Balance at March 31, 2023 | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Balance at July 1, 2021 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Issuance of common stock for equity financing | ||||||||||||||||||||||||||||
| Shares issued for stock compensation expense | ||||||||||||||||||||||||||||
| Foreign currency translation loss | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Balance at September 30, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||
| Stock compensation expense | ||||||||||||||||||||||||||||
| Foreign currency translation gain | - | |||||||||||||||||||||||||||
| Capital contribution to Shuhai Beijing from a major shareholder | - | |||||||||||||||||||||||||||
| Shares issued for paying officers’ accrued salary | ||||||||||||||||||||||||||||
| Balance at December 31, 2021 | ( | ) | ( | ) | ||||||||||||||||||||||||
| Net loss for the period | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||||||
| Stock compensation expense | - | - | - | - | - | |||||||||||||||||||||||
| Foreign currency translation gain (loss) | - | ( | ) | |||||||||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | $ | $ | ( | ) | ||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
3
DATASEA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| NINE MONTHS ENDED MARCH 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: | ||||||||
| Loss (gain) on disposal on fixed assets | ( | ) | ||||||
| Depreciation and amortization | ||||||||
| Bad debt expense(reversal) | ( | ) | ||||||
| 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 | ( | ) | ( | ) | ||||
| Cash received from disposal of fixed assets | - | |||||||
| Acquisition of intangible assets | ( | ) | ( | ) | ||||
| Long-term investment | ( | ) | ( | ) | ||||
| Net cash used in investing activities | ( | ) | ( | ) | ||||
| Cash flows from financing activities: | ||||||||
| Due to related parties | ( | ) | ||||||
| Proceeds (repayment) of loan payables | ( | ) | ||||||
| Proceeds from capital contribution from a major shareholder | ||||||||
| 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 operating, investing and financing activities: | ||||||||
| Right-of-use assets obtained in exchange for operating lease liabilities | $ | $ | ||||||
| Transfer of prepaid software development expenditure to intangible assets | $ | $ | ||||||
| Shares issued for accrued bonus to officers | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
4
DATASEA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2023 (UNAUDITED) AND JUNE 30, 2022
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Datasea Inc. (the “Company”, or “we”,
“us”, “our” or similar terminology) 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,
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.
5
On January 7, 2020, Shuhai Beijing entered into
another equity transfer agreement with the President, the Director described above and an unrelated individual.
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
Impact of Coronavirus Outbreak
In December 7 2022, the joint prevention and control mechanism of the State Council of China issued a notice, announcing ten targeted measures to further optimize epidemic prevention and control (hereinafter referred to as the ” New Ten Rules”). This is a major adjustment made by the Chinese authorities to the previous epidemic control policy. Later, Beijing, Shanghai, Chongqing, Guangzhou and other cities in China announced the follow-up implementation of the “New Ten Rules”. The introduction of the New Ten Rules announced that China’s previous “dynamic zero” epidemic prevention policy had officially come to an end. So far, except for some special medical key places, people do not need to provide nucleic acid test negative reports when traveling. During the period when the new policy was introduced, the number of COVID-19 cases in China has increased significantly, and people’s focus on COVID-19 has shifted from pre protection to better indoor living environment to avoid repeated infection.
6
Facing challenges that are also opportunities, the needs for air sterilization has likely become a permanent way of life for many and will likely continue into common. Datasea has developed five models Air Sterilizers under its in-house advanced acoustic intelligence technology, to target public and private application scenarios such as hospitals, airport, logistic warehouse, cold chain transportation and home care. In 3rd December 2022, the Company unveiled national Hailijia air sterilizer product campaign with an online event and offline product showcases in various cities in China, with more than 50 institutions specializing in trade and distribution from China, Southeast Asia, and the Middle East participated. During the product campaign, Datasea has entered into several marketing and distribution agreements(total amount is approximately $20 Million) in order to expand the business and reach to customers and sell certain Hailijia air sterilizers and purifiers in China.
Currently, after the rapid outbreak of COVID-19 pandemic in China at end of 2023 and earlier 2023, China’s epidemic related control policies have been completely abolished, and retaliatory consumption generated after three years of continuous control and relaxation, but does not include epidemic related products; In addition, the market generally believes that effective antibodies will be available within 6 months after infection, so there may be a phased decline in demand for disinfection products before the possible resurgence of the COVID-19 pandemic in the future and may had a material impact on the Company’s quarterly earnings. However, in the post epidemic era, in the face of the recurrence of COVID-19 and the prevalence of H1N1 influenza in China, the needs for air sterilization and less contact have likely become a permanent way of life for many and may lead to a rebound in demand for new disinfection and sterilization equipment;
In addition, the company actively prepares for the overseas export of disinfection and sterilization equipment to expand the global market. Despite the headwinds of the previous quarter, Datasea’s recent business developments indicate the Company’s resiliency and progress in general business developments, contract acquisitions, product upgrades, marketing efforts, and industry recognition. The company will soon launch non-contact ultrasonic beauty instruments to meet more home care needs.
We currently believe that our financial situation will be benefited us through the new products and rising demands. However, in the event that the demands continues on for a longer period of time, we may need to raise capital to accompany the business development in the future.
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 nine months ended March 31, 2023 and
2022, the Company had a net loss of approximately $
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. The accompanying CFS include the financial statements of the Company and its
VARIABLE INTEREST ENTITY
Pursuant to 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.
8
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).
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.
9
As of this report date, there was 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. The following financial statement amounts and balances of the VIE were included in the accompanying CFS as of March 31, 2023 and June 30, 2022, and for the nine and three months ended March 31, 2023 and 2022, respectively.
| March 31, 2023 | June 30, 2022 | |||||||
| 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 | ||||||||
| Loan payable- noncurrent | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | $ | $ | ||||||
| For the Nine Months Ended March 31, 2023 | For the Nine Months Ended March 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Gross profit | $ | $ | ||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| For the Three Months Ended March 31, 2023 | For the Three Months Ended March 31, 2022 | |||||||
| Revenues | $ | $ | ||||||
| Gross profit | $ | $ | ||||||
| Net income (loss) | $ | ( | ) | $ | ||||
10
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 March 31, 2023 and June 30, 2022, the Company has no such contingencies.
CASH
Cash include cash on hand and demand deposits that are highly liquid in nature and have original maturities when purchased of three months or less.
ACCOUNTS RECEIVABLE
The Company’s policy is to maintain an
allowance for potential credit losses on accounts receivable. Management reviews the composition of accounts receivable and analyzes
historical bad debts, customer concentrations, customer credit worthiness, current economic trends and changes in customer payment patterns
to evaluate the adequacy of these reserves. As of March 31, 2023 and June 30, 2022, 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. Depreciation of property and equipment is provided using the straight-line method over estimated useful lives as follows:
| 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.
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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
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 March 31,2023 and June 30, 2022, 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 nine and three months ended March 31, 2023 and 2022, there was no impairment loss recognized on long-lived assets.
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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 will recognize 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 March 31 2023 and June 30, 2022.
Operating leases are included in operating lease
ROU and operating lease liabilities (current and non-current), on the consolidated balance sheets. As of March 31, 2023, the net
ROU was $
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.
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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.
The following table shows the Company’s revenue by revenue sources:
| For the Nine Months Ended March 31, 2023 | For the Three Months Ended March 31, 2023 | |||||||
| 5G Messaging | $ | $ | ||||||
| 5G messaging | ||||||||
| Aggregate messaging platform | - | |||||||
| Cloud platform construction cooperation project | ||||||||
| Acoustic Intelligence Business | ||||||||
| Ultrasonic Sound Air Disinfection Equipment | ||||||||
| Other | ||||||||
| Smart City business | ||||||||
| Smart community | - | |||||||
| Smart community broadcasting system | ||||||||
| Smart agriculture | - | |||||||
| Total revenue | $ | $ | ||||||
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 manners in which management disaggregates a company. Management determining 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 include 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 nine and three months ended March 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.
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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.
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.
As of March 31, 2023, Zhangxun was
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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.
The exchange rates used to translate amounts in RMB to USD for the purposes of preparing the CFS were as follows:
| March 31, | March 31, | June 30, | ||||||||||
| 2023 | 2022 | 2022 | ||||||||||
| Period-end date USD: RMB exchange rate | ||||||||||||
| Average USD for the reporting period: RMB exchange rate | ||||||||||||
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 nine and three
months ended March 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.
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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.
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 is currently evaluating the impact that the standard will have on its CFS.
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
Property and equipment are summarized as follows:
| March 31, 2023 | June 30, 2022 | |||||||
| Furniture and fixtures | $ | $ | ||||||
| Vehicle | ||||||||
| Leasehold improvement | ||||||||
| Office equipment | ||||||||
| Subtotal | ||||||||
| Less: accumulated depreciation | ||||||||
| Total | $ | $ | ||||||
Depreciation for the nine months ended March
31, 2023 and 2022 was $
Depreciation for the three months ended March
31, 2023 and 2022 was $
NOTE 4 – INTANGIBLE ASSETS
Intangible assets are summarized as follows:
| March 31, 2023 | June 30, 2022 | |||||||
| Software registration or using right | $ | $ | ||||||
| Patent | ||||||||
| Software and technology development costs | ||||||||
| Value-added telecommunications business license | ||||||||
| Subtotal | ||||||||
| Less: Accumulated amortization | ||||||||
| Total | $ | $ | ||||||
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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 nine months ended March
31, 2023 and 2022 was $
Amortization for the three months ended March
31, 2023 and 2022 was $
NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current assets consisted of the following:
| March 31, 2023 | June 30, 2022 | |||||||
| 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 | $ | $ | ||||||
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.
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
As of March 31, 2023 and June 30, 2022, Heqin
made $
18
NOTE 6 – LONG TERM INVESTMENT
In November, 2021, Shuhai Nanjing invested RMB
In August 2022, Shuhai Nanjing invested RMB
NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued expenses and other payables consisted of the following:
| March 31, 2023 | June 30, 2022 | |||||||
| 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 bank
On December
On December 21, 2022, Zhangxun entered a loan
agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of $
On December 12, 2022, Beijing Shuhai entered
a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of $
On January 13, 2023, Shenzhen Jingwei entered
a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of $
Loan from an unrelated party
On April 24, 2022, the Company entered a loan
agreement with an unrelated party for $
19
NOTE 9 – RELATED PARTY TRANSACTIONS
In April 2020, the Company’s CEO (also
the major shareholder of the Company) entered into a one-year apartment rental agreement with the Company for an apartment located in
Harbin city as the Company’s branch office with an annual rent of RMB
On October 1, 2020, the Company’s CEO 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
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, 2021, the Company renewed a one-year
lease for senior officers’ dormitory in Beijing, the monthly rent is RMB
Due to related parties
As of March 31, 2023 and June 30, 2022, 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
20
Concurrently with the sale of the shares of the
common stock, the Company also sold warrants to purchase
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 $
Following is a summary of the activities of warrants for the period ended March 31, 2023:
| Number of Warrants | Average Exercise Price | Weighted Average Remaining Contractual Term in Years | ||||||||||
| Outstanding as of June 30, 2022 | $ | |||||||||||
| Exercisable as of June 30, 2022 | $ | |||||||||||
| Granted | ||||||||||||
| Exercised | ||||||||||||
| Forfeited | ||||||||||||
| Expired | ||||||||||||
| Outstanding as of March 31, 2023 | $ | |||||||||||
| Exercisable as of March 31, 2023 | $ | |||||||||||
Shares to Independent Directors as Compensation
During the nine months ended March 31, 2023 and
2022, the Company recorded $
21
Shares to Officers as Compensation
Shares to a Consultant as Compensation
On October 1, 2021, the Company entered into
a one-year advisory agreement with a consultant for a monthly compensation of $
Shares to Officers in Lieu of Salary Payable
On December 30, 2021, the Board of Directors
approved to issue
Amendment for Shares Reserved Under 2018 Equity Incentive Plan
On March 17, 2022, the Board of Directors approved
the amendment to the Company’s 2018 Equity Incentive Plan to increase the number of the Company’s Common Stock to be reserved
from
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
22
As of March 31, 2023 and June 30, 2022, the Company
has approximately $
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the nine months ended March 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 | % | % | ||||||
The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended March 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 | % | % | ||||||
The Company’s net deferred tax assets as of March 31, 2023 and June 30, 2022 is as follows:
| March 31, 2023 | June 30, 2022 | |||||||
| 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 October 7, 2022, and has a monthly rent of RMB
On July 30, 2019, the Company entered into a
property service agreement for its office in Beijing (described above).
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The Company adopted FASB ASC Topic 842 on July 1, 2019. The components of lease costs, lease term and discount rate with respect of the Company’s office lease and the senior officers’ dormitory lease with an initial term of more than 12 months are as follows:
| Nine Months Ended March 31, 2023 | Nine Months Ended March 31, 2022 | |||||||
| Operating lease expense | $ | $ | ||||||
| Three Months Ended March 31, 2023 | Three Months Ended March 31, 2022 | |||||||
| Operating lease expense | $ | $ | ||||||
| March 31, 2023 | ||||
| Right-of-use assets | $ | |||
| Lease liabilities - current | ||||
| Lease liabilities - noncurrent | ||||
| Weighted average remaining lease term | ||||
| Weighted average discount rate | % | |||
The following is a schedule, by years, of maturities of the operating lease liabilities as of March 31, 2023:
| 12 Months Ending March 31, | Minimum Lease Payment | |||
| 2023 | $ | |||
| Total undiscounted cash flows | ||||
| Less: imputed interest | ( | ) | ||
| Present value of lease liabilities | $ | |||
NOTE 13 – 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 the following major subsequent event need to be disclosed.
On April 25, 2023, Shuhai information entered
a loan agreement with China Bank Co., Ltd for the amount of $
On April 5th, 2023, the Company issued
24
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; |
| ● | availability, terms and deployment of capital, relationships with third-party equipment suppliers; and |
| ● | COVID-19’s influence on China’s economy and society. |
Overview
Datasea Inc. (“Datasea,” with its subsidiaries and VIE, as defined below, collectively, the “Company” or “We” or “Us” or “Our”) is a leading provider of products, services, and solutions for enterprise and retail customers in three converging and innovative industries: 5G messaging, acoustic intelligence, and smart city technology. The Company possesses proprietary and cutting-edge technologies that build a solid foundation to design, develop and supply a broad range of solutions in each industry.
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Datasea’s vision is to become a global leader in Digital Intelligent Technology, to innovate and provide advanced technology to a broad client base, and within a decade, to evolve into a multinational company with a U.S. entity as the core of its business operations.
Datasea Inc. was incorporated in Nevada on September 26, 2014, and is a holding company with no material operations of its own, the Company conducts a substantial majority of its operations through operating entities established in the People’s Republic of China, or the PRC, primarily through a variable interest entity (“VIE”), Shuhai Information Technology Co., Ltd. (“Shuhai Beijing”). The VIE holds eight subsidiaries to explore business opportunities.
We do not have any equity ownership of the VIE, instead the Company controls and receives the economic benefits of the VIE’s business operations through certain contractual arrangements. Our common stock that is currently listed on the Nasdaq Capital Markets are shares of our Nevada holding company that maintains service agreements with the associated operating companies.
As of March 31, 2023, Shuhai Beijing and its subsidiaries own 29 Patents and 117 Software Copyrights in PRC. The newly updated status of Shuhai’s patents and software copyrights are as follows:
Patent
From July 1 2022 to March 31 2023, we obtained the following new patents and soft copyrights in PRC:
| No. | Acceptance Number | Description | Publication Number | |||
| Shuhai Jingwei | ||||||
| 1 | 202221777917.9 | Ultraviolet ultrasonic plasma disinfection equipment | ZL202221777917.9 | |||
| 2 | 202221781894.9 | The handle used for sterilizing the device | 202221781894.9 | |||
| 3 | 202210811431.0 | A high frequency acoustic effect air coupled microbial elimination method and device | 202210811431.0 | |||
| Acoustic Effect Technology | ||||||
| 1 | 202230336646.2 | Acoustic effect disinfection instrument Type Ⅰ (high-end version) | ZL202230336646.2 | |||
| 2 | 20220320646.3 | Acoustic effect disinfection instrument Type Ⅰ (Universal) | ZL20220320646.3 | |||
| 3 | 202230336653.2 | Intelligent acoustic effect handle type Ⅰ | ZL202230336653.2 | |||
| 4 | 202230336336.0 | Acoustic effect disinfection man-machine coexistence instrument type Ⅰ | ZL202230336336.0 | |||
| Xunrui Techonolgy | ||||||
| 1 | 202110163396.1 | A new infrared temperature measuring device and method | ZL202110163396.1 |
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| Soft Copyrights owned by Shuhai Jingwei | ||||
| 1 | Square intelligent acoustic early warning and recognition system 1.0 | Ruan Zhu Deng Zi No.10322358 | ||
| 2 | Community medical center intelligent acoustic early warning recognition system 1.0 | Ruan Zhu Deng Zi No.10322366 | ||
| 3 | Stadium intelligent acoustic early warning and identification system 1.0 | Ruan Zhu Deng Zi No.10319630 | ||
| 4 | Home intelligent acoustic early warning recognition system 1.0 | Ruan Zhu Deng Zi No.10322359 | ||
| 5 | College intelligent acoustic Early warning and recognition system 1.0 | Ruan Zhu Deng Zi No.10322365 | ||
| 6 | Apartment intelligent acoustic Early warning and recognition system 1.0 | Ruan Zhu Deng Zi No.10322358 | ||
| 7 | Shuhai Jingwei Smart Park Security Cloud Platform 1.0 | Ruan Zhu Deng Zi No. 10688731 | ||
| 8 | Shuhai Jingwei Smart Community Integrated Management Client Platform 1.0 | Ruan Zhu Deng Zi No.10688733 | ||
| 9 | Shuhai Jingwei SOP Management System 1.0 | Ruan Zhu Deng Zi No.10688732 | ||
| 10 | Shuhai Jingwei Message Platform 1.0 | Ruan Zhu Deng Zi No.10688736 | ||
| 11 | Shuhai Jingwei Digital Team Management System 1.0 | Ruan Zhu Deng Zi No.10688737 | ||
| 12 | Shuhai Jingwei Data Collection System 1.0 | Ruan Zhu Deng Zi No.10688734 | ||
| 13 | Shuhai Jingwei 5G message aggregation cloud platform 1.0 | Ruan Zhu Deng Zi No.10688735 | ||
| 14 | Variable frequency acoustic effect coronavirus feature disinfection and sterilization algorithm software V1.0 | Ruan Zhu Deng Zi No.10688738 | ||
| 15 | High frequency sound effect air coupling algorithm platform V1.0 | Ruan Zhu Deng Zi No.10688740 | ||
| 16 | High frequency sound effect air coupling and collaborative UV control algorithm software V1.0 | Ruan Zhu Deng Zi No.10688739 | ||
| 2. Soft copyrights | ||||
| Soft Copyrights owned by Shuhai Jingwei (under review) | ||||
| 1 | Shuhai Jingwei CRM Platform 1.0 | Acceptance No. : 2022R11L2068223 | ||
| 2 | Shuhai Jingwei messaging marketing cloud platform 1.0 | Acceptance No. : 2022R11L2070582 | ||
| 3 | Shuhai Jingwei Data Asset management platform V1.0 | Acceptance No. : 2022R11L2070760 | ||
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| Software Copyright Owned by Shuhai Beijing | ||||
| No. | Certification | Certificate No. | ||
| 1 | Shuhai Information Food Traceability Management System V1.0 | Ruan Zhu Deng Zi No.10176578 | ||
| 2 | Shuhai information comprehensive canteen management application system V1.0 | Ruan Zhu Deng Zi No.10176482 | ||
| 3 | Shuhai information integrated community intelligent management user platform V1.0 | Ruan Zhu Deng Zi No.10176481 | ||
| 4 | Shuhai Information campus cloud security management system V1.0 | Ruan Zhu Deng Zi No.10176483 | ||
| 5 | Shuhai information physical network edge transmission gateway platform V1.0 | Ruan Zhu Deng Zi No.10176478 | ||
| 6 | Shuhai information aggregation message marketing cloud platform V1.0 | Ruan Zhu Deng Zi No.10176528 | ||
| 7 | Shuhai Communication 5G message application management system V1.0 | Ruan Zhu Deng Zi No.10176582 | ||
| 8 | Shuhai Information integrated community group Shopping Mall system V1.0 | Ruan Zhu Deng Zi No.10176530 | ||
| 9 | Shuhai Information online shopping retail service platform V1.0 | Ruan Zhu Deng Zi No.10176529 | ||
| 10 | Shuhai information integrated community intelligent management platform V1.0 | Ruan Zhu Deng Zi No.10176484 | ||
| Software Copyrights owned by Acoustic Effect Technology | ||||
| 1 | High frequency acoustic effect air coupling algorithm software V1.0 | Softcopy Registration No. 9854777 | ||
| 2 | High frequency acoustic effect air coupling and collaborative ultraviolet control algorithm software V1.0 | Softcopy Registration No. 9877299 | ||
| 3 | Variable frequency acoustic effect coronavirus feature elimination algorithm software V1.0 | Softcopy Registration No. 9864534 | ||
| Softcopy Rights owned by Xunrui Techonolgy | ||||
| 1 | Xunruirong media information marketing platform | Softcopy Registration No. 10318231 | ||
| 2 | Xunrui comprehensive online Office OA System | Softcopy Registration No. 10318229 | ||
| 3 | Xunrui integrated security cloud platform | Softcopy Registration No. 10318227 | ||
| 4 | Xunrui Smart Apartment management system | Softcopy Registration No. 10318271 | ||
| 5 | Xunrui Aggregate payment and settlement system | Softcopy Registration No. 10318221 | ||
| 6 | Xunrui AI intelligent algorithm analysis platform | Softcopy Registration No. 10318230 | ||
| 7 | Xunrui intelligent acoustic recognition system | Softcopy Registration No. 10318269 | ||
| 8 | Xunrui Intelligent Park management system | Softcopy Registration No. 10318270 | ||
| 9 | Xunrui Wisdom Catering System | Softcopy Registration No. 10318268 | ||
| 10 | Xunrui satellite remote sensing - Agricultural Management System | Softcopy Registration No. 10318228 | ||
The primary operational goals are with the company’s core digital technology as the benchmark and include the following:
| 1. | To provide best-in-class products and solutions in 5G messaging, acoustic intelligence, and smart city technology. |
| 2. | Increase global sales of acoustic intelligent series hardware products represented by Hailijia Air Purifiers, and the company will soon launch non-contact ultrasonic beauty instruments to meet more home care needs. |
| 3. | Maximize long-term sustainable growth of earnings and operating funds. |
| 4. | Generate cash flows and returns to shareholders. |
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Business Strategy
The Company intends to accomplish these objectives by diversifying its product portfolio, improving operating efficiency and accelerating market reach and client acquisition.
Datasea believes sustaining growth and remaining competitive depends on leveraging technological innovation to provide customers with more quality and convenient options. With a combination of comprehensive solutions for hardware and software products, Datasea not only can flexibly meet different needs of customers but also serve customers on a large scale. The Company is committed to staying ahead of emerging market trends, creating diverse revenue resources, and continuously improving its business model.
Meanwhile, Datasea is aware of global environmental issues, and the physical and transitional risks a business will be exposed with the global transition to more sustainable and socially responsible economy. To better assess and manage material ESG risks and impacts on stakeholders, as well as identify opportunities to improve sustainability and stakeholder relations. Datasea decided to adopt an ESG analysis framework to understand and mitigate ESG risks, identify opportunities, and make strategic decisions that support long-term success and resilience.
5G Messaging:
Datasea’s VIE entity, Shuhai Beijing, has subsidiaries, Guohao Century (Beijing) Technology Ltd. (“Guohao Century”) and Hangzhou Shuhai Zhangxun Information Technology Co., Ltd. (“Zhangxun”), that increase and improve how people and businesses communicate, while delivering brands a platform to engage, convert and efficiently nurture buying relationships by leveraging 5G messaging service.
The 5G messaging service is known as RCS (“Rich Communication Suite”) and integrates phones, messages, and contacts. Specifically, this communication suite enables users to enjoy various effective interfaces with integrated messages, including texts, pictures, audio, video and emojis, as well as status, location and other communication capabilities. It has the characteristics of high touch rate, rich media, strong interactivity, convenient service, and high security. By using 5G messaging, can serve the individuals, public and thousands of industries.
5G technology can create a new message ecosystem in which customers and enterprises can directly and efficiently connect via short messages on mobile phone terminals. When businesses apply 5G messaging to marketing initiatives, faster speeds, better transmission quality, and lower latency create new and improved customer experience.
As a leading service provider in China’s 5G communication field, Datasea has several primary products and servicies targeting different customers and needs:
| 1. | 5G Message-Marketing Cloud Platform (“5G MMCP”) .
An all-in-one solution for all the communication and marketing needs of merchants and customers from early communication, sales, and later maintenance. The goal is to use data to empower marketing, drive user growth, lead enterprises to achieve digital innovation, and help enterprises create long-term value for customers. |
| 2. | 5G Integrated Messaging Marketing Cloud Platform (“5G IMMCP”).
Expands the connection with existing clients through SMS, email, push notifications, WeChat, Applets, and other third-party tools and user management functions. The platform’s converged cloud products provide customers with a comprehensive one-stop service. Among them are AI voice, the ReadyTrust overseas communication service, ReadyTrust+big data (Pink Plus), and other personalized functional services. These products provide more advantageous and valuable support for customers and offer an avenue to add channels or purchase DICT value-added products and services according to the situation. |
| 3. | “Smart Push.”
A new precision marketing solution that integrates 5G technology, big data, and data mining to transform marketing experiences. Because 5G wireless can accurately pinpoint locations, a retailer, when using this integrated solution, can see who is near the store and immediately trigger SMS and video SMS to promote products or services to the nearby customer. |
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| 4. | “5G Top Up business.”.
Shuhai Zhangxun is a service provider and supplier of digital products, and the independently developed 5G message call fee traffic recharge supply platform can provide 5G message call fee traffic recharge services and management. This platform enables users to quickly recharge services, making Shuhai Zhangxun a supplier, operator, and contract content provider of high-quality digital products and services. |
| 5. | 5G messaging Digital Rural Economic Service Platform
The Datasea 5G messaging Digital Rural Economic Service Platform is an innovative digital tool that has been designed to meet the needs of county market entities in China. This platform utilizes 5G communication messages as the carrier and 5G communication message platforms as the basic capabilities, along with its own 5G communication message application platform, data analytics, AI capabilities, language model platforms, e-commerce platforms, and big data platforms.
The platform includes a 5G communication message operation platform, e-commerce service platform, payment settlement platform, and other products, which have been carefully integrated and extracted to provide commercial application products suitable for the development of county-level digital rural areas. By linking various digital systems through the platform, it achieves functionality under the premise of a unified ID and a service platform based on big data analysis.
The 5G messaging Digital Rural Economic Service Platform provides data support for local governments’ management decisions, while also offering county-level market entities with a full commercial ecosystem service tool based on 5G communication messages. Additionally, it provides local operational entities with market-oriented, market potential, and resource mobilization tools, thereby creating an environment that supports the needs of rural digitization.
The platform’s service users are primarily commercial entities within the county, such as planting enterprises, breeding enterprises, characteristic merchants, and small and medium-sized enterprises, as well as farmers with commercial needs who are focused on life promotion services. |
Acoustic Intelligence:
Shuhai Beijing and its wholly-owned subsidiary, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”), and Shuhai (Shenzhen) acoustic Effect Technology Co., Ltd. (“Shuhai acoustic Effect”) further demonstrate a vision and ability to stay ahead of emerging trends with cutting-edge acoustic intelligence solutions. Acoustic intelligence is a new field that integrates fundamental acoustic theory with artificial intelligence to gather and process acoustic data and solve problems.
There can be numerous real-world applications with acoustic-intelligence systems. As it aims to introduce this transformative technology and its applications to China and the world, Shuhai Beijing, together with Shuhai Jingwei and Shuhai acoustic Effect, combines artificial intelligence technology and acoustic technology to offer dynamic instead of static products, such as its Ultrasonic Sound Air Disinfection Equipment. Building on Datasea’s advanced acoustic intelligence technology, at present, the Company has developed five models under the brand “Hailijia” and pushed them to the market, including products meant for in-vehicle sterilization and deodorization, restroom sterilization and deodorization, air disinfection, and air disinfection and sterilization meant for locations such as hospitals, airports, logistics warehouses, cold chain transportation, and home care. Moreover, in response to market demand liberalization, during the reporting period, the company launched a new type of zero consumable bathroom dedicated “deodorization and sterilization treasure” product based on sound disinfection human-machine coexistence. It uses ultrasound to kill viruses and bacteria from the source, remove odors, and has a sterilization rate of over 99.9%, suitable for thousands of households and public places.
Datasea’s Ultrasonic Sound Sterilization and Antivirus Equipment are some of the earliest products available worldwide to incorporate innovative ultrasonic disinfection with optics against Covid-19. Leading labs like 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-coli.
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Effectively using the mechanical effect, thermal effect, cavitation effect and other physical characteristics of ultrasound as well as the superposition of chemical effects, under ultrasound excitation, will cause the coronavirus and microorganisms to vibrate. The amplitude of that vibration will be substantial, producing strains that could break certain parts of the virus, damaging the outer shell and the RNA inside. Eventually, the high-speed movement of the protons in the ultrasound will destroy the formation of microorganisms and effectively kill off harmful bacteria and viruses.
In addition, in response to more market demand, the company also developed ” Deep Sleep Treasure” and “non skin contact cosmetology instrument” products during the reporting period and plans to launch them on the market in the near future, actively expanding new products based on acoustic intelligence technology to meet segmented market demands, and continuously expanding the industry guidance of the product matrix.
Digital Smart City
Datasea’s digital smart city platform includes a smart campus, smart community, smart scenic area, and smart security solutions. The smart city is based on the Internet of Things, big data, and AI algorithm platforms and relies on the Datasea big data center, Internet of Things cloud platform, and artificial intelligence cloud platform to create various applications for multiple industries. Through the application of various scenarios in the city and in-depth integration of informatization, multiple factors can be realized and improved, such as:
| 1. | Industrialization and urbanization |
| 2. | Refined and dynamic management |
| 3. | Effectiveness of urban management |
| 4. | Improved quality of life of citizens |
| 5. | Digital rural areas |
Shuhai Beijing and its two subsidiaries, Guozhong Haoze (Beijing) Technology Ltd. (“Guozhong Haoze”) and Heilongjiang Xunrui Technology Co., Ltd (“Xunrui Technology),” are hereafter referred to as the “SCB Operating Entities” as they mainly and collectively focus on the Smart City Business.
Recent Developments
COVID-19 ’s Business Impacts
Datasea’s management acknowledges that the normalization of the COVID-19 pandemic and the impact it has had on the demand for disinfection and sterilization equipment. As China’s epidemic-related control policies have been gradually lifted, and effective antibodies are becoming more widely available, we are seeing a phased decline in demand for disinfection products.
Despite this, the market will experience a resurgence in demand for new disinfection and sterilization equipment, especially as a new wave of epidemics is expected to hit China in June 2023. We are actively preparing for this eventuality and are also exploring opportunities to expand our global market by exporting our disinfection and sterilization equipment overseas.
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It is imperative to highlight that the market’s dynamic landscape, characterized by fluctuations and variations, has exerted a substantial influence on our quarterly earnings. Nevertheless, our organization has demonstrated adaptability and resilience in the face of these challenging market conditions. We have executed strategic business initiatives, encompassing contract acquisitions, product enhancements, targeted marketing campaigns, and garnering industry recognition, all of which reflect our commitment to continuous growth and development.
In our business analysis, we have identified the prevailing trends and emerging opportunities in the market. As the world continues to adapt to the new normal brought about by the COVID-19 pandemic, we believe the demand for COVID air purifiers will not wane completely in the foreseeable future. The company will continue to optimize operational efficiencies and capitalize on market opportunities.
1. 5G Messaging
1.A. Business developments:
China’s 5G market is disrupting everything from autonomous vehicles to Internet-of-things (IoT) and cloud computing. Yet the wide acceptance of 5G applications across the country may be transforming messaging and business communications the most, especially with the acceleration of digitalization and intelligent construction in the Chinese business community. The growth of 5G in China has led to a rapid increase in the demand for smart-related systems and promotional services. Much of that is because of China’s 48.42+ million enterprises; over 99% are SMEs (small and medium-sized enterprises).
As a leading 5G RCS business solution provider in China, Datasea not only had many exciting business developments in the quarter through its core 5G MMCP, 5G IMMCP, and smart push products, but also increased its service delivery speed in the 5G recharge business field.
With a unique SaaS and PaaS business model and subscription service, Datasea provides personalized launch services for different industries, rapidly enhanced brand strength, and helps enterprise customers achieve sustainable marketing growth. With customizable solutions and applications that can serve broad industries, the Company intends to target more enterprise customers in various sectors such as finance, e-commerce, logistics, tourism, government affairs, education, and power.
1.B. Contract developments:
On February 16, 2023, Hangzhou Shuhai Zhangxun Technology Co., Ltd. (“Shuhai Zhangxun”), a subsidiary of the Chinese operating company contractually controlled by the Company, has entered into a cooperation agreement with Hangzhou Chongda Technology Co., Ltd. (“Chongda”) to enhance 5G messaging recharge services in the Chinese market. Under the agreement, Chongda can purchase up to 1.1 million virtual recharge cards of various denominations for 5G messaging within 12 months commencing from February 16, 2023, with a maximum total value of approximately USD 29.81 million (RMB 205 million). Since the date of the agreement until the date of this announcement, Shuhai Zhangxun has provided end-users with 5G messaging recharge services worth approximately USD 0.85 million (RMB 5,821,427), demonstrating the Company’s unwavering commitment to the 5G messaging market in China.
Currently, the Company is continuing to expand its 5G services with multiple local telecommunication operators, such as Guangdong Mobile, Jiaxing and Ningbo Mobile.
1.C. Product upgrades:
To optimize the user experience, expand platform availability and streamline the payment process, the majority of Datasea’s recent product upgrades primarily focused on 5G IMMCP:
“5G Top Up business”.
Datasea is a service provider and supplier of digital products, and the independently developed 5G message call fee traffic recharge supply platform can provide 5G message call fee traffic recharge services and management. This platform enables users to quickly recharge services and manage, making Shuhai Zhangxun a supplier, operator, and contract content provider of high-quality digital products and services.
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5G messaging Digital Rural Economic Service Platform
The 5G Messaging Digital Rural Economic Service Platform is a comprehensive solution that encompasses a 5G communication message operation platform, e-commerce service platform, payment settlement platform, and other cutting-edge products. Tailored to the unique requirements of rural digitization, this platform integrates and extracts commercial applications best suited for the development of digital rural areas at the county level.
The platform’s architecture consists of two primary business centers: the Business Center and the Data Center, which interconnect various functional modules through a centralized hub. The platform’s functionality is segmented into four key areas: Digital Platform for Rural Economy, Digital Platform for Rural Life, Digital Platform for Rural Governance, and Rural Infrastructure Platform. The Digital Platform for Rural Economy serves as the core function, while the other modules act as auxiliary components that support and enhance the overall rural infrastructure.
At the heart of this system lies the Natural Language Big Language Platform, which leverages artificial intelligence (AI) based on large language models to provide outstanding universality and generalization capabilities. These pre-trained models, having been exposed to vast amounts of data, offer exceptional adaptability and performance. Users can achieve leading results through zero-sample or small-sample learning based on these large language models.
The adoption of development paradigms such as “pre-training + fine-tuning” has streamlined the research and development process, significantly lowering the entry barrier for AI applications and facilitating the transition towards engineering applications. Shuhai Information’s AI platform forms the foundation for deeply customized support products, which find extensive applications in various scenarios, including search, recommendation, intelligent interaction, AIGC, production process transformation, and industrial efficiency improvement.
The 5G messaging Digital Rural Economic Service Platform is expected to complete the first phase of product acceptance and launch by the end of May 2023.
1.D. Industry recognition:
On March 10th, The company participated in the 2023 5G Information Working Group Council Unit Symposium. The institutions and enterprises participating in this meeting include industry regulatory departments and leading enterprises such as the Ministry of Industry and Information Technology of China, the China Communications Enterprise Association, and the three major operators. The theme of the meeting is to further promote the commercialization of 5G messages on a larger scale, accelerate the development of 5G message group standards, explore regional pilot construction and authorization service models, explore the use of “Blooming Cup” and “5G Message Joint Laboratory” to promote application implementation, and discuss the next step of work plans. Through the conference, the company further clarified the focus of its next 5G messaging work: it will focus on key industries, continue to promote the application of 5G messaging in the logistics and express delivery field, and deeply cultivate the digital countryside to create a 5G messaging industry application matrix, continue to carry out ecological promotion and layout, and conduct in-depth exploration of typical application scenarios for key industries and strategic customers, gradually incorporating mature technical services into the empowerment of 5G messaging in key areas, Promote the deep integration of 5G messaging and the industry, create service benchmarks, and lead the industry’s leapfrog development in terms of scenario solutions.
Customers, Sales and Distribution
We sell our 5G messaging products through our distributors and channel partners $2,992,189, typically account for the substantial majority of our sales. A relatively small number of customers account for a significant portion of our net revenue. Sales to distributors accounted for 89% and 100% of our net revenue for this and last quarter, respectively.
2. Acoustic Intelligence
2.A. Business developments:
As the core platform of Shuhai Beijing’s Acoustic intelligence business, Shuhai Jingwei and Shuhai acoustic Effec devote themselves to the technological development, supply chain management, promotions, and sale and product design of smart products in significant fields such as healthcare, medicine and agriculture.
During the reporting period, it continued to develop its ultrasonic sterilization and antivirus products under the brand name Hailijia. Hailijia focuses specifically on air purification and has five different models focused on in-vehicle sterilization and deodorization, restroom sterilization and deodorization, and air disinfection and sterilization meant to respond to a wide range of market needs. In addition, the company also developed a new type of zero consumable bathroom dedicated “deodorization and sterilization treasure” product based on sound disinfection human-machine coexistence,as well as ” Deep Sleeping Treasure” and “non skin contact beauty” products during the reporting period and plans to launch them on the market in the near future, actively expanding new products based on acoustic intelligence technology to meet segmented market demands, and continuously expanding the industry guidance of the product matrix.
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2.B. Contract developments:
Despite the headwinds of the previous quarter, Datasea believes that acoustic intelligence-powered products will provide it with long-term revenue-generating opportunities and expand its brand deeper into the market. Various businesses recently partnered with Datasea to integrate its acoustic intelligence products with their own strategic initiatives.
During the reporting period, Datasea’s Shuhai Jingwei subsidiary, in total, received more than a dozen sales contracts or purchase orders from a wide range of customers.
2.C. Product updates:
Building on Datasea’s advanced acoustic intelligence technology, the Company has developed five models under the brand “Hailiji” a, including products meant for in-vehicle sterilization and deodorization, restroom sterilization and deodorization, air disinfection, and air disinfection and sterilization meant for locations such as hospitals, airports, logistics warehouses, cold chain transportation, and home care.
In response to market demand liberalization, during the reporting period, the company launched a new type of zero consumable bathroom dedicated “deodorization and sterilization treasure” product based on sound disinfection human-machine coexistence. It uses ultrasound to kill viruses and bacteria from the source, remove odors, and has a sterilization rate of over 99.9%, suitable for thouseholds and public places.
Product Features:
1、Night light
2、Acoustic bond
3、Human body induction
4、Ozone mode
5、Clock display
6、Ozone/timing key
7、Open key
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The company also developed “Deep Sleeping Treasure” and “non skin contact beauty” products during the reporting period and plans to launch them on the market in the near future, actively expanding new products based on acoustic intelligence technology to meet segmented market demands, and continuously expanding the industry guidance of the product matrix.
The company is about to launch a beauty instrument product based on ultrasonic technology, such as the first generation of skin repair robots.. The technical principle is to use the standing wave field biological effects formed by ultrasound on the skin surface, which can promote skin penetration, sound and light synergy, accelerate molecular collision, and reduce inflammatory reactions, by using a robot to precisely manipulate the robotic arm, which can overlap biophysical effects, regenerate collagen white, and accelerate blood microcirculation, thereby achieving many effects such as accelerated wound repair, scar dissolution, fade of color spots, and pore reduction. The first-generation skin repair robot product is mainly used in various beauty salons and medical institutions, providing optimized beauty services for customers who do have a demand.
Product Features:
| Ø | Using a purely physical and non-invasive approach to diagnose and repair damaged skin throughout the entire process |
| Ø | The innovative use of longitudinal wave synergy field of air ultrasound and the skin permeation promoting effect of standing surface waves accelerate the skin repair cycle |
| Ø | Archival management provides a guarantee for enterprises to establish customer private domain communities and accurately push iterative products in the later stage |
| Ø | The introduction of the robotic arm makes the treatment and repair methods highly technological, providing customers with a robot healing experience |
| Ø | The high-frequency vibration characteristics of ultrasound are fully reflected in the small particle size atomization method. The use of special consumables for atomization spraying can fully penetrate into the dermis of the skin, which can double the skin repair effect |
Deep Sleeping Treasure:
The “Deep Sleep Treasure” uses the Magnetic Induction of Brain Rhythm (MIBR) technology, which is a low-frequency, weak intensity, and brain rhythm induction technique using ultrasound. By selectively optimizing and regulating the function of neuronal cells through the Magnetic Induction Wave Energy (MIBR), it creates a natural frequency magnetic field, similar to the Earth’s North and South Pole Energy Natural Magnetic Field (Schumann Wave), which balances the direction of current in the human body with the magnetic field lines of the Earth’s simulated magnetic field. Reduce the impact of high-frequency radio waves in the surrounding environment on the human body, improve brain health, alleviate anxiety and stress, gradually relax the body and brain, and slow down brain waves, as if in the natural environment of nature. By resonating with the frequency of the deep sleep treasure in the sea and the human body itself, the brain waves are induced to enter a deep sleep state, prolonging the duration of deep sleep and improving the quality of deep sleep.
Coverage during use: The coverage range of the Shuhai Deep Sleep Treasure magnetic field is the size of a bed for two people. Whether it rolls to the head or tail of the bed during sleep, it is within the most sensitive coverage range of 2x2 meters.
2.D. Customers, Sales and Distribution
Datasea sells acoustic intelligence products through our direct sales force and a select network of distributors and channel partners. Till this quarter, Datasea has 6 channel partners and 3 OEMs, typically account for the substantial majority of our sales. From the beginning of this quarter, we began to realize the sales of acoustic intelligent products – Hailijia series air Air purification and sterilizers. Sales to direct sales and distributors accounted for 18.58% and 81.42% of our net revenue of acoustic intelligence products achieved of $115,470 for this quarter, respectively. We believe aggregate sales to acoustic intelligence products, through all channels, accounted for approximately 6.46% of our total net revenue for this quarter.
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3. Smart City business
3.A. Business developments:
Shuhai Beijing and its Guozhong Haoze and Xunrui Technology subsidiaries, or the “SCB Operating Entities,” mainly focus on Datasea’s Smart City Business.
The SCB Operating Entities have intelligent visual and cutting-edge acoustic and non-visual intelligent algorithms. They combine artificial intelligence, machine learning, and data analytics to enable their solutions to provide visibility and identify behavioral patterns.
In addition, the SCB Operating Entities established three major middle-end platforms that support modern digital smart city business: a big data platform, an IoT platform, and a digital twin. With this transformational technology, these entities intend to help construct China’s digital smart cities and provide a digital smart city application platform that meets the needs of residential communities, schools, commercial enterprises and Digital rural area.
Based on the company’s years of technical reserves and algorithm advantages in the field of vision, we aim to expand our industrial grade precision optical products. The products are mainly customized industrial grade precision optical products, covering six major sub application scenarios, including semiconductors, life sciences, aerospace, unmanned driving, biometrics, and AR/VR detection. In the future, we can break through and achieve the internationally leading research and development, design, manufacturing, and testing integration capabilities of micro/nano diffraction/refractive/refractive diffractive hybrid optical devices (“optical chips”), as well as strong optical system integration capabilities.
3.B. Contract developments:
In January 2023, Datasea’s Shuhai Information Technology Co., Ltd. Signed an agreement with Ti Shi Da. Under the terms, Shuhai will provide Ti Shi Da with a 5G smart elevator platform. Moreover, Shuhai will spearhead several research and development projects for Ti Shi Da, including a payment module interface, a payment management module, a financial module, various Internet of Things projects, a smart community, 5G messaging, and other systems.
The project will have three stages of development & Implementation and could bring 550,000 RMB YUAN of future income to the Company. It also shows that the Company continues to penetrate and disrupt the smart city industry.
3.C. Product updates:
Based on the company’s years of technical reserves and algorithm advantages in the field of vision, we aim to expand the research and development, production, and sales of industrial grade precision optical products. In the future, we can break through and achieve the internationally leading research and development, design, manufacturing, and testing integration capabilities of micro/nano diffraction/refractive/refractive diffractive hybrid optical devices (“optical chips”), as well as strong optical system integration capabilities. The products are mainly customized industrial grade precision optical products, covering six major sub application scenarios, including semiconductors, life sciences, aerospace, unmanned driving, biometrics, and AR/VR detection. Focusing on the field of 3D sensing, fully grasping the opportunities for rapid growth in segmented markets such as mobile 3D sensing, facial payment, smart home, and intelligent driving.
Potential customers include major domestic mobile phone brands (Huawei, Xiaomi, OPPO, VIVO, etc.), and one of the mainstream optical component suppliers of the three payment giants (Alipay, WeChat, UnionPay) in the field of optical chips, three-dimensional sensor modules/systems.
3.D. Customers, Sales and Distribution
Datasea provides SCB products, systems and services for schools, communities, industrial parks, government bodies and various types of enterprises through our direct sales force and channel partners.
In December, Datasea has been awarded the contract in the bid for the equipment procurement project of the Tieli City Fangcang Hospital and the designated hospital in Yichun City. The contract includes the provision of Datasea disinfection and sterilization equipment and apparatus, including air sterilization machines, disinfection machines, and accessories, with a total contract value of approximately $62,629 (RMB 436,188).
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ESG Management
Datasea believes incorporating ESG considerations into our operations and strategy will effectively help manage risks and identify opportunities that support our long-term success and resilience. Furthermore, a strong ESG approach can foster positive relationships with stakeholders and enhance the company’s reputation, positioning us for competitive advantage in an industry undergoing rapid change. Therefore, Datasea decides to adopt a comprehensive ESG framework to align operations with our values and priorities, and to make decisions that support sustainable growth and success over the long term.
Datasea commits to providing meaningful and accurate sustainability information to stakeholders, and starting from 2023, Datasea will disclose information about ESG practices and performance to stakeholders through quarterly and annually ESG Report and sustainability statements. To achieve that, Datasea has started internal preparation and analysis, and commenced ESG disclosure aligned to the Sustainability Accounting Standards Board (SASB) framework. The company’s progress in terms of ESG integration and reporting in this quarter includes:
| ● | Firstly, as part of our ongoing commitment to ESG integration, Datasea conducted a comprehensive ESG evaluation during this quarter of 2023 to assess our current performance and identify areas for improvement. This evaluation was critical in understanding our current ESG readiness and identifying our top ESG priorities, which Datasea then used to develop our ESG roadmap and implementation plan. | |
| Datasea’s ESG priority assessment is a critical aspect of our commitment to ESG integration. This assessment helped us to identify the ESG issues that are most significant to Datasea and our stakeholders and guided us in the development of our 2023 ESG program and initiatives. We aim to periodically refresh our ESG priority assessment to ensure we remain focused on the most important issues. | ||
| The ESG priorities identified by our assessment include energy use and efficiency, greenhouse gas emissions, water management, waste management and reduction of hazardous materials. These issues are critical for Datasea to manage and address to ensure we minimize our environmental impact and reduce our carbon footprint. | ||
| In addition to environmental issues, our assessment identified key priorities in the social and human capital dimensions. These include inclusion, diversity, and non-discrimination, talent recruitment, development, and retention, employee health and safety, and upply chain. | ||
| Furthermore, our assessment identified key priorities in the governance and operational dimensions. These include ethics and integrity, corporate governance, cybersecurity and data privacy, and product quality. | ||
| By identifying and prioritizing these ESG issues, we can focus our efforts on areas that have the greatest impact on our stakeholders and the environment. We are committed to implementing our 2023 ESG program and initiatives effectively to address these priorities and ensure we meet our ESG objectives. |
| ● | In addition to this, Datasea have also prepared and published our quarterly 2023 ESG report based on the SASB metrics for the technology and communications - software and IT services sector. The report provides details on our performance across key ESG issues, including governance, environment, social and human capital, and is available on our Investor Relations (IR) website. By adhering to the SASB framework, Datasea have ensured that our ESG report is aligned with widely accepted industry standards, which allows us to effectively communicate our ESG performance to our stakeholders. | |
| Datasea’s quarterly 2023 ESG report is a comprehensive disclosure of the company’s performance on key ESG issues. The report is aligned with the SASB framework for the Technology and Communications – Software and IT services sector, published in 2018. It provides a detailed account of the company’s performance on material ESG factors, including environmental, data privacy and security, human capital, and operational dimensions. |
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| Datasea is committed to continuous improvement in ESG disclosure and evaluation. As such, the company will evaluate the disclosure of additional topics as they emerge. The report also includes a “SASB disclosure index” that contains details of the accounted metrics, which is reported at the end of the report.The SASB Report refers to the 2022 financial year and includes the 2022 financial year information. To ensure the accuracy and credibility of the report, it has been subjected to a limited examination, according to the principle of the International Standard on Assurance Engagement (ISAE 3000 Revised), undertaken by GreenPad Enterprise Limited. | ||
| The report provides a detailed account of the company’s performance on key ESG issues across four dimensions. Firstly, on the environmental dimension, the report discusses material factors identified for Datasea and its performance, including environmental footprint of hardware infrastructure such as energy and water management, data center environmental management, and integration of environmental considerations into strategic planning for data center needs. | ||
| Secondly, on the data privacy and security dimension, the report includes a description of policies and practices relating to behavioral advertising and user privacy, service monitoring and management, user privacy management, security systems management, and risk identification and management. | ||
| Thirdly, on the human capital dimension, the report discusses workforce management and performance, including employee training and development, diversity and inclusion, and talent management. | ||
| Lastly, on the operational dimension, the report covers key factors such as supply chain management, customer privacy management, and product and service quality management. | ||
| In conclusion, Datasea’s quarterly 2023 ESG report provides a comprehensive disclosure of the company’s performance on key ESG issues. The report is aligned with the SASB framework and includes a “SASB disclosure index” that contains details of the accounted metrics. Datasea is committed to continuous improvement in ESG disclosure and evaluation and will continue to evaluate the disclosure of additional topics as they emerge. |
| ● | Furthermore, Datasea updated our IR website to feature our latest ESG report and provide regular updates on our ESG performance to keep our stakeholders informed. By communicating our ESG performance in a transparent manner, Datasea are building trust with our stakeholders and maintaining our reputation as a socially responsible company. |
In conclusion, Datasea is committed to integrating ESG principles into our business operations and building a sustainable future. Our efforts in the first quarter of 2023 demonstrate our commitment to continuous improvement in ESG performance and transparency in reporting. Datasea recognize that ESG considerations are becoming increasingly important in the business landscape and Datasea will continue to work diligently to meet the expectations of our stakeholders.
Competition
The markets in which we participate are highly competitive. Our competitors range from large, international companies offering a wide range of products to smaller companies specializing in narrow markets. The competitive landscape is changing as a result of a trend toward consolidation within many industries, as some of our competitors have merged with or been acquired by other competitors, while others have begun collaborating with each other. We expect this consolidation trend to continue. We expect competition in the markets in which we participate to continue to increase as existing competitors improve or expand their product offerings and as new companies enter the market. Additionally, our ability to compete effectively depends on a number of factors, including quality, technical performance, price, product features, product system.
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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 nine months ended March 31, 2023 and 2022, the Company had a net loss of approximately $3.92 million and $4.40 million. For the three months ended March 31, 2023 and 2022, the Company had a net loss of approximately $1.30 million and $1.28 million. The Company had an accumulated deficit of approximately $22.51 million as of March 31, 2023, and negative cash flow from operating activities of approximately $2.33 million and $4.22 million for the nine months ended March 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 unaudited consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. On July 20, 2021, the Company sold 2,436,904 shares of common stock at $3.48 per share. The net proceeds from the transactions were approximately $7,640,000, after deducting offering costs. As of March 31, 2023, the Company had cash of $43,155.
If deemed necessary, management could seek to raise additional funds by 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 (“R&D”), 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 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.
Significant Accounting Policies
Please refer to our significant accounting policies in Note 2 to our CFS.
Results of Operations
Comparison of the nine months ended March 31, 2023 and 2022
The following table sets forth the results of our operations for the nine months ended March 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 | $ | 3,377,692 | $ | 16,294,147 | ||||||||||||
| Cost of revenues | 3,076,637 | 91 | % | 15,395,849 | 94 | % | ||||||||||
| Gross profit | 301,055 | 9 | % | 898,298 | 6 | % | ||||||||||
| Selling expenses | 552,369 | 16 | % | 612,253 | 4 | % | ||||||||||
| Research and development | 718,590 | 21 | % | 968,403 | 6 | % | ||||||||||
| General and administrative expenses | 3,168,143 | 94 | % | 3,990,789 | 24 | % | ||||||||||
| Total operating expenses | 4,439,102 | 131 | % | 5,571,445 | 34 | % | ||||||||||
| Loss from operations | (4,138,047 | ) | (123 | )% | (4,673,147 | ) | (29 | )% | ||||||||
| Non-operating income (expense), net | (4,042 | ) | (0.1 | )% | 50,647 | 0.3 | % | |||||||||
| Loss before income taxes | (4,142,089 | ) | (123 | )% | (4,622,500 | ) | (28 | )% | ||||||||
| Income tax expense | 8 | - | % | - | - | % | ||||||||||
| Loss before noncontrolling interest | (4,142,097 | ) | (123 | )% | (4,622,500 | ) | (28 | )% | ||||||||
| Less: income (loss) attributable to noncontrolling interest | (218,625 | ) | (6 | )% | (226,561 | ) | (1 | )% | ||||||||
| Net loss to the Company | $ | (3,923,472 | ) | (116 | )% | (4,395,939 | ) | (27 | )% | |||||||
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Revenues
We had revenues of $3,377,692 and $16,294,147 for the nine months ended March 31, 2023 and 2022, respectively, which shows a $12,916,455 or 79% decrease by comparing with the same period of 2022. The decrease in revenues was mainly due to during the global COVID-19 pandemic situation the reduced demand for 5G SMS business in China, the decrease of the revenue from 5G messaging. For the nine months ended March 31, 2023, revenues mainly consisted of service fees from our 5G SMS service platform and Cloud Platform construction project. For the nine months ended March 31, 2022, revenues mainly consisted of service fees from our 5G SMS service platform.
From July 1, 2022 to March 31, 2023, the Company generated revenue of $3,377,692 , including $2,992,189 from the 5G messaging business, $216,354 from the acoustic intelligence business, and $169,149 from the Smart City business
From July 2021 to March 31, 2022, the Company generated revenue of $16,294,147, consisting of 5G business with an amount of $15,153,166, including $11,849,585 from 5G SMS, $3,303,581 from 5G IMMCP mobile projects on the cloud as value-added service; $1,104,445 from advertising service and $36,536 from smart city projects and other revenue of $122,433. The Company’s three major business lines have started full operations.
During the nine months ended March 31, 2023, the Company significantly reduced 5G SMS business due to the low gross profit margin and focused on developing the customers who have the ability to make prepayment for 5G SMS.
Cost of Revenues
We recorded $3,076,637 and $15,395,849 cost of revenues for the nine months ended March 31, 2023 and 2022, respectively, which shows a $12,319,212 or 80% decrease by comparing with the same period of 2022. For the nine months ended March 31, 2023 and 2022, cost of revenues was mainly the 5G SMS service platform fees and Cloud Platform construction to suppliers. The decrease in cost of revenues was due mainly to the decrease sales of 5G SMS. For the nine months ended March 31, 2023, the cost of 5G messaging was $2.93 million, the cost of acoustic intelligence business was $94,342, and the cost of smart city business was $53,299.
Operating costs incurred from July 2021 to March 2022 were $15,395,849, and cost of 5G messaging service was $14,378,998 including $11,534,435 for 5G SMS, $2,844,563 for 5G IMMCP and mobile on cloud projects; $995,491 from advertising service, and $21,360 for smart city projects. These costs were the service procurement costs corresponding to the full operation of the three business lines of the Company. Among them, 5G messaging business has entered a period of rapid growth, and cost of procurement accounts for 80% of the overall procurement cost.
Gross Profit
Gross profit for the nine months ended March 31, 2023 was $301,055 compared to $898,298 for the nine months ended March 31, 2022, which shows a $597,243 or 66% decrease by comparing with the same period of last fiscal year. The decrease in gross profit was mainly due to the decrease delivery of services related to the 5G SMS service platform in 2023.
Gross margin is 8.9% for the nine months ended March 31, 2023 compared to 5.5% for the nine months ended March 31, 2022. The increase in gross margin was mainly due to our decrease of 5G SMS business that has lower profit margin during nine months ended March 31, 2023. 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 of scale over a larger number of customers basis and the increase of production 2) by adopting differentiation strategy, growing brand recognition and customer loyalty will strengthen the Company’s pricing power; 3) after the commercialization of 5G messaging in the Chinese market (expected in the fourth quarter of 2022), the target customers and product forms will be expanded. For example, the Company will provide the 5G IMMCP as SaaS software, customization and value-added services to improve profit margin. The company will continue to increase the share of high gross profit products in the sales while expanding the revenue, so as to further improve the gross profit rate on the basis of the existing, and give investors a better return on investment.
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Selling, General and Administrative, and Research and Development Expenses
Selling expenses were $552,369 and $612,253 for the nine months ended March 31, 2023 and 2022, respectively, representing an decrease of $59,884 or 10%. The decrease was mainly due to the decrease in payroll expense of salespersons by $109,700, decreased meal and entertainment expense by $2,700, decreased meeting expense by $11,700, and decreased other selling expense by $10,720, which was partly offset by increased service fee by $74,950.
Currently, we are focusing on developing products and software to assist digital city in addressing safety issues and public health issues, expanding the Company’s leading acoustic intelligent application technologies and products, and continuing to develop 5G-related applications. We incurred R&D expenses of $718,590 and $968,403 during the nine months ended March 31, 2023 and 2022, respectively, which shows a $249,813 or 26% decrease by comparing with the same period of 2022.
Research and development expenses of $718,590 and intangible assets increased by $2,335 for nine months ended March 31, 2023. The company’s research and develop results include but are not limited to the following:
5G Messaging Marketing cloud platform (5G MMCP), updated 5G Integrated Messaging Marketing cloud platform (5G IMMCP) and “smart push”. 5G IMMCP expands connection with existing clients through accesses such as SMS, email, WeChat, applet, APP Push and third-party tools and manage users from different platforms all in one 5G IMMCP solution. Smart Push, a precision marketing solution powered by 5G messaging technology with broad applicability to serve companies of all sizes and helps enterprise clients send personalized messages at scale to a captive audience and engage in one-on-one conversations that may lead to conversions, sales, and customer loyalty.
Datasea’s acoustic intelligence sets have passed the certification of the third party authoritative institutions that has proven to achieve a 99.83% efficacy in nine seconds against Covid-19. At present, a complete set of acoustic intelligent product system has been formed:
Building on Datasea’s advanced acoustic intelligence technology, the Company developed five models under the brand “Hailijia,” including products meant for in-vehicle sterilization and deodorization, restroom sterilization and deodorization, air disinfection, and air disinfection and sterilization meant for locations such as hospitals, airports, logistics warehouses, cold chain transportation, and home care.
With the wide acceptance of 5G applications across the country, especially the acceleration of digitalization and intelligent construction in the Chinese business community has led to a rapid increase in the demand for smart-related systems and promotion services based on 5G technology in the Chinese market. This is because there are more than 48.42 million enterprises and business of all types and over 99% are SMEs.
As a useful way to defense the respiratory infectious disease, Shuhai’s “Hailijia” ultrasonic air disinfection equipment is able to meet various disinfection needs and help protect families, staff, patients, students and visitors in private homes or public places. It is expected to usher in a wider market breakout period and the rapid growth of revenue.
General and administration expenses decreased $822,646, or 21% from $3,990,789 during the nine months ended March 31, 2022 to $3,168,143 during the nine months ended March 31, 2023. The decrease was mainly attributed to the decrease in service fees by $444,430, decreased bad debt expense by $302,650, decreased meal and entertainment expense by $85,270, and decreased travel expense by $11,780, which was partly offset by increase in payroll expense by $19,870.
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. Hangzhou Zhangxun has downsize the numbers of non-core position staff, which has helped to control expenses, but the work efficiency and efficiency have not been affected in any way. At the same time to pursue better integration channel with related industries, i.e. outsourcing sales branch for Acoustic products, and investment to 5G messaging technology area by establishing joint venture etc.
In order to further improve research and development, office environment, and work efficiency, while reducing rent costs and increasing asset size, the company plans to issue stocks to the actual controller of the company to purchase office assets. This plan to purchase office assets is expected to be implemented in the near future.
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Non-operating Income (Expenses), net
Non-operating expense was $4,042 for the nine months ended March 31, 2023, consisting mainly of interest income of $181 and other expense of $4,223. For the nine months ended March 31, 2022, we had interest income $37,730 and other income $12,917.
Net Loss
We generated net losses of $3,923,472 and $4,395,939 for the nine months ended March 31, 2023 and 2022, respectively, which shows a $472,467 or 11% decrease by comparing with the same period of 2022. The decrease in net loss was mainly due to the decrease in operating expenses which was partly offset by decreased gross profit as explained above.
Comparison of the three months ended March 31, 2023 and 2022
The following table sets forth the results of our operations for the three months ended March 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 | $ | 1,787,677 | $ | 6,643,538 | ||||||||||||
| Cost of revenues | 1,691,149 | 95 | % | 6,055,134 | 91 | % | ||||||||||
| Gross profit | 96,528 | 5 | % | 588,404 | 9 | % | ||||||||||
| Selling expenses | 129,590 | 7 | % | 225,262 | 3 | % | ||||||||||
| Research and development | 306,200 | 17 | % | 248,832 | 4 | % | ||||||||||
| General and administrative expenses | 967,407 | 54 | % | 1,372,509 | 21 | % | ||||||||||
| Total operating expenses | 1,403,197 | 78 | % | 1,846,603 | 28 | % | ||||||||||
| Loss from operations | (1,306,669 | ) | (72 | )% | (1,258,199 | ) | (19 | )% | ||||||||
| Non-operating income (expense), net | 9,604 | (1 | )% | 12,507 | 0.2 | % | ||||||||||
| Loss before income taxes | (1,297,065 | ) | (73 | )% | (1,245,692 | ) | (19 | )% | ||||||||
| Income tax expense | - | - | % | - | - | % | ||||||||||
| Loss before noncontrolling interest | (1,297,065 | ) | (73 | )% | (1,245,692 | ) | (19 | )% | ||||||||
| Less: income (loss) attributable to noncontrolling interest | (1,906 | ) | (0.1 | )% | (31,720 | 0.5 | % | |||||||||
| Net loss to the Company | $ | (1,295,159 | ) | (72 | )% | (1,277,412 | ) | (18 | )% | |||||||
Revenues
We had revenues of $1,787,677 and $6,643,538 for the three months ended March 31, 2023 and 2022, respectively, which shows a $4,855,861 or 73% decrease by comparing with the same period of 2022. The decrease was mainly due to the decrease in 5G messaging business , as the Company’s focus on developing the customers who have the ability to make prepayment for 5G SMS.
Cost of Revenues
We recorded $1,691,149 and $6,055,134 cost of revenues for the three months ended March 31, 2023 and 2022, respectively, which shows a $4,363,985 or 72% decrease by comparing with the same period of 2022. For the three months ended March 31, 2023, cost of revenues was mainly the 5G SMS service platform fees and Cloud Platform construction to suppliers. For the three months ended March 31, 2022, cost of revenues was mainly the 5G SMS service platform fees to suppliers. The decrease in cost of revenues was due mainly to the decrease of sales of 5G SMS service in 2023.
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Gross Profit
Gross profit for the three months ended March 31, 2023 was $96,528 compared to $588,404 for the three months ended March 31, 2022, which shows a $491,876 or 84% decrease by comparing with the same period of last fiscal year. The decrease in gross profit was mainly due to the decreased delivery of services related to the 5G SMS service platform in 2023.Gross margin is 5.4% for the three months ended March 31, 2023 compared to 8.9% for the three months ended March 31, 2022.
During the three months ended March 31, 2023, our main revenue was from 5G phone top-up services, which has very low profit margin but can expose us to the huge consumer base.
Selling, General and Administrative, and Research and Development Expenses
Selling expenses were $129,590 and $225,262 for the three months ended March 31, 2023 and 2022, respectively, representing a decrease of $95,672 or 42%. The decrease was mainly due to the decrease in payroll expense of salespersons by $156,090, which was partly offset by increased promotion expense by $17,500, increased service fee by $32,160, and increased other selling expense by $10,770.
Currently, we are focusing on developing products and software to assist digital city in addressing safety issues and public health issues, expanding the Company’s leading acoustic intelligent application technologies and products, and continuing to develop 5G-related applications. The investment in R&D is gradually regional precise. We incurred R&D expenses of $306,200 and $248,832 during the three months ended March 31, 2023 and 2022, respectively, which shows a $57,368 or 23% increase by comparing with the same period of 2022.
Research and development expenses of $306,200 for three months ended March 31, 2023. The company’s research and develop results include but are not limited to the following:
5G Messaging Marketing cloud platform (5G MMCP), updated 5G Integrated Messaging Marketing cloud platform (5G IMMCP) and “smart push”. 5G IMMCP expands connection with existing clients through accesses such as SMS, email, WeChat, applet, APP Push and third-party tools and manage users from different platforms all in one 5G IMMCP solution. Smart Push, a precision marketing solution powered by 5G messaging technology with broad applicability to serve companies of all sizes and helps enterprise clients send personalized messages at scale to a captive audience and engage in one-on-one conversations that may lead to conversions, sales, and customer loyalty.
Datasea’s acoustic intelligence sets have passed the certification of the third party authoritative institutions that has proven to achieve a 99.83% efficacy in nine seconds against Covid-19. At present, a complete set of acoustic intelligent product system has been formed:
Building on Datasea’s advanced acoustic intelligence technology, the Company developed five models under the brand “Hailijia,” including products meant for in-vehicle sterilization and deodorization, restroom sterilization and deodorization, air disinfection, and air disinfection and sterilization meant for locations such as hospitals, airports, logistics warehouses, cold chain transportation, and home care.
With the wide acceptance of 5G applications across the country, especially the acceleration of digitalization and intelligent construction in the Chinese business community has led to a rapid increase in the demand for smart-related systems and promotion services based on 5G technology in the Chinese market. This is because there are more than 48.42 million enterprises and business of all types and over 99% are SMEs.
As a useful way to defense the respiratory infectious disease, Shuhai’s “Hailijia” ultrasonic air disinfection equipment is able to meet various disinfection needs and help protect families, staff, patients, students and visitors in private homes or public places. It is expected to usher in a wider market breakout period and the rapid growth of revenue.
General and administration expenses decreased $405,102, or 30% from $1,372,509 during the three months ended March 31, 2022 to $967,407 during the three months ended March 31, 2023. The decrease was mainly attributed to the decrease in bad debt expense by $302,650, decrease in meal and entertainment expense by $75,050, decrease in property management fee by $48,210, and decreased leaseholde improvement cost by $18,730, which was partly offset by increase in payroll expenses by $26,780 and other G&A expenses by $12,760.
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. Hangzhou Zhangxun has downsize the numbers of non-core position staff, which has helped to control expenses, but the work efficiency and efficiency have not been affected in any way. At the same time to pursue better integration channel with related industries, i.e. outsourcing sales branch for Acoustic products, and investment to 5G messaging technology area by establishing joint venture etc.
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Non-operating Income, net
Non-operating income was $9,604 for the three months ended March 31, 2023, consisting mainly of interest income of $36 and other income of $9,568. For the three months ended March 31, 2022, we had interest income $4,837 and other income $7,670.
Net Loss
We generated net losses of $1,295,159 and $1,277,412 for the three months ended March 31, 2023 and 2022, respectively, which shows a $17,747 or 1% increase by comparing with the same period of 2022. The increase in net loss was mainly due to the decrease in gross profit which was partly offset by decreased operating expenses as explained above.
Accounts receivable
The operating revenue of the nine months ended March 31, 2023 was $3,377,692, the balance of accounts receivable was $975,020, and the turnover rate of accounts receivable was 547%. In the same period last year, the operating revenue was $16,294,147, the accounts receivable balance was $5,521,461, and the accounts receivable turnover rate was 590%. Accounts receivable turnover rate decreased 43%, and the Company’s fund use improved. This year, 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 smart city, 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 March 31, 2023, we had working capital deficit of $3,574,321 or a current ratio of 0.35:1. Our current assets were $1,917,868. As of June 30, 2022, we had a working capital deficit of $867,774 or a current ratio of 0.59:1. Our current assets were $1,256,801.
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.
The following is a summary of cash provided by or used in each of the indicated types of activities during the nine months ended March 31, 2023 and 2022, respectively.
| 2023 | 2022 | |||||||
| Net cash used in operating activities | $ | (2,328,369 | ) | $ | (4,216,488 | ) | ||
| Net cash used in investing activities | $ | (32,714 | ) | $ | (496,744 | ) | ||
| Net cash provided by financing activities | $ | 2,243,925 | $ | 6,204,183 | ||||
Cash Flow from Operating Activities
Net cash used in operating activities was $2,328,369 during the nine months ended March 31, 2023, compared to net cash used in operating activities of $4,216,488 during the nine months ended March 31, 2022, a decrease in cash outflow of $1,888,119. The decrease in cash outflow was mainly due to decreased cash outflow on accounts receivable by $4,752,765, increased cash inflow on prepaid expenses and other current assets by $463,053, increased cash inflow on accrued expenses and other payables by $486,484, which was partly offset by decreased cash inflow on accounts payable by $3,633,816, and decreased cash inflow on VAT prepayment of $144,559.
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Cash Flow from Investing Activities
Net cash used in investing activities totaled $32,714 for the nine months ended March 31, 2023, which consists of cash paid for the acquisition of office furniture and equipment of $2,168, cash paid for acquisition and development of software systems of $2,335, and long-term investment into high-tech companies of $28,905 which was partly offset by cash received from disposal of fixed assets by $694. Net cash used in investing activities totaled $496,744 for the nine months ended March 31, 2022, which consists of cash paid for the acquisition of office furniture and equipment of $32,188, cash paid for software development of $402,118, and long-term investment into two high-tech companies of $62,438.
Cash Flow from Financing Activities
Net cash provided by financing activities was $2,243,925 during the nine months ended March 31, 2023, which was the net proceeds from loans payable of $1,692,853 and increase in due to related parties of $551,072. Net cash provided by financing activities was $6,204,183 during the nine months ended March 31, 2022, which was the net proceeds from sale of our common stock through an equity financing of $7,681,796, and proceeds from capital contribution from a major shareholder of $62,438, but offset by decrease in due to related parties of $40,760, and repayment of loans payable of $1,499,291.
As of March 31 2023, the total liabilities of Datasea is $5,635,741, which shows a 31.38% increase from previous period. The increase of liability is due to increased due to related party by $557,333, increased accrued expenses and other payable by $296,110, and increased accounts payable by $595,559.
Cash inflows generated from financing activities for the nine months ended March 31, 2023 were $2,243,925, compared to $6,204,183 in the same period last year. Although this year’s net cash inflows is 64% lower 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.
Going forward
Looking ahead, Datasea aims to become a leading entity in the digital economy industry by reaching first-class domestic and international levels in various aspects such as technological innovation, personnel training, ecological construction, social responsibility, ESG, and more. The company plans to provide cutting-edge artificial intelligence products and services, particularly in sound intelligent products, to build a better digital world. Datasea is committed to maintaining open communication with its shareholders and stakeholders, prioritizing transparency and accountability in all its operations, and upholding rigorous compliance standards. The company plans to expand its global footprint while remaining rooted in its core values and principles.
Datasea plans to implement several strategies to achieve its goals, one of which is to focus on the 5G messaging business. The company aims to participate in the promotion of 5G messaging and contribute to the development of the industry. It expects that 5G messaging will provide a new mode of message distribution, such as the emergence of 5G media news stories, and create new opportunities for the digital economy. Datasea recognizes that 5G messaging is a new opportunity for global competition and is positioned as the leader of the cloud communication industry, the linker of industrial ecology, and the innovator of traffic management. The company plans to innovate and integrate more closely with upstream and downstream enterprises in the industry to create greater commercial value.
Another strategy is to promote transformative acoustic technology and its applications to China and the world. Datasea plans to carry out research and development activities on acoustic intelligent products, processes, new materials, and other technologies to inject new impetus into the development of the enterprise. The company also plans to lay out the research and development of acoustic products and new technologies in advance to look for new development opportunities in the industry.The company also plans to focus on the acoustic intelligent business by increasing technical transformation, merger and integration investment, and fostering new economic growth actively.
Datasea aims to improve the related business industry technology level and scale to achieve further new development and become famous for being an international first-class and domestic top digital wisdom city service provider.
In terms of funding, Datasea plans to make reasonable use of various ways to raise funds for the company’s development while considering its development situation and strategy. The company also acknowledges the risks faced by the 5G messaging business, such as innovation investment risk, and has established a technical innovation system with the research and development institute as the main carrier, adjusted the business direction, strengthened the construction of the existing team, and introduced high-end talent to mitigate these risks.
In order to further improve research and development, office environment, and work efficiency, while reducing rent costs and increasing asset size, the company plans to issue stocks to the actual controller of the company to purchase office assets. This plan to purchase office assets is expected to be implemented in the near future.
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Recent Events
On December 9, 2022, the Company received a deficiency letter from the Listing Qualifications Department (the “Staff”) of the Nasdaq Stock Market (“Nasdaq”) notifying the Company that, for the preceding 30 consecutive business days, the Company’s Market Value of Listed Securities (“MVLS”) was below the $35 million minimum requirement for continued inclusion on the Nasdaq pursuant to Nasdaq Listing Rule 5550(b)(2) (the “MVLS Requirement”).
The notification received has no immediate effect on the Company’s Nasdaq listing. In accordance with Nasdaq rules, the Company has been provided an initial period of 180 calendar days, or until June 7, 2023 (the “Compliance Date”), to regain compliance with the MVLS Requirement. If, at any time before the Compliance Date, the Company’s MVLS closes at $35 million or more for a minimum of 10 consecutive business days, the Staff will provide the Company written confirmation of compliance with the MVLS Requirement.
The Company intends to monitor the market value of the Company’s listed securities and may, if appropriate, consider available options to regain compliance with the MVLS Requirement.
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. |
In order to remediate the foregoing weaknesses, the Company has undertaken the following steps:
| ● | Continuing improve internal control charts, including, but not limited to, budget approval process, procurement and assets control, credit control, internal auditing and a cost accounting, and review of the accounting professional duties and responsibilities handbook. |
The Company has prepared a compilation of internal control policies. Policies on internal procurement control, and inventory management and control to prevent and detect fraud have been put in place.
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Training plan
The Company attaches great importance to employee training. The Human Resources Department, in combination with the enterprise development strategy, job requirements, corporate culture and personal career development path, analyzes and studies the training needs together with various business departments, makes full use of internal lecturer resources, and at the same time makes use of third-party external resources to develop targeted and highly professional training plans, including but not limited to: corporate culture, job operation skills, professional technology Operation and management. During the reporting period, all departments strictly implemented the training plan formulated at the beginning of the year, and timely carried out special training according to the problems or difficulties encountered in the work process. Through training, the overall professional quality and professional skills of employees have been improved, achieving a win-win situation of their own professional ability and the sustainable development of the company.
In 2023, the Company will continue to strengthen the training & development of employees focus on:
1. For the training of new employees: As of report day, for the new employees who have joined the company, a total of thirteen new employee training sessions will be carried out throughout the year, aiming to let the new employees understand the Company’s culture, rules and regulations and product knowledge, so that they can quickly integrate into the company.
2. Business side training: carry out typical business development stages to provide reference and replicable ideas for business development.
3. Continuously strengthen the skill training of on-the-job employees: various front-end and functional units have carried out various skill training for many times to continuously improve the competency of employees.
4. Build a learning map of key marketing positions: analyze the responsibilities of key account managers, sales directors and regional leaders at three levels, build and complete the learning map of three positions, and provide basis for the follow-up training of marketing positions.
We expect to further implement all measures in the fiscal year ending June 30, 2023. The remediation efforts set out above are largely dependent upon our generating more revenue to cover the costs of implementing the changes required.
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 March 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
None.
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: May 15, 2023 |
By: | /s/ Zhixin Liu |
| Name: | Zhixin Liu | |
| Title: | President | |
| Chief Executive Officer | ||
| (principal executive officer) | ||
Date: May 15, 2023 |
By: | /s/ Mingzhou Sun |
| Name: | Mingzhou Sun | |
| Title: | Chief Financial Officer | |
| (principal financial officer and | ||
| principal accounting officer) |
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