UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31,
2023
☐ TRANSITION REPORT PURSUANT TO SECTION
13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 001-38767
DATASEA INC.
(Exact name of registrant as specified in its charter)
Nevada | | 45-2019013 |
(State or other jurisdiction of | | (I.R.S. Employer |
incorporation or organization) | | Identification No.) |
20th Floor, Tower B, Guorui Plaza 1 Ronghua South Road, Technological Development Zone Beijing, People’s Republic of China | | 100176 |
(Address of principal executive offices) | | (Zip Code) |
+86 10-56145240 |
(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 |
Common Stock, $0.001 par value | | DTSS | | NASDAQ Capital Market |
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. Yes ☒ No ☐
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). Yes
☒ No ☐
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 |
☒ | Non-accelerated filer | ☒ | Smaller reporting company |
| | ☐ | Emerging growth company |
If an emerging growth company, indicate by check
mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting
standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant
is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of February 13, 2024, 2,538,286 shares of common stock, $0.001
par value per share, were outstanding.
DATASEA INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
DATASEA INC.
CONSOLIDATED BALANCE SHEETS
| |
DECEMBER 31, 2023 (UNAUDITED) | | |
JUNE 30, 2023 | |
| |
| | |
| |
ASSETS | |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 437,716 | | |
$ | 19,728 | |
Accounts receivable | |
| 54,123 | | |
| 255,725 | |
Inventory, net | |
| 185,806 | | |
| 241,380 | |
Value-added tax prepayment | |
| 82,987 | | |
| 71,261 | |
Prepaid expenses and other current assets | |
| 3,297,619 | | |
| 701,423 | |
Total current assets | |
| 4,058,251 | | |
| 1,289,517 | |
| |
| | | |
| | |
NONCURRENT ASSETS | |
| | | |
| | |
Long-term investment | |
| 56,476 | | |
| 55,358 | |
Property and equipment, net | |
| 62,512 | | |
| 85,930 | |
Intangible assets, net | |
| 660,080 | | |
| 1,185,787 | |
Right-of-use assets, net | |
| 107,329 | | |
| 137,856 | |
Total noncurrent assets | |
| 886,397 | | |
| 1,464,931 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 4,944,648 | | |
$ | 2,754,448 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 339,897 | | |
$ | 1,005,059 | |
Unearned revenue | |
| 58,456 | | |
| 609,175 | |
Accrued expenses and other payables | |
| 670,596 | | |
| 1,409,939 | |
Due to related parties | |
| 568,492 | | |
| 1,162,856 | |
Operating lease liabilities | |
| 116,594 | | |
| 124,640 | |
Bank loan payable | |
| 502,836 | | |
| 594,906 | |
Loan payable | |
| 155,308 | | |
| - | |
Total current liabilities | |
| 2,412,179 | | |
| 4,906,575 | |
| |
| | | |
| | |
NONCURRENT LIABILITIES | |
| | | |
| | |
Operating lease liabilities | |
| - | | |
| 26,449 | |
Loan payable | |
| | | |
| 1,310,306 | |
Bank loan payable | |
| 672 | | |
| 91,215 | |
Total noncurrent liabilities | |
| 672 | | |
| 1,427,970 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 2,412,851 | | |
| 6,334,545 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
Common stock, $0.001 par value, 25,000,000 shares authorized, 2,538,286 and 1,852,346 shares issued and outstanding as of December 31, 2023 and June 30, 2023, respectively * | |
| 2,538 | | |
| 1,852 | |
Additional paid-in capital | |
| 32,251,708 | | |
| 24,148,905 | |
Accumulated comprehensive income | |
| 266,637 | | |
| 393,252 | |
Accumulated deficit | |
| (29,918,353 | ) | |
| (28,063,258 | ) |
TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIT) | |
| 2,602,530 | | |
| (3,519,249 | ) |
| |
| | | |
| | |
Noncontrolling interest | |
| (70,733 | ) | |
| (60,848 | ) |
| |
| | | |
| | |
TOTAL EQUITY (DEFICIT) | |
| 2,531,797 | | |
| (3,580,097 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND EQUITY (DEFICIT) | |
$ | 4,944,648 | | |
$ | 2,754,448 | |
The accompanying notes are an integral part of these consolidated financial
statements.
DATASEA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE
LOSS
(UNAUDITED)
| |
THREE MONTHS ENDED
DECEMBER 31, | | |
SIX MONTHS ENDED
DECEMBER 31, | |
| |
2023 | | |
2022 | | |
2023 | | |
2022 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | 11,348,469 | | |
$ | 131,459 | | |
$ | 18,229,212 | | |
$ | 131,459 | |
Cost of goods sold | |
| 11,246,234 | | |
| 96,030 | | |
| 18,052,242 | | |
| 96,030 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 102,235 | | |
| 35,429 | | |
| 176,970 | | |
| 35,429 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling | |
| 1,149,944 | | |
| 45,588 | | |
| 1,234,391 | | |
| 149,702 | |
General and administrative | |
| 623,456 | | |
| 866,399 | | |
| 1,316,516 | | |
| 1,751,359 | |
Research and development | |
| 117,371 | | |
| 148,812 | | |
| 272,375 | | |
| 255,440 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 1,890,771 | | |
| 1,060,799 | | |
| 2,823,282 | | |
| 2,156,501 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (1,788,536 | ) | |
| (1,025,370 | ) | |
| (2,646,312 | ) | |
| (2,121,072 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-operating income (expenses) | |
| | | |
| | | |
| | | |
| | |
Other expenses | |
| (46,187 | ) | |
| (34,326 | ) | |
| (54,051 | ) | |
| (35,565 | ) |
Interest income | |
| 1,623 | | |
| 29 | | |
| 1,729 | | |
| 93 | |
| |
| | | |
| | | |
| | | |
| | |
Total non-operating expenses, net | |
| (44,564 | ) | |
| (34,297 | ) | |
| (52,322 | ) | |
| (35,472 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income tax | |
| (1,833,100 | ) | |
| (1,059,667 | ) | |
| (2,698,634 | ) | |
| (2,156,544 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax | |
| - | | |
| - | | |
| - | | |
| 8 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before noncontrolling interest from continuing operation | |
| (1,833,100 | ) | |
| (1,059,667 | ) | |
| (2,698,634 | ) | |
| (2,156,552 | ) |
Income (loss) before noncontrolling interest from discontinued operation | |
| - | | |
| (351,418 | ) | |
| 833,546 | | |
| (688,480 | ) |
| |
| | | |
| | | |
| | | |
| | |
Less: loss attributable to noncontrolling interest from continuing operation | |
| (61 | ) | |
| (14,002 | ) | |
| (9,993 | ) | |
| (8,867 | ) |
Less: loss attributable to noncontrolling interest from discontinued operation | |
| - | | |
| (106,093 | ) | |
| - | | |
| (207,852 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss attribute to noncontrolling interest | |
| (61 | ) | |
| (120,095 | ) | |
| (9,993 | ) | |
| (216,719 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss to the Company from continuing operation | |
| (1,833,039 | ) | |
| (1,045,665 | ) | |
| (2,688,641 | ) | |
| (2,147,685 | ) |
Net income (loss) to the Company from discontinued operation | |
| - | | |
| (245,325 | ) | |
| 833,546 | | |
| (480,628 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss to the Company | |
| (1,833,039 | ) | |
| (1,290,990 | ) | |
| (1,855,095 | ) | |
| (2,628,313 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive item | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation gain (loss) attributable to the Company | |
| 34,601 | | |
| (61,105 | ) | |
| (126,615 | ) | |
| (48,767 | ) |
Foreign currency translation gain attributable to noncontrolling interest | |
| 116 | | |
| 32,426 | | |
| 29,850 | | |
| 28,736 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss attributable to the Company | |
$ | (1,798,438 | ) | |
$ | (1,352,095 | ) | |
$ | (1,981,710 | ) | |
$ | (2,677,080 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income (loss) attributable to noncontrolling interest | |
$ | 55 | | |
$ | (87,669 | ) | |
$ | 19,857 | | |
$ | (187,983 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (0.72 | ) | |
$ | (0.80 | ) | |
$ | (0.82 | ) | |
$ | (1.62 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares used for computing basic and diluted loss per share * | |
| 2,538,286 | | |
| 1,621,642 | | |
| 2,250,711 | | |
| 1,621,642 | |
The accompanying notes are an integral part of
these consolidated financial statements.
DATASEA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’
EQUITY
SIX AND THREE MONTHS ENDED DECEMBER 31, 2023
AND 2022
(UNAUDITED)
| |
Common
Stock | | |
Additional
paid-in | | |
Accumulated
| | |
Accumulated
other
comprehensive | | |
| | |
Noncontrolling | |
| |
Shares | | |
Amount | | |
capital | | |
deficit | | |
income | | |
Total | | |
interest | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance
at July 1, 2023 | |
| 1,852,346 | | |
$ | 1,852 | | |
$ | 24,148,905 | | |
$ | (28,063,258 | ) | |
$ | 393,252 | | |
$ | (3,519,249 | ) | |
$ | (60,848 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (22,056 | ) | |
| - | | |
| (22,056 | ) | |
| (9,932 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Issuance
of common stock for equity financing | |
| 685,940 | | |
| 686 | | |
| 8,060,600 | | |
| - | | |
| - | | |
| 8,061,286 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for stock compensation expense | |
| - | | |
| - | | |
| 20,100 | | |
| - | | |
| - | | |
| 20,100 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (161,216 | ) | |
| (161,216 | ) | |
| (8 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at September 30, 2023 | |
| 2,538,286 | | |
| 2,538 | | |
| 32,229,605 | | |
| (28,085,314 | ) | |
| 232,036 | | |
| 4,378,865 | | |
| (70,788 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (1,833,039 | ) | |
| - | | |
| (1,833,039 | ) | |
| (61 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for stock compensation expense | |
| - | | |
| - | | |
| 22,103 | | |
| - | | |
| - | | |
| 22,103 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation gain | |
| - | | |
| - | | |
| - | | |
| - | | |
| 34,601 | | |
| 34,601 | | |
| 116 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2023 | |
| 2,538,286 | | |
$ | 2,538 | | |
$ | 32,251,708 | | |
$ | (29,918,353 | ) | |
$ | 266,637 | | |
$ | 2,602,530 | | |
$ | (70,733 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at July 1, 2022 | |
| 1,621,642 | | |
$ | 1,622 | | |
$ | 20,752,262 | | |
$ | (18,583,566 | ) | |
$ | 283,587 | | |
$ | 2,453,905 | | |
$ | (854,273 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (1,337,323 | ) | |
| - | | |
| (1,337,323 | ) | |
| (96,624 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for stock compensation expense | |
| - | | |
| - | | |
| 116,250 | | |
| - | | |
| - | | |
| 116,250 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation gain (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| 12,338 | | |
| 12,338 | | |
| (3,690 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at September 30, 2022 | |
| 1,621,642 | | |
| 1,622 | | |
| 20,868,512 | | |
| (19,920,889 | ) | |
| 295,925 | | |
| 1,245,170 | | |
| (954,587 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net
loss | |
| - | | |
| - | | |
| - | | |
| (1,290,990 | ) | |
| - | | |
| (1,290,990 | ) | |
| (120,095 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares
issued for stock compensation expense | |
| - | | |
| - | | |
| 117,000 | | |
| - | | |
| - | | |
| 117,000 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Purchase
of minority interest ownership | |
| - | | |
| - | | |
| (982,014 | ) | |
| - | | |
| - | | |
| (982,014 | ) | |
| 982,014 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign
currency translation gain (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (61,105 | ) | |
| (61,105 | ) | |
| 32,426 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance
at December 31, 2022 | |
| 1,621,642 | | |
$ | 1,622 | | |
$ | 20,003,498 | | |
$ | (21,211,879 | ) | |
$ | 234,820 | | |
$ | (971,939 | ) | |
$ | (60,242 | ) |
The accompanying notes are an integral part of these consolidated financial
statements.
DATASEA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
|
|
SIX MONTHS ENDED
DECEMBER 31 |
|
|
|
2023 |
|
|
2022 |
|
|
|
|
|
|
|
|
Cash flows from operating activities: |
|
|
|
|
|
|
Loss including noncontrolling interest |
|
$ |
(1,865,088 |
) |
|
$ |
(2,845,032 |
) |
Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Gain on disposal of subsidiary |
|
|
(833,546 |
) |
|
|
(7 |
) |
Depreciation and amortization |
|
|
276,116 |
|
|
|
367,616 |
|
Operating lease expense |
|
|
107,355 |
|
|
|
371,871 |
|
Stock compensation expense |
|
|
42,203 |
|
|
|
233,250 |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(52,805 |
) |
|
|
(138,565 |
) |
Inventory |
|
|
59,809 |
|
|
|
(49,886 |
) |
Value-added tax prepayment |
|
|
(25,932 |
) |
|
|
(12,561 |
) |
Prepaid expenses and other current assets |
|
|
(2,589,743 |
) |
|
|
(46,374 |
) |
Accounts payable |
|
|
(138,820 |
) |
|
|
434,637 |
|
Unearned revenue |
|
|
(462,043 |
) |
|
|
(156,533 |
) |
Accrued expenses and other payables |
|
|
(39,242 |
) |
|
|
391,950 |
|
Payment on operating lease liabilities |
|
|
(111,547 |
) |
|
|
(316,856 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
|
(5,633,283 |
) |
|
|
(1,766,490 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
Acquisition of property and equipment |
|
|
(3,683 |
) |
|
|
(2,276 |
) |
Acquisition of intangible assets |
|
|
(68,098 |
) |
|
|
(1,985 |
) |
Cash disposed due to disposal of subsidiary |
|
|
(35 |
) |
|
|
- |
|
Long-term investment |
|
|
- |
|
|
|
(28,764 |
) |
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(71,816 |
) |
|
|
(33,025 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
Due to related parties |
|
|
116,841 |
|
|
|
(1,387 |
) |
Proceeds from loan payables |
|
|
153,659 |
|
|
|
1,684,595 |
|
Repayment of loan payables |
|
|
(2,090,005 |
) |
|
|
- |
|
Net proceeds from issuance of common stock |
|
|
8,061,286 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
6,241,781 |
|
|
|
1,683,208 |
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash |
|
|
(118,694 |
) |
|
|
(4,601 |
) |
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash |
|
|
417,988 |
|
|
|
(120,908 |
) |
|
|
|
|
|
|
|
|
|
Cash, beginning of period |
|
|
19,728 |
|
|
|
164,217 |
|
|
|
|
|
|
|
|
|
|
Cash, end of period |
|
$ |
437,716 |
|
|
$ |
43,309 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
10,535 |
|
|
$ |
- |
|
Cash paid for income tax |
|
$ |
- |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash financing activities: |
|
|
|
|
|
|
|
|
Right-of-use assets obtained in exchange for operating lease liabilities |
|
$ |
124,824 |
|
|
$ |
172,612 |
|
Transfer of debt owing to the Company’s’ CEO to Mr. Wanli
Kuai |
|
$ |
727,503 |
|
|
|
- |
|
The accompanying notes are an integral part of these consolidated financial
statements.
DATASEA INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
DECEMBER 31, 2023 (UNAUDITED)
AND JUNE 30, 2023
NOTE 1 – ORGANIZATION
AND DESCRIPTION OF BUSINESS
Datasea
Inc. (the “Company,” “Datasea,” or “we,” “us,” “our”) was incorporated in
the State of Nevada on September 26, 2014 under the name Rose Rock Inc. and changed its name to Datasea Inc. on May 27, 2015. On May 26,
2015, the Company’s founder, Xingzhong Sun, sold 6,666,667 shares of common stock, par value $0.001 per share, of
the Company (the “Common Stock”) to Zhixin Liu (“Ms. Liu”), an owner of Shuhai Skill (HK) as defined below. On
October 27, 2016, Mr. Sun sold his remaining 1,666,667 shares of Common Stock of the Company to Ms. Liu. As a holding company
with no material operations, the Company conducts a majority of its business activities through organizations established in the People’s
Republic of China (“PRC), primarily by variable interest entity (the “VIE”). The Company does not have any equity ownership
of its VIE, instead it controls and receives economic benefits of the VIE’s business operations through certain contractual arrangements.
On October
29, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”)
of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company (“LLC”) incorporated
on May 15, 2015 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”).
Pursuant to the terms of the Exchange Agreement, the Shareholders, who own 100% of Shuhai Skill (HK), transferred all of the issued
and outstanding ordinary shares of Shuhai Skill (HK) to the Company for 6,666,667 shares of Common Stock, causing Shuhai Skill
(HK) and its wholly owned subsidiaries, Tianjin Information Sea Information Technology Co., Ltd. (“Tianjin Information” or
“WOFE”), an LLC incorporated under the laws of the PRC, and Harbin Information Sea Information Technology Co., Ltd., an LLC
incorporated under the laws of the PRC, to become wholly-owned subsidiaries of the Company; and Shuhai Information Technology Co., Ltd.,
also an LLC incorporated under the laws of the PRC (“Shuhai Beijing”), to become a VIE of the Company through a series of
contractual agreements between Shuhai Beijing and Tianjin Information. The transaction was accounted for as a reverse merger, with Shuhai
Skill (HK) and its subsidiaries being the accounting survivor. Accordingly, the historical financial statements presented are those of
Shuhai Skill (HK) and its consolidated subsidiaries and VIE.
Following
the Share Exchange, the Shareholders, Zhixin Liu and her father, Fu Liu, owned approximately 82% of the Company’s outstanding
shares of Common Stock. As of October 29, 2015, there were 18,333,333 shares of Common Stock issued and outstanding, 15,000,000 of
which were beneficially owned by Zhixin Liu and Fu Liu.
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 99% ownership interest with the remaining 1% held by Nanjing Fanhan Zhineng Technology
Institute Co. Ltd, an unrelated party that was supported by both Nanjing Municipal Government and Beijing University of Posts and Telecommunications.
Shuhai Nanjing was formed for gaining the easy access to government funding and private financing for the Company’s new technology
development and new project initiation.
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. Pursuant to the Transfer Agreements, the Director and the President, each agreed, for no consideration,
to (i) transfer his 51% and 49% respective ownership interests, in Guozhong Times (Beijing) Technology Ltd. (“Guozhong Times”)
to Shuhai Beijing; and (ii) transfer his 51% and 49% respective ownership interests, in Guohao Century (Beijing) Technology Ltd. (“Guohao
Century”) to Shuhai Beijing. Guozhong Times and Guohao Century were established to develop technology for electronic products, intelligence
equipment and accessories, and provide software and information system consulting, installation and maintenance services.
On January
7, 2020, Shuhai Beijing entered into another equity transfer agreement with the President, the Director described above and an unrelated
individual. Pursuant to this equity transfer agreement, the Director, the President and the unrelated individual each agreed to transfer
his 51%, 16%, 33% ownership interests, in Guozhong Haoze (Beijing) Technology Ltd. (“Guozhong Haoze”) to Shuhai Beijing for
no consideration. Guozhong Haoze was formed to develop and market the smart security system products.
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 99% as an ordinary
partner. In November 2023, the Company dissolved Zhangqi as a result of disposal of Zhuangxun in
July 2023, Zhangqi had no operations but only serves as a holding company of Zhagnxun.
On November 19, 2020, Guohao
Century formed a 51% owned subsidiary Hangzhou Shuhai Zhangxun Information Technology Co., Ltd (“Zhangxun”) for research
and development of 5G Multimodal communication technology. Zhangqi owns 19% of Zhangxun; accordingly, Guohao Century ultimately owns 69.81%
of Zhangxun. On December 20, 2022, Guohao Century acquired a 30% ownership interests of Zhangxun from Zhengmao Zhang at the price
of $0.15 (RMB 1.00). After the transaction, Guohao Century owns 81% of Zhangxun, and Zhangqi owns 19% of Zhangxun;
On February 15, 2023, Guohao Century acquired a 9% ownership interests of Zhangxun from the Zhangqi at the price of $130,434 (RMB 900,000).
After the transaction, Guohao Century owns 90% of Zhangxun, and Zhangqi owns 10% of Zhangxun; as a result, Guohao Century ultimately
owns 99.9 % of Zhangxun. On July 20, 2023, the Company sold Zhangxun to a third party for RMB 2 ($0.28).
On February
16, 2022, Shuhai Jingwei formed Shenzhen Acoustic Effect Management Limited Partnership (“Shenzhen Acoustic MP”) with 99%
ownership interest, the remaining 1% ownership interest is held by a third party.
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 60% ownership interest, 10% ownership interest is held by Shenzhen Acoustic MP,
and remaining 30% ownership interest is held by a third party. On October 18, 2022, Shuhai Jingwei acquired 30% ownership interest
of Shuhai Acoustic Effect, a PRC Company from the third party at the price of approximately $0.15 (RMB 1.00). After the transaction,
Shuhai Jingwei owns 90% of Shuhai Shenzhen Effect, and Shenzhen Acoustic MP still owns 10% of Shuhai Shenzhen Effect; accordingly,
Shuhai Jingwei ultimately owns 100% of Shuhai Acoustic Effect. The book value of 30% interest acquired from the third party
was $(26,993) due to its accumulated deficit.
On March
4, 2022, Shuhai Beijing formed Beijing Yirui Business Management Development Center (“Yirui”) with 99% ownership interest
as an ordinary partner, the remaining 1% ownership interest is held by Zhixin Liu.
On March
4, 2022, Shuhai Beijing formed Beijing Yiying Business Management Development Center (“Yiying”) with 99% ownership interest
as an ordinary partner, the remaining 1% ownership interest is held by Zhixin Liu.
On July
31, 2023, Datasea established a wholly owned subsidiary Datasea Acoustic, LLC (“Datasea Acoustic”) in the state of Delaware
for expanding the products to the market in North America.
On January 10, 2024, the Company’s
Board of Directors approved a reverse stock split of its authorized and issued and outstanding shares of common stock, par value $0.001
per share (the “Common Stock”), at a ratio of 1-for-15, which become legal effective on January 19, 2024. After the reverse
stock split, every 15 issued and outstanding shares of the Company’s Common Stock will be converted automatically into one share
of the Company’s Common Stock without any change in the par value per share. The total number of shares of Common Stock authorized
for issuance will then be reduced by a corresponding proportion from 375,000,000 shares to 25,000,000 shares of Common Stock. All share
amounts have been retroactively restated to reflect the reverse stock split for all periods presented.
NOTE 2 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES
GOING CONCERN
The accompanying consolidated
financial statements (“CFS”) were prepared assuming the Company will continue as a going concern, which contemplates
continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months
ended December 31, 2023 and 2022, the Company had a net loss of approximately $1.83 million and $1.29 million, respectively.
For the six months ended December 31, 2023 and 2022, the Company had a net loss of approximately $1.86 million and $2.63 million, respectively.
The Company had an accumulated deficit of approximately $29.92 million as of December 31, 2023, and negative cash flow from operating
activities of approximately $5.63 million and $1.77 million for the six months ended December 31, 2023 and 2022, respectively.
The historical operating results including recurring losses from operations raise substantial doubt about the Company’s ability
to continue as a going concern.
On August
1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company
sold an aggregate of 4,760,000 shares of common stock at a $1.2 per share purchase price to the investor. On September
21, 2023, the Company received full payment of RMB 40,000,000 ($5.71 million) from the investor.
On August
15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell
and the investor agreed to purchase an aggregate of 2,962,963 shares of common stock at a $1.35 per share purchase price,
with a total subscription price of $4,000,000. The investor paid the amount of $714,286 to the Company and the Company issued 529,101 shares
as of the date of this report, and has promised to pay the remaining balance in full by March 2024.
On September
13, 2023, the Company closed an underwritten public offering of 5,000,000 shares of common stock at a public offering price
of $0.40 per share. The gross proceeds to the Company from this offering are approximately $2 million, before deducting any
fees or expenses. In September 2023, the Company received $1.6 million net proceeds from this offering.
During the six months ended December
31, 2023, the Company made total prepayments of $3.76 million for marketing and promoting the sale of acoustic intelligence series products
and 5G Multimodal communication in oversea and domestic markets. For the three and six months ended December 31, 2023, the Company recorded
an amortization of prepaid expense of $0.94 million in the selling expense. The Company
expects significant revenue that can be generated from these marketing and promoting activities.
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.
BASIS
OF PRESENTATION AND CONSOLIDATION
The CFS
were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and
applicable rules and regulations of the SEC regarding CFS. In the opinion of management, such financial information includes all adjustments
(consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial
position at such date and the operating results and cash flows for such periods. Operating results for the three and six months ended
December 31, 2023 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim
period. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto,
included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, previously filed with the Securities
Exchange Commission (“SEC”) on September 27, 2023.
The accompanying CFS include
the financial statements of the Company and its 100% owned subsidiaries Shuhai Information Skill (HK) Limited (“Shuhai
Skill (HK)”), and Tianjin Information sea Information Technology Co., Ltd. (“Tianjin
Information”), and its VIE, Shuhai Beijing, and Shuhai Beijing’s 100% owned subsidiaries – Heilongjiang Xunrui
Technology Co. Ltd. (“Xunrui”), Guozhong Times (Beijing) Technology Ltd. (“Guozhong Times”), Guohao Century (Beijing)
Technology Ltd. (“Guohao Century”), Guozhong Haoze, and Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Jingwei”),
and Shuhai Beijing’s 99% owned subsidiary–- Nanjing Shuhai Equity Investment Fund Management Co. Ltd. (“Shuhai
Nanjing”). During the year ended June 30, 2022, the Company incorporated two new subsidiaries Shuhai (Shenzhen) Acoustic Effect
Technology Co., Ltd (“Shuhai Acoustic”) and Shenzhen Acoustic Effect Management Partnership (“Shenzhen Acoustic MP”).
All significant inter-company transactions and balances were eliminated in consolidation. The chart below depicts the corporate structure
of the Company as of December 31, 2023.
VARIABLE INTEREST ENTITY
Pursuant
to the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation”
(“ASC 810”), the Company is required to include in its CFS, the financial statements of Shuhai Beijing, its VIE. ASC 810 requires
a VIE to be consolidated if the Company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority
of the VIE’s residual returns. A VIE is an entity in which a company, through contractual arrangements, bears the risk of, and enjoys
the rewards of such entity, and therefore the Company is the primary beneficiary of such entity.
Under ASC
810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both
of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic
performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE.
The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating
rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those
rights. Shuhai Beijing’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.
Through
the VIE agreements, Tianjin Information, an indirect subsidiary of Datasea is deemed the primary beneficiary of Shuhai Beijing and its
subsidiaries. Accordingly, the results of Shuhai Beijing and its subsidiaries were included in the accompanying CFS. Shuhai Beijing has
no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shuhai Beijing do not have recourse
to the Company’s general credit.
VIE Agreements
Operation
and Intellectual Property Service Agreement – The Operation and Intellectual Property Service Agreement allows Tianjin
Information Sea Information Technology Co., Ltd (“WFOE”) to manage and operate Shuhai Beijing and collect an operating fee
equal to Shuhai Beijing’s pre-tax income, per month. If Shuhai Beijing suffers a loss and as a result does not have pre-tax income,
such loss shall be carried forward to the following month to offset the operating fee to be paid to WFOE if there is pre-tax income of
Shuhai Beijing the following month. Furthermore, if Shuhai Beijing cannot pay off its debts, WFOE shall pay off the debt on Shuhai Beijing’s
behalf. If Shuhai Beijing’s net assets fall lower than its registered capital balance, WFOE shall provide capital for Shuhai Beijing
to make up for the deficit.
Under the
terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations,
manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing
management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its stockholders shall not make any decisions
nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.
Stockholders’
Voting Rights Entrustment Agreement – Tianjin Information has entered into a stockholders’ voting rights entrustment
agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing Stockholders”)
have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s). The Entrustment Agreement does not have an
expiration date, but the parties can agree in writing to terminate the Entrustment Agreement. Zhixin Liu, is the Chairman of the Board,
President, CEO of DataSea and Corporate Secretary, and Fu Liu, a Director of the DataSea (Fu Liu is the father of Zhixin Liu).
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 RMB0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option Agreement, Tianjin
Information and the Shuhai Beijing Stockholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information
under the Option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing Stockholders to maintain the option
rights. Tianjin Information may terminate the Option Agreement upon prior written notice. The Option Agreement is valid for a period of 10 years
from the effective date and renewable at Tianjin Information’s option.
Equity
Pledge Agreement – Tianjin Information and the Shuhai Beijing Stockholders entered into an equity pledge agreement on October
27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing
of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge
Agreement, Shuhai Beijing Stockholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin
Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests
during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Stockholders have agreed to certain
restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the
Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise
the right to enforce the pledge.
As of this
report date, there were no dividends paid from the VIE to the U.S. parent company or the shareholders of the Company. There has been no
change in facts and circumstances to consolidate the VIE. The following financial statement amounts and balances of the VIE were
included in the accompanying CFS as of December 31, 2023 and June 30, 2023, and for the three and six months ended December 31, 2023 and
2022, respectively.
| |
December 31, 2023 | | |
June 30, 2023 | |
Cash | |
$ | 165,176 | | |
$ | 13,717 | |
Accounts receivable | |
| 54,123 | | |
| 255,725 | |
Inventory | |
| 192,465 | | |
| 241,380 | |
Other current assets | |
| 150,453 | | |
| 649,433 | |
Total current assets | |
| 562,217 | | |
| 1,160,255 | |
Property and equipment, net | |
| 32,269 | | |
| 42,886 | |
Intangible asset, net | |
| 420,642 | | |
| 757,700 | |
Right-of-use asset, net | |
| 24,023 | | |
| 60,348 | |
Other non-current assets | |
| 56,476 | | |
| 55,358 | |
Total non-current assets | |
| 533,410 | | |
| 916,292 | |
Total assets | |
$ | 1,095,627 | | |
$ | 2,076,547 | |
| |
| | | |
| | |
Accounts payable | |
$ | 112,002 | | |
$ | 650,406 | |
Accrued liabilities and other payables | |
| 679,971 | | |
| 1,480,947 | |
Lease liability | |
| 26,097 | | |
| 39,223 | |
Loans payable | |
| 502,835 | | |
| 594,906 | |
Other current liabilities | |
| 483,735 | | |
| 1,639,410 | |
Total current liabilities | |
| 1,804,640 | | |
| 4,404,892 | |
Lease liability - noncurrent | |
| - | | |
| 26,449 | |
Long term long payable | |
| 672 | | |
| 1,401,521 | |
Total non-current liabilities | |
| 672 | | |
| 1,427,970 | |
Total liabilities | |
$ | 1,805,312 | | |
$ | 5,832,862 | |
| |
For the Three Months Ended December 31, 2023 | | |
For the Three Months Ended December 31, 2022 | |
Revenues | |
$ | 11,279,181 | | |
$ | 425,710 | |
Gross profit | |
$ | 101,581 | | |
$ | 54,330 | |
Net loss | |
$ | (486,358 | ) | |
$ | (63,805 | )* |
| |
For the Six Months Ended December 31, 2023 | | |
For the Six Months Ended December 31, 2022 | |
Revenues | |
$ | 18,159,924 | | |
$ | 1,519,015 | |
Gross profit | |
$ | 176,316 | | |
$ | 204,527 | |
Net income (loss) | |
$ | 66,885 | | |
$ | (704,763 | )* |
USE OF ESTIMATES
The preparation
of CFS in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
and expenses during the reporting periods. Actual results could differ from those estimates. The significant areas requiring the use of
management estimates include, but are not limited to, the estimated useful life and residual value of property, plant and equipment, provision
for staff benefits, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although
these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual
results may ultimately differ from those estimates and such differences may be material to the CFS.
CONTINGENCIES
Certain
conditions may exist as of the date the CFS are issued, which may result in a loss to the Company but which will only be resolved when
one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities,
and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that
are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates
the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected
to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of
the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment
indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated,
the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be
disclosed. As of December 31, 2023 and June 30, 2023, the Company has no such contingencies.
CASH
Cash includes
cash on hand and demand deposits that are highly liquid in nature and have original maturities when purchased of three months or less.
ACCOUNTS RECEIVABLE
The Company’s
policy is to maintain an allowance for potential credit losses on accounts receivable. The Company adopted Accounting Standards Update
(“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit losses on financial
instruments later codified as Accounting Standard codification (“ASC”) 326 (“ASC 326”), on July 1, 2023.
The guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on
expected losses rather than incurred losses. There was no significant impact on the date of adoption of ASC 326.
Under ASC
326, Accounts receivable are recorded at the invoiced amount, net of allowance for expected credit losses. The Company’s primary
allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the Accounts receivable
balance to the estimated net realizable value. The Company regularly reviews the adequacy of the allowance for credit losses based on
a combination of factors. In establishing any required allowance, management considers historical losses adjusted for current market conditions,
the Company’s customers’ financial condition, the amount of any receivables in dispute, the current receivables aging, current
payment terms and expectations of forward-looking loss estimates.
All provisions
for the allowance for doubtful accounts are included as a component of general and administrative expenses on the accompanying consolidated
statements of operations and comprehensive loss. Accounts receivable deemed uncollectible are charged against the allowance for credit
losses when identified. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered. As of
December 31, 2023 and June 30, 2023, the Company had a $0 bad debt allowance for accounts receivable.
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 $53,984 and $52,915 allowances for slow-moving and obsolete inventory (mainly for
Smart-Student Identification cards) as of December 31, 2023 and June 30, 2023, respectively.
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 |
|
3-5 years |
Office equipment |
|
3-5 years |
Vehicles |
|
5 years |
Leasehold improvement |
|
3 years |
Leasehold
improvements are depreciated utilizing the straight-line method over the shorter of their estimated useful lives or remaining lease term.
INTANGIBLE
ASSETS
Intangible
assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability
of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate
that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has
been identified as of the balance sheet date.
Intangible
assets include licenses, certificates, patents and other technology and are amortized over their useful life of three years.
FAIR
VALUE (“FV”) OF FINANCIAL INSTRUMENTS
The carrying
value of the Company’s short-term financial instruments, such as cash, accounts receivable, prepaid expenses, accounts payable,
unearned revenue, accrued expenses and other payables approximates their FV due to their short maturities. FASB ASC Topic 825, “Financial
Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance
sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their FV because of the short period
of time between the origination of such instruments and their expected realization and the current market rate of interest.
FAIR VALUE MEASUREMENTS AND
DISCLOSURES
FASB ASC
Topic 820, “Fair Value Measurements,” defines FV, and establishes a three-level valuation hierarchy for disclosures that enhances
disclosure requirements for FV measures. The three levels are defined as follows:
|
● |
Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets. |
|
● |
Level 2 inputs to the valuation methodology include other than those in level 1 quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. |
|
● |
Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement. |
As of December
31, 2023 and June 30, 2023, the Company did not identify any assets or liabilities required to be presented on the balance sheet at FV
on a recurring basis.
IMPAIRMENT OF LONG-LIVED ASSETS
In accordance
with FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets such as property
and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may
not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other changes.
The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted
cash flows expected to be generated by the asset.
If such
assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds
its FV. FV generally is determined using the asset’s expected future undiscounted cash flows or market value, if readily determinable.
Assets to be disposed of are reported at the lower of the carrying amount or FV less cost to sell. For the three and six months ended
December 31, 2023 and 2022, there was no impairment loss recognized on long-lived assets.
UNEARNED REVENUE
The Company
records payments received in advance from its customers or sales agents for the Company’s products as unearned revenue, mainly consisting
of deposits or prepayment for 5G products from the Company’s sales agencies. These orders normally are delivered based upon contract
terms and customer demand, and the Company will recognize it as revenue when the products are delivered to the end customers.
LEASES
The Company
determines if an arrangement is a lease at inception under FASB ASC Topic 842. Right of Use Assets (“ROU”) and lease liabilities
are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the
Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit
rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value
of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit
rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease
payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include
options to extend or terminate the lease when it is reasonably certain that it will exercise such options.
ROU assets
are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the
impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.
ROU assets
are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from
the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which
represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and
liabilities. The Company recognized no impairment of ROU assets as of December 31, 2023 and June 30, 2023.
REVENUE RECOGNITION
The Company
follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).
The core
principle underlying FASB ASC 606 is that the Company will recognize revenue to represent the transfer of goods and services to customers
in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company
to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based
on when control of goods and services transfers to a customer. The Company’s revenue streams are identified when possession of goods
and services is transferred to a customer.
FASB ASC
Topic 606 requires the use of a new five-step model to recognize revenue from customer contracts. The five-step model requires the Company
(i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction
price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate
the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies
each performance obligation.
The Company
derives its revenues from product sales and 5G messaging service contracts with its customers, with revenues recognized upon delivery
of services and products. Persuasive evidence of an arrangement is demonstrated via product sale contracts and professional service contracts,
with performance obligations identified. The transaction price, such as product selling price, and the service price to the customer with
corresponding performance obligations are fixed upon acceptance of the agreement. The Company recognizes revenue when it satisfies each
performance obligation, the customer receives the products and passes the inspection and when professional service is rendered to the
customer, collectability of payment is probable. These revenues are recognized at a point in time after each performance obligations is
satisfied. Revenue is recognized net of returns and value-added tax charged to customers.
The following
table shows the Company’s revenue by revenue sources:
| |
For the Three Months Ended December 31, 2023 | | |
For the Three Months Ended December 31, 2022 | |
5G Multimodal communication | |
$ | 11,276,319 | | |
$ | - | |
5G Multimodal communication | |
| 11,276,319 | | |
| - | |
Cloud platform construction cooperation project | |
| - | | |
| - | |
Acoustic Intelligence Business | |
| 2,862 | | |
| 85,161 | |
Ultrasonic Sound Air Disinfection Equipment | |
| 2,862 | | |
| 85,161 | |
Smart City business | |
| - | | |
| 42,700 | |
Smart community | |
| - | | |
| 42,700 | |
Other | |
| 69,288 | | |
| 3,598 | |
Total revenue | |
$ | 11,348,469 | | |
$ | 131,459 | |
| |
For the Six Months Ended December 31, 2023 | | |
For the Six Months Ended December 31, 2022 | |
5G Multimodal communication | |
$ | 18,156,782 | | |
$ | - | |
5G Multimodal communication | |
| 18,156,782 | | |
| - | |
Cloud platform construction cooperation project | |
| - | | |
| - | |
Acoustic Intelligence Business | |
| 3,142 | | |
| 85,161 | |
Ultrasonic Sound Air Disinfection Equipment | |
| 3,142 | | |
| 85,161 | |
Smart City business | |
| - | | |
| 42,700 | |
Smart community | |
| - | | |
| 42,700 | |
| |
| | | |
| | |
Other | |
| 69,288 | | |
| 3,598 | |
Total revenue | |
$ | 18,229,212 | | |
$ | 131,459 | |
SEGMENT INFORMATION
FASB ASC
Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The
management approach model is based on the method a company’s management organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations
constitutes a single reportable segment in accordance with ASC 280. The Company’s only business and industry segment is high technology
and advanced information systems (“TAIS”). TAIS includes smart city solutions that meet the security needs of residential
communities, schools and commercial enterprises, and 5G messaging services including 5G SMS, 5G MMCP and 5G multi-media video messaging.
All of the
Company’s customers are in the PRC and all revenues for the three and six months ended December 31, 2023 and 2022 were generated
from the PRC. All identifiable assets of the Company are located in the PRC. Accordingly, no geographical segments are presented.
INCOME TAXES
The Company
uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.”
Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii)
deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial
statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax
assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized
in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred
tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or
all of the deferred tax assets will not be realized.
The Company
follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets
and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated
with tax positions, accounting for income taxes in interim periods, and income tax disclosures.
Under the
provisions of FASB ASC Topic 740, when tax returns are filed, it is likely some positions taken would be sustained upon examination by
the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that
would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based
on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax
positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent
likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions
taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying
balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest
associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative
expenses in the statement of income. As of December 31, 2023, the Company had no unrecognized tax positions and no charges during
the three and six months ended December 31, 2023, and accordingly, the Company did not recognize any interest or penalties related to
unrecognized tax benefits. The Company files a U.S. and PRC income tax return. With few exceptions, the Company’s U.S. income tax
returns filed for the years ending on June 30, 2018 and thereafter are subject to examination by the relevant taxing authorities; the
Company uses calendar year-end for its PRC income tax return filing, PRC income tax returns filed for the years ending on December 31,
2017 and thereafter are subject to examination by the relevant taxing authorities.
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. On December 20, 2022, Guohao Century acquired a 30% ownership noncontrolling interests
of Zhangxun from Zhengmao Zhang at the price of $0.15 (RMB 1.00). The Company recognized a paid in capital deficit of $982,014 from
this purchase due to continued loss of Zhangxun. Subsequent to this purchase, the Company ultimately holds a 99.9% ownership of Zhangxun.
On July 20, 2023, the Company sold Zhangxun to a third party for RMB 2 ($0.28).
Zhangqi
was 1% owned by noncontrolling interest, in November 2023, the Company dissolved Zhangqi. As of December 31, 2023, Shuhai Nanjing
was 1% owned by noncontrolling interest, Shenzhen Acoustic MP was 1% owned by noncontrolling interest, Shuhai Shenzhen Acoustic
was 0.1% owned by noncontrolling interest, Guozhong Times was 0.091% owned by noncontrolling interest, and Guozhong Haoze was 0.091%
owned by noncontrolling interest. During the three months ended December 31, 2023 and 2022, the Company had loss of $61 and $120,095 attributable
to the noncontrolling interest, respectively. During the six months ended December 31, 2023 and 2022, the Company had loss of $9,993 and
$216,719 attributable to the noncontrolling interest, respectively.
CONCENTRATION OF CREDIT RISK
The Company
maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks less than RMB500,000 ($76,000) is covered
by insurance. Should any institution holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds
for any reason, the Company could lose the cash on deposit with that institution. The Company has not experienced any losses in such accounts
and believes it is not exposed to any risks on its cash in these bank accounts. Cash denominated in RMB with a U.S. dollar equivalent
of $403,921 and $17,432 as of December 31, 2023 and June 30, 2023, respectively, was held in accounts at financial institutions
located in the PRC‚ which is not freely convertible into foreign currencies.
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 $250,000 per depositor. As of December 31, 2023 and June 30, 2023, cash of $32,548 and $1,487 was
maintained at U.S. financial institutions. Cash was maintained at financial institutions in Hong Kong, and was insured by the Hong Kong
Deposit Protection Board up to a limit of HK $500,000 ($64,000). As of December 31, 2023 and June 30, 2023, the cash balance of $1,247 and
$809 was maintained at financial institutions in Hong Kong. The Company, its subsidiaries and VIE have not experienced any losses
in such accounts and do not believe the cash is exposed to any significant risk.
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:
| |
December 31, | | |
December 31, | | |
June 30, | |
| |
2023 | | |
2022 | | |
2023 | |
Period-end date USD: RMB exchange rate | |
| 7.0827 | | |
| 6.9646 | | |
| 7.2258 | |
Average USD for the reporting period: RMB exchange rate | |
| 7.1587 | | |
| 6.9531 | | |
| 6.9415 | |
BASIC AND DILUTED EARNINGS
(LOSS) PER SHARE (EPS)
Basic EPS
is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period.
Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would
have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS is
based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying
the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or
at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during
the period. For the three and six months ended December 31, 2023 and 2022, the Company’s basic and diluted loss per share are the
same as a result of the Company’s net loss. 87,188 and 87,592 warrants (post-reverse stock split) were anti-dilutive and
were therefore excluded from EPS for the three and six months ended December 31, 2023, respectively. 87,997 warrants (post-reverse
stock split) were anti-dilutive and was therefore excluded from EPS for the three and six months ended December 31, 2022, respectively.
STATEMENT OF CASH FLOWS
In accordance
with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated
based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the
corresponding asset and liability on the balance sheet.
RECLASSIFICATION
Certain prior period accounts have been reclassified
to be in conformity with current period presentation, including reclassification of non-current loan payable to non-current bank loan
payable.
RECENT
ACCOUNTING PRONOUNCEMENTS
In June
2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected
credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable
forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured
at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December
15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning
after December 15, 2018. The Company adopted this guidance on July 1, 2023, there was no significant impact on the date of adoption
of ASC 326.
The Company’s
management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would
have a material impact on the Company’s financial statement presentation or disclosures.
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment are summarized as follows:
| |
December 31, 2023 | | |
June 30, 2023 | |
Furniture and fixtures | |
$ | 86,789 | | |
$ | 84,014 | |
Vehicle | |
| 494 | | |
| 484 | |
Leasehold improvement | |
| 221,315 | | |
| 216,932 | |
Office equipment | |
| 239,853 | | |
| 261,658 | |
Subtotal | |
| 548,451 | | |
| 563,088 | |
Less: accumulated depreciation | |
| 485,939 | | |
| 477,158 | |
Total | |
$ | 62,512 | | |
$ | 85,930 | |
Depreciation
for the three months ended December 31, 2023 and 2022 was $7,802 and $30,808, respectively. Depreciation for the six months ended
December 31, 2023 and 2022 was $18,464 and $71,669, respectively.
The Company
disposed $29,148 property and equipment with related accumulated depreciation of $19,136 resulting from the disposal of Zhangxun
(see Note 13).
NOTE
4 – INTANGIBLE ASSETS
Intangible
assets are summarized as follows:
| |
December 31, 2023 | | |
June 30, 2023 | |
Software registration or using right | |
$ | 1,713,942 | | |
$ | 1,635,307 | |
Patent | |
| 14,821 | | |
| 14,527 | |
Software and technology development costs | |
| 11,844 | | |
| 631,250 | |
Value-added telecommunications business license | |
| 15,685 | | |
| 15,374 | |
Subtotal | |
| 1,756,292 | | |
| 2,299,458 | |
Less: Accumulated amortization | |
| 1,096,212 | | |
| 1,110,671 | |
Total | |
$ | 660,080 | | |
$ | 1,185,787 | |
Software
registration or using right represented the purchase cost of customized software with its source code from third party software developer.
Software
and technology development cost represented development costs incurred internally after the technological feasibility was established
and a working model was produced and was recorded as intangible asset.
Amortization
for the three months ended September 30,
2023 and 2022 was $130,441 and $147,044, respectively. Amortization for the six months ended December 31, 2023 and 2022 was $257,652
and $295,947, respectively. The amortization expense for the next five years as of December 31, 2023 will be $388,297, $149,800,
$91,716 and $30,267.
The Company
disposed $0.62 million intangible assets with related accumulated amortization of $0.28 million resulting from the disposal
of Zhangxun (see Note 13).
NOTE
5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid
expenses and other current assets consisted of the following:
| |
December 31, 2023 | | |
June 30, 2023 | |
Security deposit | |
$ | 80,858 | | |
$ | 15,615 | |
Prepaid expenses | |
| 2,983,077 | | |
| 563,203 | |
Other receivables – Heqin | |
| 470,160 | | |
| 460,850 | |
Advance to third party individuals, no interest, payable upon demand | |
| 30,708 | | |
| 11,764 | |
Others | |
| 202,976 | | |
| 110,841 | |
Total | |
| 3,767,778 | | |
| 1,162,273 | |
Less: allowance for other receivables – Heqin | |
| 470,160 | | |
| 460,850 | |
Total | |
$ | 3,297,619 | | |
$ | 701,423 | |
As of December
31, 2023, prepaid expenses mainly consisted of prepaid marketing expense of $2,858,550, prepaid rent and property management fees of $27,402 and
other prepayments of $97,125. As of June 30, 2023, prepaid expenses mainly consisted of prepayment of 5G Messaging service fee recharge
of $500,395, prepaid rent and property management fee of $48,200 and other prepayments of $14,608.
Prepaid
marketing expense
On September 14, 2023, Tianjin
Information entered into a service agreement with Beijing Guorui Innovation Enterprise Management Consulting Co., Ltd (“Guorui Innovation”)
for a duration of three years from September 15, 2023 to September 14, 2026. Under this agreement, Guorui Innovation is responsible for
generating annual revenue of at least RMB 2 billion during the service period through various activities, including but not
limited to, the sale of 5G Multimodal communication phone recharge, 5G Multimodal communication gas card recharge, 5G Multimodal communication
digital products, and other related products. The total market developing fee is 2% of the revenue generated by Guorui Innovation.
In September 2023, the Company made a prepayment of RMB 13,000,600 ($1,810,719) to Guorui Innovation, which is 32.5% of
market developing fee of target annual revenue for the first year. However, on October 9, 2023, both parties mutually agreed to terminate
this service agreement. As a result of this termination, parties enter into a debt transfer agreement, in which Guorui returned the prepayment
to Mr. Wanli Kuai on Company’s behalf for settling the debt that the Company owed to Mr. Kuai (See Note 8).
On September
16, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jincheng Haoda Construction
Engineering Co., Ltd (“Jincheng Haoda”), for marketing and promoting the sale of acoustic intelligence series products in
oversea market. The cooperation term is from September 16, 2023 through September 15, 2026. Jincheng Haoda is committed to complete RMB 200 million
sales performance in the first year, RMB 300 million sales performance in the second year, and RMB 400 million sales
performance in the third year. The Company will pay 25% of the sales amount to Jincheng Haoda as marketing fee upon receipt of the
sales amount, on monthly basis. As of December 31, 2023, the Company made a prepayment of RMB 14,997,000 ($2,088,777) to Jincheng
Haoda for facilitating the quick capture of the market for the Company’s products, the prepayment was the 30% of marketing
service fee of first year’s target sales to be completed by Jincheng Haoda. During the service term, the Company will perform the
annual assessment, if Jincheng Haoda was not able to achieve the target annual sales, and did not reach 30% of target annual sales
amount, Jincheng Haoda shall return the Company’s prepayment after deducting the marketing service fee of the actual sales. In addition,
under the circumstance Jincheng Haoda did not complete the 30% of the annual target sales, Jincheng Haoda will indemnify the Company 20%
of marketing service fee of unachieved sales amount from the 30% of the annual target sales. For the three and six months ended December
31, 2023, the Company recorded an amortization of prepaid expense of $ 0.52 million in the selling expense.
On September
18, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jiajia Shengshi Trading Co.,
Ltd (‘Jiajia Shengshi”), for marketing and promoting the sale of acoustic intelligence series products in domestic market.
The cooperation term is from September 18, 2023 through September 17, 2026. Jiajia Shengshi is committed to complete RMB 200 million
sales performance in the first year, RMB 300 million sales performance in the second year, and RMB 500 million sales
performance in the third year. The Company will pay 20% of the sales amount to Jiajia Shengshi as marketing fee upon receipt of the
sales amount, on a monthly basis. As of December 31, 2023, the Company made a prepayment of RMB 11,998,000 ($1,671,077) to Jiajia
Shengshi for facilitating the quick capture of the market for the Company’s products, the prepayment was the 30% of marketing
service fee of first year’s target sales to be completed by Jiajia Shengshi. During the service term, the Company will perform the
annual assessment, if Jiajia Shengshi was not able to achieve the target annual sales, and did not reach 30% of target annual sales
amount, Jiajia Shengshi shall return the Company’s prepayment after deducting the marketing service fee of the actual sales. In
addition, under the circumstance Jiajia Shengshi did not complete the 30% of the annual target sales, Jiajia Shengshi will indemnify
the Company 20% of marketing service fee of unachieved sales amount from the 30% of the annual target sales. For the three and
six months ended December 31, 2023, the Company recorded an amortization of prepaid expense of $ 0.42 million in the selling expense.
Other
receivables – Heqin
On February
20, 2020, Guozhong Times entered an Operation Cooperation Agreement with an unrelated company, Heqin (Beijing) Technology Co, Ltd.
(“Heqin”), for marketing and promoting the sale of Face Recognition Payment Processing equipment and related technical support,
and other products of the Company including Epidemic Prevention and Control Systems. Heqin has a sales team which used to work with
Fortune 500 companies and specializes in business marketing and sales channel establishment and expansion, especially in education industry
and public area.
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 10 million
($1.41 million) for Heqin’s operating needs. As of March 31, 2023, Guozhong Times had an outstanding receivable of RMB 3.53 million
($513,701) from Heqin and was recorded as other receivables. The Company would not charge Heqin any interest, except for two loans of
RMB 200,000 ($28,250) each, due on June 30, 2020 and August 15, 2020, respectively, for which the Company charges 15% interest
if Heqin did not repay by the due date.
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 30% and 70%
of the net income, respectively. The profit allocation for the sale of other products of the Company are to be negotiated. Heqin will
receive certain stock reward when it reaches the preset sales target under the performance compensation mechanism.
In November
2022, Hangzhou Yuetianyun Data Technology Company Ltd (“Yuetianyun”) agreed and acknowledged a Debt Transfer Agreement, wherein
Heqin transferred its debt from Yuetianyun to Guozhong Times in the amount of RMB 1,543,400 ($213,596). As of December
31, 2023 and June 30, 2023, Heqin made $48,438 (through Yuetianyun) and $48,438 repayment to the Company, and the Company
made a bad debt allowance of $470,160 and $460,850 as of December 31, 2023 and June 30, 2023, respectively.
NOTE
6 – LONG TERM INVESTMENT
In November
2021, Shuhai Nanjing invested RMB 200,000 ($29,800) for 6.21% stock ownership of a high-tech company Nanjing Dutao Intelligence
Technology Co., Ltd in Nanjing City specializing on internet security equipment.
In August
2022, Shuhai Nanjing invested RMB 200,000 ($28,717) for 1% stock ownership of a high-tech company Nanjing Jinjizhihui Technology
Co. Ltd in Nanjing City specializing in software and system development.
The Company
accounts for investments with less than 20% of the voting shares and does not have the ability to exercise significant influence
over operating and financial policies of the investee using the cost method. The Company elects the measurements alternative and records
investment in equity securities at the historical cost in its consolidated financial statements and subsequently records any dividends
received from the net accumulated earrings of the investee as income. Dividends received in excess of earnings are considered a return
of investment and are recorded as reduction in the cost of the investments.
NOTE
7 – ACCRUED EXPENSES AND OTHER PAYABLES
Accrued
expenses and other payables consisted of the following:
| |
December 31, 2023 | | |
June 30, 2023 | |
Other payables | |
$ | 291,969 | | |
$ | 308,841 | |
Due to third parties | |
| 80,207 | | |
| 175,354 | |
Social security payable | |
| 219,494 | | |
| 537,964 | |
Salary payable– employees | |
| 78,926 | | |
| 387,780 | |
Total | |
$ | 670,596 | | |
$ | 1,409,939 | |
Due to third
parties were the short-term advance from third party individual or companies, bear no interest and payable upon demand.
NOTE
8 – LOANS PAYABLE
Loan from banks
On December
12, 2022, Beijing Shuhai entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB 900,000 ($129,225)
with a term of 24 months, the interest rate was 10.728% to be paid every 20th of each month. For the
three and six months ended December 31, 2023, the Company made a repayment of $17,995 and $35,920 to this loan. For the three and
six months ended December 31, 2023, the Company recorded and paid $2,278 and $5,061 interest expense for this loan. As of December
31, 2023, $72,612 was recorded as current liabilities.
On January
13, 2023, Shenzhen Jingwei entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB 100,000 ($14,552)
with a term of 24 months, the interest rate was 8.6832%. For the three and six months ended December 31, 2023, the Company
made a repayment of $1,999 and $3,991 to this loan. For the three and six months ended December 31, 2023, the Company recorded and
paid $220 and $485 interest expense for this loan. As of December 31, 2023, $8,068 was recorded as current liabilities and $672 was
recorded as non-current liabilities.
On April
25, 2023, Shuhai Beijing entered a loan agreement with China Bank Co., Ltd for the
amount of RMB 2,990,000 ($422,156) with a term of 12 months with a preferential annual interest rate of 2.35% to be
paid every 21st of each month. For the three and six months ended December 31, 2023, the Company recorded and paid $2,486 and
$4,989 interest expense for this loan. As of December 31, 2023, $422,156 was recorded as current liabilities.
The following
table summarizes the loan balance as of December 31, 2023:
| |
Loan | | |
Borrowing | |
Loan term | | |
Interest | | |
Balance due | |
Lender | |
amount | | |
date | |
in month | | |
rate | | |
Current | | |
Non-current | |
Shenzhen Qianhai WeBank Co., Ltd | |
| 14,119 | | |
1/13/2023 | |
| 24 | | |
| 8.68 | % | |
| 8,068 | | |
| 672 | |
Shenzhen Qianhai WeBank Co., Ltd | |
| 127,070 | | |
12/20/2022 | |
| 24 | | |
| 10.73 | % | |
| 72,612 | | |
| - | |
China Bank Co., Ltd | |
| 422,156 | | |
4/25/2023 | |
| 12 | | |
| 2.35 | % | |
| 422,156 | | |
| - | |
Total | |
| 563,345 | | |
| |
| | | |
| | | |
| 502,836 | | |
| 672 | |
Loan from the unrelated parties
On April 24, 2022, the Company
entered a loan agreement with an unrelated party Mr. Wanli Kuai for $596,001, the loan had no interest, and was required to be repaid
any time before December 31, 2022. The Company repaid $447,001 to the unrelated party by June 30, 2022. On July 1, 2022, the Company
entered into a new loan agreement with the same unrelated party for RMB 5,603,000 ($789,177), the loan had no interest, and
was required to be repaid any time before December 31, 2022, the Company didn’t make any payment as of December 31, 2022 and signed
an extension agreement to extend the maturity date to June 30, 2023. On October 1, 2022, the Company entered into a new loan agreement
with the same unrelated party for RMB 3,970,000 ($642,779), the loan had no interest, and was required to be repaid any time
before June 30, 2023. On May 24, 2023, the Company entered into a loan extension agreement with the lender, wherein both parties agreed
to settle the loan in full by December 31, 2024. On September 15, 2023, the Company, its CEO and Mr. Wanli Kuai entered a Debt Transfer
Agreement, wherein the Company’s CEO transferred the Company’s debt of RMB 5,207,962 ($0.73 million) that was owed to her
to Mr. Wanli Kuai. On October 9, 2023, the Company entered into a Debt Transfer and Offset Agreement with Mr. Wanli Kuai and Guorui
Innovation. This agreement was resulted from the termination of a Marketing and Promotion agreement among the Company and Guorui Innovation,
which Guorui Innovation needs to repay the Company in full for RMB 13,000,600 ($1,810,719) due to cancellation of the agreement.
Following the negotiations, the Company, Mr. Wanli Kuai and Guorui Innovation agreed and entered a Debt Transfer and Offset Agreement,
wherein Guorui Innovation will repay the prepayment of RMB 13,000,600 ($1,810,719) to Mr. Wanli Kuai for settling the debt that
the Company owed to Mr. Kuai (See Note 5). During the three and six months ended December 31, 2023, the Company repaid $1.8 million
and $2.0 million to this unrelated party. As of December 31, 2023 and June 30, 2023, the outstanding loan balance to the unrelated party
was $nil and $1,310,306, respectively as a result of the Debt Transfer and Offset Agreement.
On September
21, 2023, the Company entered a loan agreement with another unrelated party for $155,308, the loan had no interest, and was required to
be repaid any time before December 31, 2024.
NOTE
9 – RELATED PARTY TRANSACTIONS
On October 1, 2020, the Company’s
CEO (also the president) entered into an office rental agreement with Xunrui. Pursuant to the agreement, the Company rents an office in
Harbin city with a total payment of RMB 163,800 ($24,050) from October 1, 2020 through September 30, 2021. On October 1, 2021,
Xunrui entered a new seven-month lease for this location with the Company’s CEO for total rent of RMB 94,500 ($14,690).
The lease expired on April 30, 2022. On May 1, 2022, Xunrui entered a new one-year lease agreement for this office with the Company’s
CEO for an annual rent of RMB 235,710 ($35,120), the Company was required to pay the rent before April 30, 2023 but the Company
did not pay it yet as of this report date. On May 1, 2023, Xunrui entered a new one-year lease agreement for this office location with
the Company’s CEO for an annual rent of RMB 282,852 ($39,144), the Company is required to pay the rent before April 30,
2024. The rental expense for this office location was $9,792 and $8,320, respectively, for the three months ended December 31, 2023
and 2022. The rental expense for this office location was $19,756 and $16,950, respectively, for the six months ended December
31, 2023 and 2022.
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 18,000 ($2,800), or total payment of $33,400, was paid in
full at once. On July 1, 2022, the Company entered a new one-year lease for two cars with the Company’s CEO for each car’s
monthly rent of RMB 18,000 ($2,636) and RMB 20,000 ($2,876), respectively. On July 1, 2023, the Company entered a
new one-year lease for two cars with the Company’s CEO for each car’s monthly rent of RMB 18,000 ($2,491) and RMB 20,000 ($2,768),
respectively. The rental expense for those agreements was $15,956 and $34,293, respectively, for the three months ended December
31, 2023 and 2022. The rental expense for those agreements was $31,849 and $65,044, respectively, for the six months ended December
31, 2023 and 2022.
On September
1, 2022, the Company entered a six-month lease for senior officers’ dormitory in Beijing for a total rent of RMB 91,200 ($13,355),
payable every three months in advance. On March 1, 2023, the Company entered a new six-month lease for a total rent of RMB 91,200 ($12,621),
payable every three months in advance. On September 1, 2023, the Company entered a new one-year lease for a monthly rent of RMB 12,500 ($1,743),
payable every three months in advance. The rental expense for this lease was $5,250 and $6,438 for the three months ended December
31, 2023 and 2022, respectively. The rental expense for this lease was $11,231 and $13,116 for the six months ended December 31, 2023
and 2022, respectively.
Due
to related parties
As of December
31, 2023 and June 30, 2023, the Company had due to related parties of $568,492 and $1,162,856, respectively, mainly was for the payable
of an office lease from the Company’s CEO, accrued salary payable and certain expenses of the Company that were paid by
the CEO and her father (one of the Company’s directors), due to related parties bore no interest and payable upon demand.
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 2,436,904 shares (pre-reverse stock split) of the common stock of the Company
at a purchase price of $3.48 per share. The offering of the common stock is pursuant to a shelf registration statement on Form S-3
(File No. 333-239183), which was declared effective by the SEC on June 25, 2020.
Concurrently
with the sale of the shares of the common stock, the Company also sold warrants to purchase 1,096,608 shares of common stock
(pre-reverse stock split) to such investors. The Company sold the shares of the common stock and the warrants for aggregate gross proceeds
of approximately $8,480,426, before commissions and expenses. Subject to certain beneficial ownership limitations, the warrants were immediately
exercisable at an exercise price equal to $4.48 per share (pre-reverse stock split), and will terminate on the two- and one-half-year
anniversary following the initial exercise date of the warrants. The warrants issued in this financing were classified as equity instruments.
The Company accounted for the warrants issued in this financing based on the FV method under FASB ASC Topic 505, and the FV of the warrants
was calculated using the Black-Scholes model under the following assumptions: life of 2.5 years, volatility of 150%, risk-free
interest rate of 0.37% and dividend yield of 0%. The FV of the warrants issued at grant date was $1,986,880.
In addition,
the Company has also agreed to issue to its placement agent for offering above warrants to purchase a number of shares of the common stock
equal to 5.0% of the aggregate number of shares of the common stock sold in this offering (121,845 warrants), the warrants have an exercise
price of $4.48 per share (pre-reverse stock split) and will terminate on the two and one-half-year anniversary of the closing of the offering. The
Company accounted for the warrants issued based on the FV method under FASB ASC Topic 505, and the FV of the warrants was calculated using
the Black-Scholes model under the following assumptions: life of 2.5 years, volatility of 150%, risk-free interest rate of 0.37% and dividend
yield of 0%. The FV of the warrants issued at grant date was $225,964. The warrants issued in this financing were classified as equity
instruments.
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 $7,640,000, after deducting certain fees due to the placement agent and the Company’s estimated transaction expenses,
and has been used for working capital and general corporate purposes, and for the repayment of debt.
Registered
Direct Offering in August and September 2023
On August
1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company
sold aggregate of 4,760,000 shares of common stock (pre-reverse stock split) at a $1.2 per share purchase price. On September
21, 2023, the Company received full payment of RMB 40,000,000 ($5.71 million) from the investor.
On August
15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell
and the investor agreed to purchase an aggregate of 2,962,963 shares of common stock (pre-reverse stock split) at a $1.35 per
share purchase price, with a total subscription price of $4,000,000. The investor paid the amount of $714,286 to the Company and
the Company issued 529,101 shares (pre-reverse stock split) as of the date of this report, and promised to pay the remaining
balance in full by March 2024.
On September
13, 2023, the Company closed an underwritten public offering of 5,000,000 shares of common stock (pre-reverse stock split) at
a public offering price of $0.40 per share. The gross proceeds to the Company from this offering are approximately $2 million,
before deducting any fees or expenses. The Company received $1.6 million net proceeds from this offering.
Following
is a summary of the activities of warrants (post stock split) for the period ended December 31, 2023:
| |
Number of Warrants * | | |
Average Exercise Price * | | |
Weighted Average Remaining Contractual Term in Years | |
Outstanding as of June 30, 2023 | |
| 87,997 | | |
$ | 69.00 | | |
| 0.63 | |
Exercisable as of June 30, 2023 | |
| 87,997 | | |
$ | 69.00 | | |
| 0.63 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Expired | |
| - | | |
| - | | |
| - | |
Outstanding as of September 30, 2023 | |
| 87,997 | | |
| 69.00 | | |
| 0.31 | |
Exercisable as of September 30, 2023 | |
| 87,997 | | |
| 69.00 | | |
| 0.31 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Expired | |
| 6,767 | | |
| 90.00 | | |
| - | |
Outstanding as of December 31, 2023 | |
| 81,230 | | |
$ | 67.20 | | |
| 0.06 | |
Exercisable as of December 31, 2023 | |
| 81,230 | | |
$ | 67.20 | | |
| 0.06 | |
Shares to Independent Directors as
Compensation
During the
three months ended December 31, 2023 and 2022, the Company recorded $4,500 and $4,500 stock compensation expense to independent
directors through the issuance of shares of the Company’s common stock at the market price of the stock issuance date, pursuant
to the 2018 Equity Incentive Plan. During the six months ended December 31, 2023 and 2022, the Company recorded $9,000 and $9,000 stock
compensation expense to independent directors through the issuance of shares of the Company’s common stock at the market price
of the stock issuance date, pursuant to the 2018 Equity Incentive Plan.
Shares to Officers as
Compensation
On September
24, 2021, under the 2018 Equity Inventive plan, the Company’s Board of Directors granted 15,000 shares of the Company’s common
stock (pre-reverse stock split) to its CEO each month and 10,000 shares (pre-reverse stock split) to one of the board members each month
starting from July 1, 2021, payable quarterly with the aggregate number of shares for each quarter being issued on the first day of the
next quarter at a per share price of the closing price of the day prior to the issuance. During the three months ended December 31, 2023
and 2022, the Company recorded $17,603 and $111,750 stock compensation expense to the Company’s CEO and one of the board members
for the quarter. During the six months ended December 31, 2023 and 2022, the Company recorded $33,203 and $111,750 stock compensation
expense to the Company’s CEO and one of the board members for the quarter.
Shares
to Employee and consultants under the 2018 Equity Incentive Plan
During the
year ended June 30, 2023, the Company issued 3,459,500 shares of the Company’s common stock (pre-reverse stock split)
to the Company’s employees and consultants for the services that were provided, the share issuance was fully vested and approved
by Compensation Committee (the “Committee”) of the Board of Directors under the 2018 Equity Incentive Plan. The fair value
of 3,459,500 shares (pre-reverse stock split) at issuance date was $3,976,362 and was recorded as the Company’s stock
compensation expense during the year ended June 30, 2023.
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 21% and files U.S. federal income tax return. As of December 31, 2023 and June
30, 2023, the U.S. entity had net operating loss (“NOL”) carry forwards for income tax purposes of $2.84 million and
$2.70 million. The NOL arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be
carried forward indefinitely. However, the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) passed
in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily
repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes the realization of benefits from these
losses remains uncertain due to the parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred
tax asset valuation allowance was provided.
The Company’s
offshore subsidiary, Shuhai Skill (HK), a HK holding company is subject to 16.5% corporate income tax in HK. Shuhai Beijing received
a tax holiday with a 15% corporate income tax rate since it qualified as a high-tech company. Tianjin Information, Xunrui, Guozhong
Times, Guozhong Haoze, Guohao Century, Jingwei, Shuhai Nanjing are subject to the regular 25% PRC income tax rate.
As of December
31, 2023 and June 30, 2023, the Company has approximately $16.75 million and $17.10 million of NOL from its HK holding company, PRC
subsidiaries and VIEs that expire in calendar years 2021 through 2025. In assessing the realization of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization
of deferred tax assets depends upon the Company’s future generation of taxable income during the periods in which temporary differences
representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities,
projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available,
management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore
established a full valuation allowance as of December 31, 2023 and June 30, 2023.
The following
table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended December 31, 2023 and 2022:
| |
2023 | | |
2022 | |
US federal statutory rates | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (3.5 | )% | |
| (2.4 | )% |
Effect of PRC tax holiday | |
| 2.0 | % | |
| 0.2 | % |
Valuation allowance | |
| 22.5 | % | |
| 23.2 | % |
Effective tax rate | |
| - | % | |
| - | % |
The following
table reconciles the U.S. statutory rates to the Company’s effective tax rate for the six months ended December 31, 2023 and 2022:
| |
2023 | | |
2022 | |
US federal statutory rates | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (3.0 | )% | |
| (2.9 | )% |
Effect of PRC tax holiday | |
| 2.2 | % | |
| 1.5 | % |
Valuation allowance | |
| 21.8 | % | |
| 22.4 | % |
Effective tax rate | |
| - | % | |
| - | % |
The Company’s
net deferred tax assets as of December 31, 2023 and June 30, 2023 is as follows:
| |
December 31, 2023 | | |
June 30, 2023 | |
Deferred tax asset | |
| | |
| |
Net operating loss | |
$ | 3,900,034 | | |
$ | 3,986,827 | |
R&D expense | |
| 123,750 | | |
| 123,750 | |
Depreciation and amortization | |
| 87,093 | | |
| 180,522 | |
Bad debt expense | |
| 116,292 | | |
| 119,932 | |
Social security and insurance accrual | |
| 47,566 | | |
| 149,196 | |
Inventory impairment | |
| 13,353 | | |
| 13,771 | |
ROU, net of lease liabilities | |
| (2,087 | ) | |
| 20,171 | |
Total | |
| 4,286,001 | | |
| 4,594,168 | |
Less: valuation allowance | |
| (4,286,001 | ) | |
| (4,594,168 | ) |
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 207,269 without value added tax (“VAT”) (or $29,250). The lease required a security deposit of three
months’ rent of RMB 677,769 (or $96,000). The Company received a six-month rent abatement, which was considered in calculating
the present value of the lease payments to determine the ROU asset which is being amortized over the term of the lease. On October
8, 2022, the Company renewed this lease for another year but for half space of the previous lease, with a monthly rent of RMB 107,714 ($15,787).
The Company received a one-month rent abatement. The lease expired at maturity without renewal.
On November 8, 2023, Shuhai Beijing
entered into a new lease agreement for its office in Beijing. Pursuant to the agreement, the agreement commenced on November 8, 2023 and
will expire on December 7, 2024, and has a monthly rent of RMB 17,358 (or $2,425). The deposit was RMB 56,762 (or $7,929). The Company
received a one-month rent abatement.
On November 8, 2023, Tianjin
information entered into a lease agreement for its office in Beijing. Pursuant to the agreement, the agreement commenced on November 8,
2023 and will expire on December 7, 2024, and has a monthly rent of RMB 60,195 (or $8,409). The deposit was RMB 196,838 (or $27,496).
The Company received a one-month rent abatement.
In August
2020, the Company entered into a lease for an office in Shenzhen City, China for three years from August 8, 2020 through August 7,
2023, with a monthly rent of RMB 209,911 ($29,651) for the first year. The rent will increase by 3% each year starting
from the second year. The lease expired at maturity without renewal.
On August
26, 2020, Tianjin Information entered into a lease for the office in Hangzhou City, China from September 11, 2020 to October 5, 2022. The
first year rent is RMB 1,383,970 ($207,000). The second-year rent is RMB 1,425,909 ($202,800). The security deposit
is RMB 115,311 ($16,400). The total rent for the lease period is to be paid in four installments. On October 6, 2022, Hangzhou
took over and renewed this lease for one year, the total rent is RMB 1,178,463 ($172,575), payable every six months in advance.
In May 2023, the lease was terminated. The total rent expense was RMB 848,620 ($122,253) for the year ended June 30, 2023.
On May 10,
2023, Guo Hao Century entered into a lease for the office in Hangzhou City, China from May 10, 2023 to May 9, 2025. The security deposit
is RMB 115,311 ($7,670). The quarterly rent is as follows:
Start Date | |
End Date | |
Rent expense | |
| |
| |
RMB | | |
USD | |
5/10/2023 | |
8/9/2023 | |
| 43,786 | | |
$ | 6,060 | |
8/10/2023 | |
11/9/2023 | |
| 66,038 | | |
| 9,139 | |
11/10/2023 | |
2/9/2024 | |
| 66,038 | | |
| 9,139 | |
2/10/2024 | |
5/9/2024 | |
| 64,602 | | |
| 8,940 | |
5/10/2024 | |
8/9/2024 | |
| 66,038 | | |
| 9,139 | |
8/10/2024 | |
11/9/2024 | |
| 66,038 | | |
| 9,139 | |
11/10/2024 | |
2/9/2025 | |
| 66,038 | | |
| 9,139 | |
2/10/2025 | |
5/9/2025 | |
| 63,884 | | |
$ | 8,841 | |
On September 30, 2023,
the lease was early terminated due to the management’s decision of transferring operations in Hangzhou to Beijing headquarter office
for maximizing the efficiency and cost saving.
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:
| |
Three Months Ended December 31, 2023 | | |
Three Months Ended December 31, 2022 | |
Operating lease expense | |
$ | 33,174 | | |
$ | 168,760 | |
| |
Six Months Ended December 31, 2023 | | |
Six Months Ended December 31, 2022 | |
Operating lease expense | |
$ | 107,355 | | |
$ | 371,871 | |
| |
December 31, 2023 | | |
June 30, 2023 | |
Right-of-use assets | |
$ | 107,329 | | |
$ | 137,856 | |
Lease liabilities - current | |
| 116,594 | | |
| 124,640 | |
Lease liabilities - noncurrent | |
| - | | |
| 26,449 | |
Weighted average remaining lease term | |
| 0.85 years | | |
| 0.67 years | |
Weighted average discount rate | |
| 6.25 | % | |
| 6.25 | % |
The following
is a schedule, by years, of maturities of the operating lease liabilities as of December 31, 2023:
12 Months Ending December 31, | |
Minimum Lease Payment | |
2024 | |
$ | 116,594 | |
Total undiscounted cash flows | |
| 116,594 | |
Less: imputed interest | |
| - | |
Present value of lease liabilities | |
$ | 116,594 | |
NOTE
13 – DISPOSAL OF SUBSIDIARY
On
July 20, 2023, the Company’s shareholders decided to sell Zhangxun to a third party at a price of RMB 2 (US $0.28). There
was no material transactions for Zhangxun for the period from July 1, 2023 through July 20, 2023, and for the purpose of complying with
the Company’s monthly accounting cut-off date, the Company used Zhangxun’s financial statements as of June 30, 2023 as the
date of disposal. The Company recorded $0.83 million gain on disposal of the subsidiary, which was the difference between the selling
price of US$0.28 and the carrying value of the negative net assets of $2.34 million of the disposal entity, and further netting
off the inter-company receivables from Zhangxun of $1.48 million due to uncertainty of the repayment from Zhangxun. In addition,
the Company incurred additional $32,236 intercompany receivables from Zhangxun during the three months ended September 30, 2023,
for which, the Company also netted off with gain on disposal of Zhangxun. The following table summarizes the carrying value of the
assets and liabilities of Zhangxun at June 30, 2023.
Cash | |
$ | 34 | |
Accounts receivable | |
| 254,988 | |
Other current assets | |
| 50,406 | |
Fixed assets, net | |
| 10,012 | |
Intangible assets, net | |
| 344,629 | |
| |
| | |
Total assets | |
| 660,069 | |
| |
| | |
Accounts payable | |
$ | 530,260 | |
Advance from customers | |
| 94,126 | |
Accrued liability and other payables | |
| 749,156 | |
Loan payables | |
| 153,045 | |
Intercompany payables to existing entities | |
| 1,475,216 | |
| |
| | |
Total liabilities | |
| 3,001,803 | |
| |
| | |
Non-controlling interest | |
$ | (7,079 | ) |
The
following table shows the results of operations relating to discontinued operations Zhangxun for the three months ended December 31, 2023
and 2022, respectively.
| |
THREE MONTHS ENDED
DECEMBER 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | 294,251 | |
Cost
of goods sold | |
| - | | |
| 275,350 | |
| |
| | | |
| | |
Gross
profit | |
| - | | |
| 18,900 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling | |
| - | | |
| 84,127 | |
General
and administrative | |
| - | | |
| 283,892 | |
Research
and development | |
| - | | |
| 246 | |
| |
| | | |
| | |
Total
operating expenses | |
| - | | |
| 368,265 | |
| |
| | | |
| | |
Loss from operations | |
| - | | |
| (349,365 | ) |
Gain
on disposal | |
| - | | |
| - | |
Other income, net | |
| - | | |
| (2,054 | ) |
| |
| | | |
| | |
Gain (loss) before income
tax | |
| - | | |
| (351,419 | ) |
| |
| | | |
| | |
Income
tax | |
| - | | |
| - | |
| |
| | | |
| | |
Gain (loss) before noncontrolling
interest | |
| - | | |
| (351,419 | ) |
| |
| | | |
| | |
Less:
loss attributable to noncontrolling interest | |
| - | | |
| (106,093 | ) |
| |
| | | |
| | |
Net gain
(loss) to the Company | |
$ | - | | |
$ | (245,325 | ) |
The following table shows the
results of operations relating to discontinued operations Zhangxun for the six months ended December 31, 2023 and 2022, respectively.
| |
SIX MONTHS ENDED
DECEMBER 31, | |
| |
2023 | | |
2022 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | 1,458,556 | |
Cost
of goods sold | |
| - | | |
| 1,289,458 | |
| |
| | | |
| | |
Gross
profit | |
| - | | |
| 169,097 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling | |
| - | | |
| 273,077 | |
General
and administrative | |
| - | | |
| 449,377 | |
Research
and development | |
| - | | |
| 156,950 | |
| |
| | | |
| | |
Total
operating expenses | |
| - | | |
| 879,404 | |
| |
| | | |
| | |
Loss from operations | |
| - | | |
| (710,307 | ) |
Gain on disposal | |
| 833,546 | | |
| - | |
Other income, net | |
| - | | |
| 21,826 | |
| |
| | | |
| | |
Gain (loss) before income
tax | |
| 833,546 | | |
| (688,481 | ) |
| |
| | | |
| | |
Income
tax | |
| - | | |
| - | |
| |
| | | |
| | |
Gain (loss) before noncontrolling
interest | |
| 833,546 | | |
| (688,481 | ) |
| |
| | | |
| | |
Less:
loss attributable to noncontrolling interest | |
| - | | |
| (207,852 | ) |
| |
| | | |
| | |
Net gain
(loss) to the Company | |
$ | 833,546 | | |
$ | (480,628 | ) |
NOTE 14 – SUBSEQUENT EVENTS
The Company follows the guidance
in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial
statements were issued and determined the Company had no material subsequent events to be disclosed.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Cautionary Note Regarding Forward-Looking Statements
This report contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical
fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any
projections of earnings, revenue, or other financial items; any statements of the plans, strategies, and objectives of management for
future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions
of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements
involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be
materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.
In some cases, you can identify forward-looking
statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,”
“would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,”
“potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking
statements. The forward-looking statements in this report are based upon management’s current expectations, which it believes are
reasonable. However, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors,
or factors we are aware of, may cause actual results to differ materially from those contained in any forward-looking statements. You
are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions
only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any
forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could
differ materially from those contained in the forward-looking statements due to several factors, including:
|
● |
uncertainties relating to our ability to establish and operate our business and generate revenue; |
|
● |
uncertainties relating to general economic, political, and business conditions in China; |
|
● |
industry trends and changes in demand for our products and services; |
|
● |
uncertainties relating to customer plans and commitments and the timing of orders received from customers; |
|
● |
announcements or changes in our advertising model and related pricing policies or that of our competitors; |
|
● |
unanticipated delays in the development, market acceptance, or installation of our products and services; |
|
● |
changes in Chinese government regulations; and |
|
● |
availability, terms and deployment of capital, relationships with third-party equipment suppliers. |
Overview
Company Structure
Datasea Inc. (“Datasea,” the VIE,
as defined below, and our subsidiaries, collectively, the “Company” or “we” or “us” or “our”)
is a global technology company incorporated in Nevada USA on September 26, 2014, with subsidiaries and operating entities located in Delaware
and China, that provides intelligent acoustics (including ultrasound, infrasound, directional sound, and Schumann resonance), 5G messaging
and other products and services to various corporate and individual customers. The acoustic business offers a wide range of cutting-edge
precision manufacturing products including high-quality sound air disinfection solutions, sound sleep-aid devices, as well as skin repair
and beauty solutions. Our products find extensive applications across various industries and sectors, including acoustic industrial, acoustic
agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things. Our common stocks currently listed on
the Nasdaq Capital Market are shares of our Nevada holding company that maintains service agreements with the associated operating companies
which instead enable us to consolidate the financial results of the VIE and its subsidiaries with Datasea’s corporate group under
U.S. GAAP, making Datasea the primary beneficiary of the VIE for accounting purposes.
Datasea is not a Chinese operating company, but
a Nevada-based holding company. Its subsidiary, Datasea Acoustics LLC, located in Delaware, serves as the global hub for our acoustic
business operations, catering to the U.S. and international markets by providing acoustic technologies and application products, and there
is no sales outside of PRC yet as of the report date. Additionally, the Company conducts business activities in China through its subsidiary,
Tianjin Information Sea Information Technology Co., Ltd. (“Shuhai Tianjin”), and its VIE entity, Shuhai Information Technology
Co., Ltd. (“Shuhai Beijing”), along with their subsidiary entities. Shuhai Beijing offers cutting-edge products and solutions
in intelligent acoustics and 5G messaging applications, catering to a wide spectrum of commercial enterprises, households, and individuals
in China.
As of the date of this report, its revenue
for the first six months, ended December 31, 2023, of its fiscal year ended June 30, 2024, was $18,229,212. This would represent an
increase of $18,097,753 and growth of approximately 13,766.84% as compared to $131,459 in revenue that the Company recorded for the
first half of its fiscal year ended June 30, 2023. This is also approximately 160% higher than the approximately $7.0 million in
revenue recorded for the full fiscal year ended June 30, 2023.
The Company is one of the pioneers in introducing
the global concept of “acoustic effects.” And our intelligent acoustics products business represents where we want to go as
a company. Our acoustic effects are derived by reverse engineering sound characteristics and developing processing mechanisms from the
perspective of how sound impacts on people and objects. This has led us to develop acoustic products that address real-world problems
across a range of industries, including acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health,
acoustic Internet of Things. During the reporting period, the company continued to upgrade its existing series of soundwave disinfection
products, including the HAILIJIA sound waves smart Clokroom (physical/electronic) dehumidifier and degerming, bathroom model deodorizing
and sterilizing special and the HAILIJIA Sleep Assurance (Non-contact assistance for sleep). Currently, the HAILIJIA series comprises
nine flagship products, started promoting in the Chinese market through direct sales, channel agents, and live streaming.
Internationalization of acoustic industrial, acoustic
agriculture, acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things has always been a crucial strategy for
the Company. In July 2023, Datasea established a wholly-owned subsidiary, Datasea Acoustics LLC, in Delaware, in a strategic move to mark
its global presence. This underlies Datasea’s commitment to intelligent acoustics and its intent to offer leading-edge acoustic solutions
to the U.S. market. As of the date of this report, the Company collaborated with the globally renowned testing organization, Intertek
Inc., to conduct ETL safety and functional certifications for the air disinfection products intended for sale in the United States. This
included certifications related to ozone and Aspergillus flavus. We anticipate completing these certifications in the next quarter and
commencing the sales of these products in the U.S. market on a larger scale. Furthermore, we entered into cooperation agreements with
several well-known American local distributors of smart products. We successfully registered and established an online sales store on
the Amazon platform. Additionally, in partnership with the renowned U.S. intellectual property firm, Paul & Paul, we actively pursued
various U.S. patents and international patents. We aim to build a strong intellectual property portfolio in the United States and even
internationally through patent applications and the acquisition of high-quality patents. With a focus on the primary track of acoustic
intelligence, we are seeking potential merger and acquisition targets in areas of acoustic industrial, acoustic agriculture, acoustic
medical aesthetics, acoustic medical healthy, acoustic Internet of Things, such as acoustic disinfection, acoustic medical aesthetics,
acoustic health, acoustic agriculture, and acoustic industrial applications. This is part of our strategy for international expansion
through mergers and acquisitions.
Technology and Innovation
Datasea is the global initiator, promoter and
practitioner of the concept of acoustic intelligence. Our commitment to technological advancement and global reach positions us at the
forefront of delivering cutting-edge intelligent acoustics solutions, especially focusing on ultrasound, infrasound, directional sound
and Schumann resonance technology, to meet the evolving needs of our customers and communities worldwide. The research and development
of intelligent acoustics technology plays a vital role for the Company and is what makes us different. The Company has non-visual intelligent
algorithms and techniques, intelligent acoustics technologies such as ultrasound and directional sound, and 5G messaging related technology,
etc. Combined with artificial intelligence (AI), machine learning and data analytics, our Acoustics and 5G intelligent products and solutions
are able to serve more than 48.42 million enterprises of all types (over 99% are small and medium enterprises (“SMEs”)) and
households in China. Acoustic technology and products will also create a healthy living environment for approximately 30.7 million businesses
of various types and over 130 million households in the United States.
As of the date of this report, Shuhai Beijing
and its subsidiaries own 27 patents and 116 software copyrights in the PRC, which include 13 pending patent applications in core technologies,
to empower and grow the business. In addition, the U.S. subsidiary, Datasea Acoustics, is actively acquiring U.S. patents, as well
as international patents, and collaborating with U.S. universities and world-renowned research institutions.
The Company holds an outstanding position in the
field of acoustics, particularly in the areas such as ultrasound, infrasound, and directional sound. To promote research and innovation
in these areas, the Company actively collaborates with several prominent research institutions and universities to enhance the integration
and collaboration of research resources. These collaborations and the establishment of these laboratories further solidify the Company’s
leading position in the field of acoustics, providing a strong foundation for future innovations and development. In particular, our collaboration
with the Chinese Academy of Sciences is worth highlighting. Since signing a cooperation agreement with the Institute of Acoustics at the
Chinese Academy of Sciences in 2022, we have been jointly advancing research projects and establishing collaborative laboratories.
The Company, in collaboration with the Ministry
of Industry and Information Technology (MIIT), the Key Laboratory of Artificial Intelligence Key Technology and Application Evaluation,
and the China Academy of Information and Communications Technology (CAICT) Cloud Computing & Big Data Research Institute, has jointly
unveiled China’s inaugural “White Paper on the Acoustic Intelligence Industry.” This groundbreaking document presents
compelling analyses and factual insights into the realm of intelligent acoustics technology, its commercialization, and the industry’s
future prospects. The white paper extensively explores the applications of acoustic intelligence at an industry level and underscores
the expectation that Datasea will take the lead in driving initiatives within the Chinese acoustic applications field. It also emphasizes
the Company’s prominent position within the broader acoustic industry landscape.
Operational goals
The primary operational goals for the Company,
its subsidiaries, and VIE include:
Sustained Revenue Growth: Implement
strategic initiatives such as expanding the sales team, enhancing distribution networks, exploring new markets in both domestic and U.S.
regions, and offering value-added services to drive continuous revenue expansion.
Technological Innovation: Continuously
improve the technological capabilities of the ultrasonic antivirus product line and services. Proactively introduce innovations like sound
sleep monitors and other acoustic technologies in various health-related fields to meet global market demands and establish an International
Patent Matrix.
Customer Satisfaction: Provide customers
with high-quality acoustic products and exceptional services to foster loyalty and maintain a positive reputation.
International Expansion: Focus on
international growth, particularly in the U.S. market. Leverage the operations of U.S. subsidiaries, engage in mergers and acquisitions,
ensure compliance, adapt to market dynamics, and practice effective cross-cultural management.
Partnerships and Collaborations:
Cultivate strategic partnerships, collaborating with suppliers, partners, and research institutions to enhance overall business capabilities.
Risk Management: Diligently identify,
evaluate, and manage various risks, including those related to the market, legal compliance, and the supply chain.
Shareholder Returns: Generate robust
cash flow and provide satisfactory returns to shareholders through effective and sustainable business operations.
Our Business Summary
We deeply understand that the market needs new
application areas, new technologies, and new requirements. Therefore, through the tireless efforts of our team, we have continued to research
and upgrade from visual algorithms to acoustic-based non-visual algorithms. After achieving significant breakthroughs in the field of
acoustics, we have further expanded product applications and market development into areas such as ultrasound, subsonic, and directional
sound.
Acoustic intelligence is a new field that integrates
fundamental acoustic theory with artificial intelligence to gather and process acoustic data and solve problems. Datasea leverages cutting-edge
technologies, precision manufacturing in the realm of intelligent acoustics, especially harnessing the power of ultrasonic sterilization
to combat viruses and prevent human infections. This technology capitalizes on the mechanical, thermal, and cavitation effects of ultrasound.
When stimulated by ultrasound, microorganisms, including the coronavirus, undergo significant vibration strains, disrupting the virus’s
outer shell and internal RNA. The rapid movement of protons in the ultrasound eventually devastates microbial structures, annihilating
harmful pathogens.
Leveraging Datasea’s cutting-edge intelligent
acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia”
series air sterilizer products. We continue to develop new technologies and new products in the acoustic industrial, acoustic agriculture,
acoustic medical aesthetics, acoustic medical health, acoustic Internet of Things. Existing product includes solutions tailored for in-door
(Desktop and Floor), in-vehicle, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection,
can be widely used in homes and different public places, including hospitals, educational institutions and Elderly Care and Healthcare
Institutions. We started to launch those new products in the China market in the year of 2023. These products can provide more effective
solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven
this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus
Albus and E-col. Meanwhile, this strategic shift and process are aimed at offering people more effective solutions for purifying their
environments and healthier lifestyles for people not only in China, but also the United States and globally, particularly in the post-pandemic
era when people have raised higher demands for protection and quality of life.
Besides, the Company makes innovations in Schumann
frequency, directional sound and others acoustic technology, launching ultrasonic Skin Repair with artificial intelligence diagnosis and
Schumann frequency sleep monitors and further creating more industry applications for customers in application fields such as acoustic
beauty, acoustic agriculture and acoustic industry. Also, with a diverse technological innovation and precision manufacturing product
lineup, we strive to achieve a global market brand, with a certain proportion of market share within three years.
To showcase the Company’s technology and
products on the global market, Datasea, through its wholly-owned subsidiary, Datasea Acoustics LLC, based in Delaware, U.S., operates
as the primary entity to offer advanced intelligent acoustic precision manufacturing products and solutions, including acoustic industrial,
acoustic agriculture, acoustic medical aesthetics, acoustic medical healthy, acoustic Internet of Things, and more. After obtaining certification
from internationally renowned testing organizations for our sound disinfection products, we will launch large-scale sales of these products
in the U.S. market. This strategy aims to tap into the continuously growing consumer audience worldwide. Additionally, the establishment
of sales channels, collaboration with local U.S. channels, emphasis on technological advancements, partnerships with international technology
laboratories, production assembly and the pursuit of multiple channels for obtaining US patents and potential acquisitions are conducive
to the sustainable development of Datasea Acoustics LLC.
5G Multimodal communication:
Ⅰ. Definition of 5G multimodal
communication
5G Multimodal communication refers to a technology
that transmits information through a variety of signal transmission methods. In other words, it is different from the traditional single
means of communication, but in many different ways to transmit, receive and process information. 5G Multimodal communication technology
integrates sound, image, text, touch and other information to realize information exchange across media platforms.
5G multi-modal communication is an upgrade
of 5G messaging services and an extension of RCS (Rich Communication Suite). It features high connectivity, rich media, strong interactivity,
convenient services, and high security.
The applications of 5G multi-modal communication
technology primarily focus on the following areas:
Cross-modal
Information Processing: This involves integrating signals of different forms to facilitate cross-media information exchange. It encompasses
various domains such as speech, image, text, and tactile communication; Human-Machine
Interaction Technology: Multi-modal communication technology plays a crucial role in enhancing interactions between humans and machines,
enabling more intuitive and seamless communication interfaces; Multi-language Processing: With globalization, multi-language processing
has become a critical direction and core functionality of multi-modal communication technology. It enables efficient communication and
understanding across different languages and cultures; Large language models, including models with enormous parameter sizes and complex
structures like the GPT (Generative Pre-trained Transformer) series. These large language models are primarily utilized for natural language
understanding and generation tasks such as text generation, language comprehension, and more. These applications demonstrate the versatility
and significance of 5G multi-modal communication technology in facilitating diverse forms of communication and interaction across various
domains.
Ⅱ.
The application trend of 5G multimodal communication
With the rapid development of 5G multimodal communication in the Chinese
market, its application trend will show the characteristics of intelligence, strong connectivity, immersive experience, enabling thousands
of industries, personalized service and border blurring, and promote the digital transformation and intelligent development of all walks
of life. Includes: Intelligence and automation:、 Internet of Things
and edge computing、Augmented Reality and virtual reality、
Personalized and customized services、Boundary blurring.
In addition, with the popularization of mobile communication technology, people need to realize real-time communication and remote collaboration
more and more. The main application of 5G multimodal communication technology enables industries in many scenarios: such as smart home,
smart agriculture, medical field, education, enterprise production, smart city and Internet of things entertainment and media: retail
and consumer consumption, transportation and logistics, as well as finance and payments. To sum up, 5G multimodal communication technology
has a wide range of industry application prospects, can bring more efficient and intelligent solutions to various industries, and promote
digital transformation and intelligence in all areas of society
Ⅲ. Datasea's industry position and
existing products
As one of the leading service providers in
the field of 5G multimodal communications in China, Datasea has several major products and services for different customers and needs.
1, including 5G multi-modal smart agriculture (digital countryside) service platform 2, 5G multi-modal small and medium-sized enterprises
service platform 3, 5G multi-modal logistics express service platform 4, 5G multi-modal new media marketing service platform; 5, 5G integrated
messaging marketing cloud platform (" 5G IMMCP "), Smart Push (precision marketing solution) 6. 5G message top up platform of
the three major operators; 7. Sinopec 5G fuel card consumption platform, 5G multi-modal communication business applications applicable
to various industries in China, and payment system applications combined with artificial intelligence (AI), big prediction mode and data
analysis capabilities.
Ⅳ. Application and empowerment of the
company's existing 5G multimodal communication products in segmented industries
1. 5G multi-modal new media marketing service
platform: Using the Internet, mobile communication, social media and other new media platforms to promote brand image and product sales
through diversified content communication and interactive marketing means, and help enterprises transform and upgrade. The platform can
do online brand building, short video marketing, and promote online sales of products. It mainly targets the retail, entertainment, tourism,
education and automotive industries
2.5G Multi-modal Smart Agriculture (Digital
Rural) Service Platform: This platform utilizes sensors for agricultural data collection (including monitoring agricultural environmental
parameters such as soil moisture, temperature, and sunlight), precision agriculture management (integrating 5G multi-modal communication
technology and data analysis to achieve precise fertilization, irrigation, and prevention of pests and diseases, thereby enhancing crop
yield and quality), traceability and traceability of agricultural products (realizing the traceability and traceability of agricultural
products to ensure product quality and safety, and enhance consumer trust), data analysis, and characteristic sales of agricultural products.
This platform typically covers multiple areas, including but not limited to agricultural production, rural e-commerce, rural education,
healthcare, and cultural entertainment. Through the application of digital technology, it provides more convenient and intelligent services
for rural areas, promoting the sustainable development of rural social economy.
3. 5G multi-modal service platform for micro,
small and medium-sized enterprises: This product is a product independently developed by the company, comprehensively empowering micro,
small and medium-sized enterprises, and providing services such as product promotion, brand building, data analysis and traffic collection
for micro, small and medium-sized enterprises. The scope of application can cover micro, small and medium-sized enterprises in basically
all industries.
4, The three major operators 5G phone charge
recharge platform: the company independently developed 5G message phone charge recharge system, after a series of technical debugging,
has been put into practical use. The 5G message charge top-up system is a network-based voice charge transaction analysis and management
system, which can provide fast, safe and convenient voice charge management services, and analyze the data records of terminal customers
of agents for risk prevention and control and big data analysis through the technical interface, so as to further obtain more precise
customers.
With the company's production, operation and
development, through the steady channel construction, continue to increase product development and increase industry applications, for
the sustainable development of enterprises to obtain a broader market space.
Ⅴ. 5G
multimodal communication sustainable development
5G multi-modal communication has garnered
significant attention due to its wide-ranging applicability, marking the true starting point of the commercial ambition in the AI era.
It enables interconnection, real-time communication, and remote collaboration across different forms. In the future, 5G multi-modal communication
technology and its application functionalities will become integral components of technologies such as artificial intelligence, deep learning,
virtual reality, and augmented reality. Furthermore, as society develops and people's needs continue to grow, the scope of 5G multi-modal
communication technology will expand, bringing more convenience and innovation to people's lives.5G multi-modal communication is more
aligned with the real-world production needs and is expected to enhance productivity in industries such as e-commerce, marketing, finance,
and education. It truly aids enterprises in reducing costs and increasing efficiency, allowing them to allocate saved resources towards
improving product/service quality or technological innovation, thus further driving productivity.
Ⅵ. The future
can be gradually realized with multi-industry market application product and sales development
A wide range of industry application potential,
including smart agriculture, smart home, health care, smart city, industrial manufacturing, education and training, entertainment media,
retail consumption, etc. As a result, the company can develop customized products and solutions for different industries to meet the needs
of customers in various industries.
Technology innovation and product differentiation:
Companies can continuously innovate and optimize the application end of 5G multi-modal communication technology, developing more advanced,
reliable, and competitive products and solutions. This will help the company establish a brand image in the market and attract more customers.
Datasea's leading industry position in 5G
multimodal communications is made possible by Datasea's deep cooperation with the three major operators in China. The relationship between
Datasea 5G multimodal communication and the three major operators is not only a simple business cooperation, but a more closely related
business closed-loop, including close cooperation in technology, business model, resource sharing and so on. Datasea based on 5G multimodal
communication field and telecom operator network for our acoustic intelligent technology and precision manufacturing products are able
to provide digital and intelligent services and various value-added services with 5G multimodal communication intelligent product solutions
for China's smart agriculture and more than 48.42 million various enterprises and enterprises and institutions (more than 99% for micro,
small and medium-sized enterprises) as well as families Service.
Recent Developments
Our Products and Future Plans of Intelligent Acoustics
General Information
As of the date of this report, we continued to
enhance our range of nine acoustic products, including a series of ultrasonic air disinfection machine products. the company continued
to upgrade its existing series of soundwave disinfection products, including the HAILIJIA sound waves smart Cloakroom physical dehumidification,
deodorization and sterilization special, bathroom deodorization and fresh air special dehumidifier, and the HAILIJIA Sleep Assurance (Non-contact
assistance for sleep). Currently, the HAILIJIA series comprises nine flagship products, started promoting in the Chinese market through
direct sales, channel agents, and live streaming.
HAILIJIA sound waves smart Cloakroom (physical/electronic)
dehumidifier
|
● |
Key Feature:
Mite remover, Effective Sterilization, Dampness remover, intimidated
by AI, Warm Light and Colors |
HAILIJIA Sleep Assurance
|
● |
Key Features:
Non-contact assistance for sleep, No wearing assistance for sleep,
IA Warm Light accompaniment |
Sales and Distribution
Domestic channels and sales
As of the date of this report, our acoustic products
are mainly developed and produced in China, and the products we sell in China are mainly through multi-modal communication platforms and
extensively cooperating with new media. We have established marketing channels and increased revenue capacity.
1) The sales department of Shuhai Beijing and
its subsidiaries directly sign sales contracts with customers.
During the reporting period, Shuhai Beijing and
its subsidiaries have formed a complete marketing system, promotion strategies and models, including the Company’s own sales team
and innovative partner models. The sales team of Shuhai Beijing and its subsidiaries cover the core economic zones of China in Beijing,
Northeast China, the Yangtze River Delta, and the Guangdong Hong Kong Macao Greater Bay Area, promoting various products and services.
2) Online Distributors and Living Stream
The Company expands its coverage and increases
market penetration by collaborating with multiple online distributors, living stream platform and selling innovative products on major
e-commerce platforms, such as signing a sales partnership with the well-known Chinese e-commerce platform Hunan Jimei, to launch customized
e-commerce products to expand its coverage and increase market penetration.
3)Sales Channels
Shuhai Beijing and its subsidiaries have established
cooperative relationships with multiple domestic sales and channel merchants and established a nationwide marketing channel network through
a partnership system.
International Business Expansion
October 16, 2023, the Company’s Delaware
operating subsidiary, Datasea Acoustics LLC, has entered into a marketing promotion and sales cooperation agreement with Meglio Interiors
LLC (“Meglio”), based in Chamblee, Georgia, to develop, promote and distribute the Company’s intelligent acoustics products
in the U.S.
Meglio has sales channels that include Atlanta,
Dallas and New Jersey and broad experience in increasing sales for its clients in the U.S. Meglio has know-how in business development,
marketing, sales, branding, and channel development in the U.S. furniture market, which the Company believes is an ideal fit for the Company’s
home health products that include air disinfection machines, bathroom and wardrobe deodorization devices, as well as sleep-enhancing products.
The Agreement is designed to increase our penetration into new markets worldwide and introduce our products to consumers that effectively
address everyday health and living needs. Increase market influence for the Company’s subsequent acoustic industry development including
acoustic industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical healthy, acoustic Internet of Things.
Key Customers and Agreements
In September 2023, Shuhai Jingwei (Shenzhen) Information
Technology Co, Ltd signed a procurement and sales agreement with Hunan Jimei Biotechnology Development Co., Ltd. (hereinafter referred
to as “Jimei”), aiming to expand the online sales of Shuhai’s “Hailijia” brand’s acoustic Air Disinfection
Machine, Disinfectant and Odor Eliminator series products in China through Jimei’s innovative e-commerce platform and user base.
Jimei is a high-tech product research and development, production, and sales enterprise. At the same time, it also has a direct sales
license issued by the Ministry of Commerce of China. Its Yunchuang Space APP is a comprehensive e-commerce product intelligent shopping
platform that combines private domain traffic and public domain traffic, with a million level user base, providing a rich e-commerce sales
channel and options.
5G Mutimodal Communication
Key Customers and Agreements
As of December 31, 2023, Datasea’s Chinese operating entities,
Shuhai Information Technology Co., Ltd. (“Shuhai Beijing”), and Heilongjiang Xurui Technology Co., Ltd. (“Xurui Technology”)
Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”) and Guozhong Times (Beijing) Technology Co.,
Ltd. (“Guozhong Times”) have reached agreements with two important new clients: Hainuo Xintong (Qingdao) Network Technology
Co., Ltd. (hereinafter referred to as “Hainuo”) and Xiamen Duoqiao Mai Network Technology Co., Ltd. (hereinafter referred
to as “Xiamen Duoqiao”). These agreements allow Hainuo Xintong and Xiamen Duoqiao to purchase various denominations of 5G
Multimodal communication top up cards within 12 months of the agreement, ranging from RMB10 to RMB500 ($1.38 to $69.4). In just a few
months after signing agreements with Hainuo Xintong and Xiamen Duoqiao, Shuhai Beijing and its subsidiaries provided a 5G Multimodal communication
service worth approximately $10.49 million (equivalent to RMB 75.07 million). From May 2023 to December 2023, the revenue from Maiduoqiao
is $5.54million (equivalent to RMB 39.68 million). From August 2023 to December 2023, the revenue from Hainuo Xintong is $4.95 million
(equivalent to RMB 35.40 RMB).
As of December 31, 2023, Datasea’s Chinese operating entity,
Guozhong Times (Beijing) Technology Co., Ltd. (hereinafter referred to as the “subsidiary”), has reached an agreement with
an important new client, Qingdao OSaidi Network Technology Co., LTD. According to the agreement, Qingdao OSaidi will purchase 5G Multimodal
communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023,
Shuhai Beijing and its subsidiaries have provided 5G multimodal communication services worth approximately $4.66 million (equivalent to
RMB33.35 million).
On December 8, 2023, Datasea’s Chinese operating entity, Guozhong
Times (Beijing) Technology Co., Ltd. (hereinafter referred to as the “subsidiary”), has reached an agreement with an important
new client, Weihai Hongyun Shi Hao Information Technology Co., Ltd. According to the agreement, Ruicheng Lida will purchase 5G Multimodal
communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023,
Guozhong Times has provided 5G multimodal communication services worth approximately $0.91 million (equivalent to RMB6.52 million).
On December 8, 2023, Datasea’s Chinese operating entity, Shuhai
Jingwei (Shenzhen) Information Technology Co., Ltd (hereinafter referred to as the “subsidiary”), has reached an agreement
with an important new client, Qingdao Kapu Information Co., Ltd. According to the agreement, Ruicheng Lida will purchase 5G Multimodal
communication top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of December 31, 2023,
Shuhai Jingwei has provided 5G multimodal communication services worth approximately $0.78 million (equivalent to RMB 5.59 million).
Market Results
In terms of customer acquisition and marketing,
the Company has continuously taken a series of strong measures to promote sales, which has truly achieved explosive growth in sales.
First, we optimize our products and services. We deliberately start
from the needs of customers, and constantly optimize and improve products and services to make them more in line with customer needs.
We independently developed internal systems such as the 5G multimodal communication service platform, one of them works with the three
major carriers, making the 5G Multimodal communication business more accurate and convenient, and the process more scientific and smoother.
Secondly, through its own sales team, the Company
vigorously promotes and publicizes the Company’s research and development results and technology display in 5G sales, actively participates
in important seminars and business fairs around the country, and deeply explores the target customers related to 5G news. Through painstaking
efforts and keen business acumen, we have obtained a stable customer flow.
Thirdly, the Company also hired a professional
5G news business promotion team, and signed 5G communication marketing service agreements with some marketing companies that have many
years of advantages in Internet of Things market development, operation and promotion services, have effective integration with mobile
Internet enterprises, Internet of Things industry chain and other resources, and have strong channel expansion and sales and operation
capabilities, to carry out in-depth cooperation. Quickly and effectively recruit high-quality partners for the Company to achieve rapid
economic value transformation. Third party marketing companies bring us a large number of customers, which is our total sales growth engine.
Finally, we have also carried out some preferential
activities and implemented different discount policies for customers. Through preferential activities to attract customers to participate
in cooperation, increase customer participation and loyalty, thereby increasing sales artery.
ESG Management
Datasea is committed to aligning with global ESG
(Environmental, Social, and Governance) standards and best practices, given their growing significance in the business landscape. We understand
the importance of this approach in managing risks effectively, identifying opportunities for growth, and fortifying our long-term resilience.
Moreover, it enables us to foster positive relations with stakeholders and gain a competitive edge in the ever-evolving high-tech sector,
specifically within the field of acoustic intelligence.
As part of our unwavering dedication to ESG, Datasea
has adopted a comprehensive SASB framework designed to ensure that our operations remain consistent with our core values and priorities.
This framework serves as a guide for our decision-making processes, emphasizing the importance of sustainable growth and enduring success.
Transparency and accountability are at the core
of our ESG strategy. Datasea is committed to providing meaningful and accurate information about our ESG practices and performance to
our stakeholders. This information will be disclosed through regular ESG reports along with accompanying sustainability statements. In
line with this commitment, Ms. Zhixin Liu, the CEO of the Company, has been honored as an Integrity Entrepreneur and Integrity Manager
in 2020, serving as a representative.
Supporting Employee Growth
The Company consistently strengthens employee
hiring standards, improves the talent development management system, establishes a platform for employee development, and helps outstanding
talents enhance their skills and create extraordinary results, enabling each employee to find their personal value within the company.
Additionally, the company emphasizes safeguarding employee rights, creating a positive work environment and corporate atmosphere, and
collaborating with all employees to share development achievements and jointly create a better future.
The Company respects and values employees of different
ages, ethnicities, regions, political affiliations, religions, sexual orientations, marital and reproductive statuses, educational backgrounds,
work styles, work experiences, and personal viewpoints. With an attitude of “diversity, fairness, and inclusiveness,” the
Company attracts and gathers talents. It strictly adheres to the Labor Law of the People’s Republic of China and the Labor Contract Law
of the People’s Republic of China, establishing internal regulations such as the “Onboarding Management System” and “Labor
Contract Management System.” The Company signs labor contracts in accordance with the law, pays social insurance and housing provident
fund, and respects and protects everyone’s legitimate rights and interests. In 2023, the Company conducted a review based on the latest
revision of the “Law of the People’s Republic of China on the Protection of Women’s Rights and Interests” to ensure
the legal and compliant implementation of internal policies. It aims to create an equal, respectful, healthy, safe, and harmonious working
environment, fostering collective growth together. Compared to 2022, the proportion of female employees in the company increased by 11%
in 2023. Ms. Zhixin Liu, the CEO of the Company, as a representative, was elected as the Vice President of the Women Entrepreneurs Association
in Jinghai District, Tianjin, and became a member of the China Women Entrepreneurs Association.
Employment and Rights Protection
Diversity and Equality. We have established a
top-down talent attraction system for different groups. In 2023, the company provided employment opportunities for tens of thousands of
people in three cities, including recent graduates and retired veterans. Additionally, the company actively leveraged its technological
advantages to develop a series of systems and platforms dedicated to improving the efficiency of talent recruitment. Through internal
and external channels and with a focus on the differences in various industries and talent distribution maps, the company strengthened
talent attraction and reserves to enhance recruitment efficiency in line with the company’s strategy.
Compensation and Benefits
The company has formulated regulations such as
the “Performance Bonus Assessment Management Measures,” “Performance Incentive Management Measures,” and “Stock
and Shareholding Platform Incentive Management Measures,” providing employees with competitive compensation and benefits. The employee
compensation system consists of basic salary, performance salary, position salary, welfare subsidies, and bonuses. Based on regional competitive
conditions, local economic development levels, and considering factors such as employees’ work experience, knowledge and skill levels,
job responsibilities, and performance levels, the Company has comprehensively constructed the compensation system.
In 2023, the Company implemented a team stock
incentive plan, where a total of more than 70 people, including R&D, marketing, and management department employees, enjoyed stock
incentives from the listed company. This effectively retained core employees, attracted more high-end talents, deeply stimulated the vitality
of corporate development, and formed a “value co-creation, risk sharing, and benefit sharing” community of interests and business
community.
Public Welfare Activities, Giving Back to Society
The Company has been actively involved in various
public welfare activities, including the “Love to Send You to School” charity assistance program, Sunshine Volunteer Charity
Club, and other charitable activities. Ms. Zhixin Liu, the CEO of the Company, as a representative, was awarded the title of Charity Ambassador
for the year 2020 by the China Charity Federation and received the title of Loving Entrepreneur for her participation in the “Love
to Send You to School” charity assistance program and the Sunshine Volunteer Charity Club in 2021.
Competition
It is essential to recognize that acoustic technology
is a broad and diverse field. Different acoustic attributes find extensive applications in various niche sectors, and distinct competitive
landscapes exist across different application areas. Major tech companies like Baidu, Alibaba, Tencent, and others have also invested
in acoustic-related technologies, potentially impacting future market dynamics. We anticipate that competition in the markets we engage
in will continue to intensify as existing competitors enhance or broaden their product offerings, and as new companies enter the market.
Moreover, our ability to compete effectively depends on various factors, including technological innovation, product safety, as well as
attributes such as price and brand reputation.
New software Copyright acquired from July 1, 2023 to December 31,
2023
Software Copyright Owned by Shuhai Beijing |
No. |
|
Certification |
|
Certificate No. |
1 |
|
Big data precise analysis sales promotion system |
|
Ruan Zhu Deng Zi
No. 11933115 |
2 |
|
Multimodal Customer Relationship Management System |
|
Ruan Zhu Deng Zi
No. 11938599 |
3 |
|
5G Multimodal communication Data Exchange Center System |
|
Ruan Zhu Deng Zi
No. 11893684 |
4 |
|
Enterprise Digital Employee Management System |
|
Ruan Zhu Deng Zi
No. 11548880 |
Software Copyright owned by Xunrui Technology |
No. |
|
Certification |
|
Certificate No. |
1 |
|
Xunrui IoT Terminal Service Gateway Platform V1.0 |
|
Ruan Zhu Deng Zi
No. 10357761 |
2 |
|
Xunrui Smart Community Comprehensive Management Platform V2.0 |
|
Ruan Zhu Deng Zi
No. 10357535 |
3 |
|
Xunrui Smart Community Comprehensive Management Client Platform V1.0 |
|
Ruan Zhu Deng Zi
No. 10312678 |
4 |
|
“CoAI CPaaS”Interactive Artificial Intelligence Precision Touch Analysis Platform v1.0 |
|
Ruan Zhu Deng Zi
No. 11659754 |
5 |
|
Cloud Customer Resource Management System v1.0 |
|
Ruan Zhu Deng Zi
No. 11652683 |
6 |
|
Big data attribute label analysis marketing push system |
|
Ruan Zhu Deng Zi
No. 11877356 |
Going Concern
The accompanying unaudited consolidated financial
statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization
of assets, and liquidation of liabilities in the normal course of business. For the three months ended December 31, 2023 and 2022, the
Company had a net loss of approximately $1.83 million and $1.29 million, respectively. For the six months ended December 31, 2023 and
2022, the Company had a net loss of approximately $1.86 million and $2.63 million, respectively. The Company had an accumulated deficit
of approximately $29.92 million as of December 31, 2023, and negative cash flow from operating activities of approximately $5.63 million
and $1.77 million for the six months ended December 31, 2023 and 2022, respectively. The historical operating results indicate the Company
has recurring losses from operations which raise the question related to the Company’s ability to continue as a going concern although
the range of such recurring operating losses has narrowed in recent years. There can be no assurance the Company will become profitable
or obtain necessary financing for its business and investments or that it will be able to continue in business and investments. The consolidated
financial statements do not include any adjustments that might result from the outcome of these uncertainties. As of December 31, 2023,
the Company had cash of $437,716.
We continue to bring in additional investors to
support our company’s research and development, marketing and operations. On August 1, 2023, the Company entered into two separate
subscription agreements with a certain non-U.S. investor, pursuant to which the Company agreed to sell and the investor agreed to purchase
an aggregate of 4,760,000 shares of common stock price at a $1.2 per share purchase price. Such shares must be held for a period of 365
days. In accordance with such two agreements, Investor shall pay a total purchase price of $5,712,000 in RMB, at an amount of RMB 40,000,000,
no later than September 30, 2023. On September 21, the Company has received all of the payment of RMB 40,000,000. On August 15, 2023,
the Company entered into a subscription agreement with a non-U.S. investor to purchase an aggregate of 2,962,963 shares of common stock
price at a $1.35 per share purchase price, with a total subscription price of $4,000,000. The shares must be held for a period
of 180 days. On September 13, 2023, our Company announced the closing of an underwritten public offering of 5,000,000 shares of common
stock at a public offering price of $0.40 per share, for aggregate gross proceeds of $1,635,000, after deducting underwriting discounts
and other offering expenses. We believe these fundings demonstrate our investors’ confidence in our strategy and business.
The
Company recorded $0.83 million gain on disposal of the subsidiary, which was the difference between the selling price of US$0.28 and
the carrying value of the negative net assets of $2.34 million of the disposal entity, and further netting off the inter-company
receivables from Zhangxun of $1.48 million due to uncertainty of the repayment from Zhangxun. In addition, the Company incurred an
additional $32,236 intercompany receivables from Zhangxun during the three months ended September 30, 2023, for
which, the Company also netted off with gain on disposal of Zhangxun.
If deemed necessary, management could seek to
raise additional funds by the way of introducing strategic investors or private or public offerings, or by obtaining loans from banks
or others, to support the Company’s research and development, procurement, marketing and daily operation. However, there can
be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that
are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings.
Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may
issue in the future capital transactions may be more favorable for new investors. Further, we may incur substantial costs in pursuing
future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and
other costs. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses,
which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities,
together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations
accordingly, we may be required to cease operations.
Sustainable operation can help enterprises improve
operating efficiency, enhance the competitiveness of enterprises, and enhance the market share of enterprises.
Sustainable operation can help enterprises better
control risks, reduce operating costs, and ensure the safety of enterprises.
Sustainable operation can help enterprises enhance
their social image and enhance their sense of social responsibility.
Sustainable operation can help enterprises better
grasp market opportunities, grasp market trends, and achieve a win-win situation between enterprises and society.
Significant Accounting Policies
Please refer to our significant accounting policies
in Note 2 to our consolidated financial statements included in this report.
Results of Operations
Comparison of the three Months ended December
31, 2023 and 2022
The following table sets forth the results of
our operations for the three months ended December 31, 2023 and 2022, respectively, indicated as a percentage of net sales. Certain columns
may not add up due to rounding.
| |
2023 | | |
% of Revenues | | |
2022 | | |
% of Revenues | |
Revenues | |
$ | 11,348,469 | | |
| | | |
$ | 131,459 | | |
| | |
Cost of revenues | |
| 11,246,234 | | |
| 99.1 | % | |
| 96,030 | | |
| 73.0 | % |
Gross profit | |
| 102,235 | | |
| 0.9 | % | |
| 35,429 | | |
| 27.0 | % |
Selling expenses | |
| 1,149,944 | | |
| 10.1 | % | |
| 45,588 | | |
| 34.7 | % |
Research and development | |
| 117,371 | | |
| 1.0 | % | |
| 148,812 | | |
| 113.2 | % |
General and administrative expenses | |
| 623,456 | | |
| 5.5 | % | |
| 866,399 | | |
| 659.1 | % |
Total operating expenses | |
| 1,890,771 | | |
| 16.7 | % | |
| 1,060,799 | | |
| 806.9 | % |
Loss from operations | |
| (1,788,536 | ) | |
| (15.8 | )% | |
| (1,025,370 | ) | |
| (780.0 | )% |
Non-operating expenses, net | |
| (44,564 | ) | |
| (0.4 | )% | |
| (34,297 | ) | |
| (26.1 | )% |
Loss before income taxes | |
| (1,833,100 | ) | |
| (16.2 | )% | |
| (1,059,667 | ) | |
| (806.1 | )% |
Income tax expense | |
| - | | |
| - | % | |
| - | | |
| - | % |
Loss before noncontrolling interest from continuing operation | |
| (1,833,100 | ) | |
| (16.2 | )% | |
| (1,059,667 | ) | |
| (806.1 | )% |
Income (loss) before noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (351,418 | ) | |
| (267.3 | )% |
Less: income (loss) attributable to noncontrolling interest from continuing operation | |
| (61 | ) | |
| (0.001 | )% | |
| (14,002 | ) | |
| (10.7 | )% |
Less: income (loss) attributable noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (106,093 | ) | |
| (80.7 | )% |
Net loss to the Company from continuing operation | |
| (1,833,039 | ) | |
| (16.2 | )% | |
| (1,045,665 | ) | |
| (795.4 | )% |
Net loss to the Company from discontinued operation | |
| - | | |
| - | % | |
| (245,325 | ) | |
| (186.6 | )% |
Net loss to the Company | |
$ | (1,833,039 | ) | |
| (16.2 | )% | |
| (1,290,990 | ) | |
| (982.0 | )% |
Revenues
We had revenues of $11,348,469 and $131,459 for
the three months ended December 31, 2023 and 2022, respectively, which shows a $11,217,010 increase by comparing with the same period
of 2022. The increase in revenues was mainly due to the rapid increase of 5G messaging business in China. For the three months ended December
31, 2023, revenues mainly consisted of service fees from our 5G Multimodal communication service.
From October 1, 2023 to December 31, 2023, the
Company generated revenue of $11,348,469, including $11,276,319 from the 5G messaging business, $2,862 from the acoustic intelligence
and $69,288 from other. From October 1, 2022 to December 31, 2022, the Company generated revenue of $131,459, including $42,700 from Smart
Public broadcasting projects, $85,161 from Hailijia series air purification and sterilizers, and $3,598 from others.
Cost of Revenues
We recorded $11,246,234 and $96,030 cost of revenues for the three
months ended December 31, 2023 and 2022, respectively, which shows a $11,150,204 increase by comparing with the same period of 2022. For
the three months ended December 31, 2023, cost of revenues was mainly the 5G Multimodal communication service platform fees and Cloud
Platform construction to suppliers. The increase in cost of revenues was due mainly to the increased revenue of 5G Multimodal communication.
For the three months ended December 31, 2023, the cost of 5G Multimodal communication was $11.18 million, the cost of intelligent acoustics
business was $1,719, and the cost of other was $68,142. For the three months ended December 31, 2022, the cost of Smart Public broadcasting
projects was $35,906, and the cost of Hailijia series air purification and sterilizers was $60,124.
Gross Profit
Gross profit for the three months ended December
31, 2023 was $102,235 compared to $35,429 for the three months ended December 31, 2022, which shows a $66,806 increase by comparing with
the same period of last fiscal year. The increase in gross profit was mainly due to the increase in sales for the three months ended December
31, 2023.
Gross margin is 0.9% and 27.0% for the three months ended December
31, 2023 and 2022. The decrease in gross profit margin was mainly due to the lower gross profit margin of 5G Multimodal communication
service.
Measures to improve the gross profit margin of
enterprises:
|
1. |
Reasons for the Company’s choice of temporary cost leadership strategy: Due to the fierce competition in the 5G Multimodal communication business market, the Company has established a good cooperative relationship with major customers in order to quickly occupy the market, promote the Company’s 5G Multimodal communication business, and temporarily yield profits at this stage, which is a period of market expansion. |
|
2. |
Sales rebate and marketing reasons: In the marketing of 5G Multimodal communication business, centralized procurement is made for customers’ prepaid accounts to ensure the security of the Company’s funds. At this stage, sales to customers have a certain amount of sales rebates and marketing expenses. In order to reduce the simplicity of financial accounting and the simplicity of settlement, the Company has reached an agreement with customers and directly included in the cost. |
| 3. | According to the progress of the Company’s strategic development, the cost of marketing promotion and
sales rebate will be reduced and the gross profit rate will gradually increase after the customer group is stable and competitive. |
| 4. | The Company vigorously expands 5G related businesses, the most important purpose is to obtain market traffic
and improve market brand influence. It can let more people know about the Company, and increase its exposure and visibility. 5G related
services have become a tool to attract traffic and improve brands, which can drive revenue of other projects. |
|
5. |
Actively carrying out 5G Multimodal communication related business can attract more users’ attention and establish a good interactive relationship with users, which can firmly obtain a large number of loyal long-term user groups for the company, which has great potential for us to expand other revenue businesses and obtain new profit growth. It can drive business and revenue expansion in 5G refueling cards, 5G Internet of Things and other fields. |
| 6. | Upgrade the business model, add new acoustic intelligent products, different industry application fields,
and high additional fields to improve the gross profit margin. |
From the perspective of market prospects, according
to the prediction of Global Association for Mobile Communication Systems, by 2025, the number of 5G connections in China will exceed the
sum of North America and Europe, ranking first in the world. The number of 5G connections will reach 460 million, accounting for 28% of
the total connections in the country. 5G messaging has become an international standard. According to the Global System for Mobile Communications
Association, as of September 2020, 90 mobile network operators worldwide have launched RCS, with 473 million global monthly active users;
it is expected that the RCS market will be approximately $74 billion by the end of 2021. Mobile squared predicts that by 2023, 74.6% of
smartphone users will use RCS channels for communication. China will become one of the largest single contributors to the global growth
of mobile internet users in the coming years, accounting for nearly 20% of the total global increase.
Combining the advantages of “Internet of Things+” intelligent
terminals and 5G messaging industry chain, Shuhai Beijing is advancing with the time, taking the train of the 5G era, and developing
5G Multimodal communication/phone top up business. At this stage, Shuhai Beijing is carrying out the development, operation and promotion
services of the Internet of Things market and increasing the effective combination of resources with Mobile Internet enterprises and the
Internet of Things industrial chain.
In 2023, the 5G Multimodal communication business of Shuhai Beijing
accounts for a relatively big proportion of the total revenue, because, at this stage, the business belongs to the early stage of
the development, operation and promotion services of the Internet of Things market, and the investment in all aspects is large. In addition,
the gross profit of the phone charge recharging business is generally low. As a result, the annual gross profit margin decreased from
the previous year. The Company’s focus in this business is to integrate new resources, expand new businesses related to 5G, combine
the Company’s years of deep cultivation and accumulation in 5G news, and take this opportunity to open up more 5G-related businesses
to increase the Company’s revenue and new business.
In China’s mature and transparent market
today, gross margins on services are far greater than those on hardware sales. The improvement of gross profit margin shows that the Company’s
measures to improve gross profit margin are gradually showing effect: 1) costs will be reduced by economic scale over a larger number
of customers base and the increase in production; 2) the Company, by adopting the differentiation strategy, grows brand recognition and
customer loyalty, strengthening the Company’s pricing power; 3) as the scale of 5G recharge services and the number of serviced
customers, along with service quality, continue to improve, customized and value-added services, as well as service fees, will gradually
increase. This will boost the profitability of the Company’s related businesses. The Company will continue to increase the share
of high gross profit products in the sales while increasing the revenue, so as to further improve the gross profit rate and give investors
a better return on investment.
Selling, General and Administrative, and Research and Development
Expenses
Selling expenses were $1,149,944 and $45,588 for
the three months ended December 31, 2023 and 2022, respectively, representing an increase of $1,104,356 or 2,422.5%. The increase was
mainly due to the increased advertising and marketing expenses by $1,129,550, which was partly offset by a decrease in payroll expense
of salespersons by $22,484 and decreased meal and entertainment expense by $3,326.
Currently, we are focusing on expanding the Company’s
leading intelligent acoustics technologies and products and continuing to develop 5G-related applications. We incurred R&D expenses
of $117,371 and $148,812 during the three months ended December 31, 2023 and 2022, respectively, which shows a $31,441 or 21.1% decrease
by comparing with the same period of 2022.
Research and development expenses of $117,371
for three months ended December 31, 2023. The Company’s research and develop results include but are not limited to the following:
As one of the leading service providers in China’s 5G communication
field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated Messaging Marketing
Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G Multimodal communication business related applications
applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data analytic capability,
our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and businesses of all types
(over 99% are SMEs) and households in China with digital and intelligent services.
Leveraging Datasea’s cutting-edge intelligent
acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia”
series air sterilizer products. This lineup includes solutions tailored for indoor (desktop and floor), car use, bathroom and cloakroom
sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public
places, including offices, educational institutions, transportation, hospitals, etc. We started to launch those new products in the China
market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for
people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy
in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic transformation
and process not only provide safer and healthier lifestyles for Chinese users, but also for users in the United States and globally.
General and administration expenses decreased
$242,943, or 28.0% from $866,399 during the three months ended December 31, 2022 to $623,456 during the three months ended December 31,
2023. The decrease was mainly attributed to decreased rent expense by $74,406, decreased consulting and director compensation by $158,255,
and decreased auto expense by $11,993.
The Company has more accurate and scientific management
methods in personnel costs and risk control. We take human capital as a key indicator to promote business growth and technological innovation
by improving efficiency. By downsizing the numbers of non-core position staff, the Company manages to control expenses, while does not
affect the work efficiency and efficiency in any way. At the same time the Company strives to pursue better integration channel with related
industries, i.e., outsourcing sales branch for acoustic products and establishing joint venture to obtain the investment to 5G messaging
technology area.
We are treating human capital as a key indicator
to drive the business growth and technical innovation, also pursuing better integrated channels with related industries.
Non-Operating Income (Expenses), net
Non-operating expenses were $44,564 for the three
months ended December 31, 2023, consisting mainly of interest income of $1,623 and other expenses of $46,187. Non-operating expenses were
$34,297 for the three months ended December 31, 2022, consisting mainly of interest income of $29 and other expenses of $34,326.
Net Loss from Discontinued Operation
We generated net loss from discontinued operation
of $ nil and net loss of $245,325 for the three months ended December 31, 2023 and 2022, respectively.
Net Loss from continuing operation
We generated net losses from continuing operation
of $1,833,039 and $1,045,665 for the three months ended December 31, 2023 and 2022, respectively, an $787,374 or 75.3% increase by comparing
with the same period of 2022. The increase in net loss was mainly due to the increase in operating expenses as explained above.
Comparison of the Six Months ended December
31, 2023 and 2022
The following table sets forth the results of
our operations for the six months ended December 31, 2023 and 2022, respectively, indicated as a percentage of net sales. Certain columns
may not add up due to rounding.
| |
2023 | | |
% of Revenues | | |
2022 | | |
% of Revenues | |
Revenues | |
$ | 18,229,212 | | |
| | | |
$ | 131,459 | | |
| | |
Cost of revenues | |
| 18,052,242 | | |
| 99.0 | % | |
| 96,030 | | |
| 73.0 | % |
Gross profit | |
| 176,970 | | |
| 1.0 | % | |
| 35,429 | | |
| 27.0 | % |
Selling expenses | |
| 1,234,391 | | |
| 6.8 | % | |
| 149,702 | | |
| 113.9 | % |
Research and development | |
| 272,375 | | |
| 1.5 | % | |
| 255,440 | | |
| 194.3 | % |
General and administrative expenses | |
| 1,316,516 | | |
| 7.2 | % | |
| 1,751,359 | | |
| 1,332.2 | % |
Total operating expenses | |
| 2,823,282 | | |
| 15.5 | % | |
| 2,156,501 | | |
| 1,640,4 | % |
Loss from operations | |
| (2,646,312 | ) | |
| (14.5 | )% | |
| (2,121,072 | ) | |
| (1,613.5 | )% |
Non-operating expenses, net | |
| (52,322 | ) | |
| (0.3 | )% | |
| (35,472 | ) | |
| (27.0 | )% |
Loss before income taxes | |
| (2,698,634 | ) | |
| (14.8 | )% | |
| (2,156,544 | ) | |
| (1,640.5 | )% |
Income tax expense | |
| - | | |
| - | % | |
| 8 | | |
| (0.01 | )% |
Loss before noncontrolling interest from continuing operation | |
| (2,698,634 | ) | |
| (14.8 | )% | |
| (2,156,552 | ) | |
| (1,640.5 | )% |
Income (loss) before noncontrolling interest from discontinued operation | |
| 833,546 | | |
| 4.6 | % | |
| (688,480 | ) | |
| (523.7 | )% |
Less: loss attributable to noncontrolling interest from continuing operation | |
| (9,993 | ) | |
| (0.1 | )% | |
| (8,867 | ) | |
| (6.7 | )% |
Less: loss attributable noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (207,852 | ) | |
| (158.1 | )% |
Net loss to the Company from continuing operation | |
| (2,688,641 | ) | |
| (14.7 | )% | |
| (2,147,685 | ) | |
| (1,633.7 | )% |
Net income (loss) to the Company from discontinued operation | |
| 833,546 | | |
| 4.6 | % | |
| (480,628 | ) | |
| (365.6 | )% |
Net loss to the Company | |
$ | (1,855,095 | ) | |
| (10.2 | )% | |
| (2,628,313 | ) | |
| (1,999.3 | )% |
Revenues
We had revenues of $18,229,212 and $131,459 for the six months ended
December 31, 2023 and 2022, respectively, which shows a $18,097,753 increase by comparing with the same period of 2022. The increase in
revenues was mainly due to the rapid increase of 5G messaging business in China. For the six months ended December 31, 2023, revenues
mainly consisted of service fees from our 5G Multimodal communication.
From July 1, 2023 to December 31, 2023, the Company
generated revenue of $18,229,212, including $18,156,782 from the 5G messaging business, $69,288 from other services and $3,142 from the
acoustic intelligence. From July 1, 2022 to December 31, 2022, the Company generated revenue of $131,459, including $42,700 from Smart
Public broadcasting projects, $85,161 from Hailijia series air purification and sterilizers, and $3,598 from others.
This is inseparable from the Company’s research
and development support and personnel support over the years, the Company’s upstream and downstream chain maintenance and experience
accumulation and precipitation eventually formed a huge loyal customer base, but also closely related to the thriving vitality of the
5G market.
Through its own sales team, the Company vigorously
promotes and publicizes its research and development results and technology display in 5G sales, actively participates in important seminars
and business fairs around the country, and deeply explores the target customers related to 5G news. Through painstaking efforts and keen
business acumen, we have actually obtained a stable customer flow.
The Company’s top five customers for 5G
Multimodal communication business at this stage are Xiamen Duoqiao Mai Network Technology Co., LTD., Hainuo Xintong (Qingdao) Network
Technology Co., LTD., Qingdao Osaidi Network Technology Co., LTD., Qingdao Ruicheng Lida Network Technology Co., LTD., and Weihai Hongyun
Shihao Information Technology Co., LTD.. Through close business cooperation, the above customers have become stable and loyal partners
of the Company, and will work together in the future.
In terms of marketing promotion, the Company has
hired a professional cooperative marketing team to introduce and recruit suitable and high-quality stable customers for the Company. From
the fourth quarter of 2023, the sales of the Company’s 5G Multimodal communication business has witnessed explosive growth, and
the sales in the second quarter of 2024 have significantly increased compared with the previous quarter.
At present, the Company’s research and development technology
in 5G Multimodal communication is leading in the industry. After long-term expansion of customer groups, it has formed a stable customer
group. At present, the Company has also hired a professional 5G Multimodal communication business promotion team. We signed 5G communication
marketing service agreements with some marketing companies that have many years of advantages in iot market development, operation and
promotion services, have effective integration with mobile Internet enterprises, iot industry chain and other resources, and have strong
channel expansion and sales and operation capabilities to carry out in-depth cooperation. This business segment belongs to the stable
growth of the company’s business, and in the future, the company will continue to grow steadily, steadily and rapidly in the 5G
Multimodal communication business segment.
Cost of Revenues
We recorded $18,052,242 and $96,030 cost of revenues for the six months
ended December 31, 2023 and 2022, respectively, which shows a $17,956,212 increase by comparing with the same period of 2022. For the
six months ended December 31, 2023, cost of revenues was mainly the 5G Multimodal communication platform fees and Cloud Platform construction
to suppliers. The increase in cost of revenues was due mainly to the increased revenue of 5G Multimodal communication. For the six months
ended December 31, 2023, the cost of 5G Multimodal communication was $17.98 million, the cost of other services was $68,142 and the cost
of intelligent acoustics business was $141. For the six months ended December 31, 2022, the cost of Smart Public broadcasting projects
was $35,906, and the cost of Hailijia series air purification and sterilizers was $60,124.
Gross Profit
Gross profit for the six months ended December
31, 2023 was $176,970 compared to $35,429 for the six months ended December 31, 2022, which shows a $141,541 increase by comparing with
the same period of last fiscal year. The increase in gross profit was mainly due to the increase in sales for the six months ended December
31, 2023.
Gross margin is 1.0% and 27.0% for the six months ended December 31,
2023 and 2022. The decrease in gross margin was mainly due to the lower gross profit margin of 5G Multimodal communication service.
In 2023, the 5G Multimodal communication business of Shuhai Information
accounts for a relatively big proportion of the total revenue, because, at this stage, the business belongs to the early stage of the
development, operation and promotion services of the Internet of Things market, and the investment in all aspects is large. In addition,
the gross profit of the phone charge recharging business is generally low. As a result, the annual gross profit margin decreased from
the previous year. The Company’s focus in this business is to integrate new resources, expand new businesses related to 5G, combine
the Company’s years of deep cultivation and accumulation in 5G news, and take this opportunity to open up more 5G-related businesses
to increase the Company’s revenue and new business.
In China’s mature and transparent market
today, gross margins on services are far greater than those on hardware sales. The improvement of gross profit margin shows that the Company’s
measures to improve gross profit margin are gradually showing effect: 1) costs will be reduced by economic scale over a larger number
of customers base and the increase in production; 2) the Company, by adopting the differentiation strategy, grows brand recognition and
customer loyalty, strengthening the Company’s pricing power; 3) As the scale of 5G recharge services and the number of serviced
customers, along with service quality, continue to improve, customized and value-added services, as well as service fees, will gradually
increase. This will boost the profitability of the Company’s related businesses. The Company will continue to increase the share
of high gross profit products in the sales while increasing the revenue, so as to further improve the gross profit rate and give investors
a better return on investment.
Selling, General and Administrative, and Research
and Development Expenses
Selling expenses were $1,234,391 and $149,702
for the six months ended December 31, 2023 and 2022, respectively, representing an increase of $1,084,689 or 724.6%. The increase was
mainly due to the increased advertising and marketing expenses by $1,196,158, which was partly offset by decreased in payroll expense
of salespersons by $102,283, and decreased service fee by $9,647.
Currently, we are focusing on expanding the Company’s
leading intelligent acoustics technologies and products and continuing to develop 5G-related applications. We incurred R&D expenses
of $272,375 and $255,440 during the six months ended December 31, 2023 and 2022, respectively, which shows a $16,935 or 6.6% increase
by comparing with the same period of 2022.
Research and development expenses of $272,375
for six months ended December 31, 2023. The Company’s research and develop results include but are not limited to the following:
As one of the leading service providers in China’s 5G Multimodal
communication field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated
Messaging Marketing Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G messaging Top Up business
related applications applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data
analytic capability, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and
businesses of all types (over 99% are SMEs) and households in China with digital and intelligent services.
Leveraging Datasea’s cutting-edge intelligent
acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia”
series air sterilizer products. This lineup includes solutions tailored for in-door (Desktop and Floor), in-vehicle, bathroom and cloakroom
sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public
places, including hospitals, educational institutions and Elderly Care and Healthcare Institutions. We started to launch those new products
in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting
health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83%
efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic shift
and process are aimed at offering people more effective solutions for purifying their environments and healthier lifestyles for people
not only in China, but also the United States and globally, particularly in the post-pandemic era when people have raised higher demands
for protection and quality of life.
General and administration expenses decreased
$434,843, or 24.8% from $1,751,359 during the six months ended December 31, 2022 to $1,316,516 during the six months ended December 31,
2023. The decrease was mainly attributed to decreased rent expense by $188,226, and decreased consulting and director compensation by
$281,996, decreased payroll expense by $15,180 and decreased leaseholder improvement expense by $29,054, which was partly offset by increased
legal expenses by $84,733.
The Company has more accurate and scientific management
methods in personnel costs and risk control. We take human capital as a key indicator to promote business growth and technological innovation
by improving efficiency. By downsizing the numbers of non-core position staff, the Company manages to control expenses, while does not
affect the work efficiency and efficiency in any way. At the same time the Company strives to pursue better integration channel with related
industries, i.e., outsourcing sales branch for Acoustic products and establishing joint venture to obtain the investment to 5G messaging
technology area.
We are treating human capital as a key indicator
to drive business growth and technical innovation, also pursuing better integrated channels with related industries.
Non-Operating Expenses, net
Non-operating expenses were $52,322 for the six
months ended December 31, 2023, consisting mainly of interest income of $1,729 and other expenses of $54,051. Non-operating expenses were
$35,472 for the six months ended December 31, 2022, consisting mainly of interest income of $93 and other expenses of $35,565.
Net (Income) Loss from Discontinued Operation
We generated net income from discontinued operation
of $833,546, which was the gain on disposal of Zhangxun, and net loss of $688,480 for the six months ended December 31, 2023 and 2022,
respectively.
Net Loss from continuing operation
We generated net loss from continuing operation
of $2,688,641 and $2,147,685 for the six months ended December 31, 2023 and 2022, respectively, an $540,956 or 25.1% increase by comparing
with the same period of 2022. The increase in net loss was mainly due to the increase in operating expenses which was partly offset by
increased gross profit as explained above.
Accounts receivable
The operating revenue of the six months ended
December 31, 2023 was $18,229,212, the balance of accounts receivable was $54,123 at December 31, 2023. In the same period last year,
the operating revenue was $131,459, and the accounts receivable balance was $388,316 at December 31, 2022. This quarter, the Company further
segmented the market, planned eight regional headquarters, strengthened the collection control, and promoted the fund collection of contracted
delivery projects, which led to the benign return of funds and had a far-reaching impact on the future.
Liquidity and Capital Resources
Historically, we have funded our operations primarily
through the sale of our common stock and shareholder loans. To enhance our ability to continue to operate as a going concern, we are dedicating
resources to generate recurring revenues and sustainable operating cash flows.
We expect to generate revenues through expanding
our current 5G messaging and acoustic intelligence business, and through continuous product innovation and development as well as various
types of value-added services. In order to maintain working capital sufficient to support our operations and finance the future growth
of our business, we expect to fund any cash flow shortfall through financial support from our majority stockholders (who are also our
board members or officers) and public or private issuance of securities. However, such additional cash resources may not be available
to us on desirable terms, or at all, if and when needed by us.
As of December 31, 2023, we had a working capital
of $1,646,072 or a current ratio of 1.68:1, and our current assets were $4,058,251. As of June 30, 2023, we had a working capital deficit
of $3,617,058 or a current ratio of 0.26:1. Our current assets were $1,289,517.
We expect the Company to continue to support its
ongoing operations and financing through revenue growth and increased financing activities. However, there is no assurance that the Company
will be able to secure such additional working capital on commercially viable terms or at all.
The following is a summary of cash provided by
or used in each of the indicated types of activities during the six months ended December 31, 2023 and 2022, respectively.
| |
2023 | | |
2022 | |
Net cash used in operating activities | |
$ | (5,633,282 | ) | |
$ | (1,766,490 | ) |
Net cash used in investing activities | |
$ | (71,816 | ) | |
$ | (33,025 | ) |
Net cash provided by financing activities | |
$ | 6,241,781 | | |
$ | 1,683,208 | |
Cash Flow from Operating Activities
Net cash used in operating activities was $5,633,282 during
the six months ended December 31, 2023, compared to net cash used in operating activities of $1,766,490 during the six months ended December
31, 2022, an increase in cash outflow of $3,866,792. The increase in cash outflow was mainly due to increased cash outflow on prepaid
expenses and other current assets by $2,543,369, decreased cash inflow on accounts payable by $573,457, decreased cash inflow on accrued
expenses and other payables by $431,192, increased cash outflow on unearned revenue by $305,510, which was partly offset by decreased
net loss by $979,944 with noncash adjustments to net loss from decreased stock compensation expense by $191,047 and gain on sale of Zhangxun
of $833,546.
Cash Flow from Investing Activities
Net cash used in investing activities totaled
$71,816 for the six months ended December 31, 2023, which consisted of cash paid for the acquisition of office furniture and equipment
of $3,683, cash paid for acquisition of intangible assets by $68,098, and cash loss due to disposal of subsidiary of $35. Net cash used
in investing activities totaled $33,025 for the six months ended December 31, 2022, which consisted of cash paid for the acquisition of
office furniture and equipment of $2,276, cash paid for acquisition and development of software systems of $1,985, and payment of long-term
investment into high-tech companies of $28,764.
Cash Flow from Financing Activities
Net cash provided by financing activities was
$6,241,781 during the six months ended December 31, 2023, which was the net proceeds from loans payable of $153,659, net proceeds from
due to related parties of $116,841 and net proceeds from sale of our common stock through an equity financing of $8,061,286, which was
partly offset by repayment of loan payables of $2,090,005. Net cash provided by financing activities was $1,683,208 during the six
months ended December 31, 2022, which was the net proceeds of loans payable of $1,684,595, but partly offset by a decrease in due to related
parties of $1,387.
Loan from the unrelated parties
On April
24, 2022, the Company entered a loan agreement with an unrelated party Mr. Wanli Kuai for $596,001, the loan had no interest, and was
required to be repaid any time before December 31, 2022. The Company repaid $447,001 to the unrelated party by June 30, 2022. On
July 1, 2022, the Company entered into a new loan agreement with the same unrelated party for RMB 5,603,000 ($789,177), the
loan had no interest, and was required to be repaid any time before December 31, 2022, the Company didn’t make any payment as of
December 31, 2022 and signed an extension agreement to extend the maturity date to June 30, 2023. On October 1, 2022, the Company
entered into a new loan agreement with the same unrelated party for RMB 3,970,000 ($642,779), the loan had no interest, and
was required to be repaid any time before June 30, 2023. On May 24, 2023, the Company entered into a loan extension agreement with the
lender, wherein both parties agreed to settle the loan in full by December 31, 2024. On September 15, 2023, the Company, its CEO and Mr.
Wanli Kuai entered a Debt Transfer Agreement, wherein the Company’s CEO transferred the Company’s debt of RMB 5,207,962 ($0.73
million) that was owed to her to Mr. Wanli Kuai. On October 9, 2023, the Company entered into a Debt Transfer and Offset Agreement
with Mr. Wanli Kuai and Guorui Innovation. This agreement was resulted from the termination of a Marketing and Promotion agreement among
the Company and Guorui Innovation, which Guorui Innovation needs to repay the Company in full for RMB 13,000,600 ($1,810,719)
due to cancellation of the agreement (see Note 5). Following the negotiations, the Company, Mr. Wanli Kuai and Guorui Innovation agreed
and entered a Debt Transfer and Offset Agreement, wherein Guorui Innovation will repay the prepayment of RMB 13,000,600 ($1,810,719)
to Mr. Wanli Kuai for settling the debt that the Company owed to Mr. Kuai (See Note 5). During the three and six months ended December
31, 2023, the Company repaid $1.8 million and $2.0 million to this unrelated party. As of December 31, 2023 and June 30, 2023, the outstanding
loan balance to the unrelated party was $nil and $1,310,306, respectively as a result of the Debt Transfer and Offset Agreement.
On September
21, 2023, the Company entered a loan agreement with another unrelated party for $155,308, the loan had no interest, and was required to
be repaid any time before December 31, 2024.
As of December 31, 2023, the total liabilities
of Datasea are $2,412,851, which shows a 61.9% decrease from June 30, 2023. The decrease of liability is due to the repayment to related
party by $594,364, decreased accrued expenses and other payables by $739,343, decreased lease liability by $34,495, decreased unearned
revenue by $550,719, and decreased accounts payable by $665,162, and decreased loan payable by $1,337,611.
Cash inflows generated from financing activities
for the six months ended December 31, 2023 were $6,241,781, compared to $1,683,208 in the same period last year. This year’s net
cash inflows are 271% more than last year’s net cash inflows from financing activities, this is entirely due to the Company’s
better financing outlook and more mature financing attitude. We pay more attention to financing planning issues and the cost of financing.
Analysis of several index
For the six months ended December 31, 2023 and 2022, revenue was $18,229,212
and $131,459, respectively. Operating income increased by $18,097,753 over the same period of last year, an increase of 13,766.84% over
the same period of last year, the growth rate is mainly due to the fact that the company is currently leading in the research and development
of 5G Multimodal communication technology, and has formed a stable customer base after long-term expansion of customer base. This is related
to the Company’s technological research and development achievements over the years, personnel support, market promotion, the Company’s
upstream and downstream chain opening up, customer maintenance and technical experience accumulation, and ultimately the formation of
a huge loyal customer base, but also closely related to the thriving vitality of the 5G market.
For the six months ended December 31, 2023 and 2022, the Company’s
administrative expenses were $1,316,516 and $1,751,359, respectively, a decrease of $434,843 or 24.83%, compared to the same period last
year. The main reason is that the Company continues to optimize the management structure, strengthen administrative expenses, improve
the efficiency and competitiveness of the enterprise, improve operational efficiency, reduce expenses, reduce unnecessary administrative
expenses, and improve the granularity of management expenses to improve management efficiency and reduce management expenses.
For the six months ended December 31, 2023 and
the six months ended December 31, 2022, the Company’s research and development expenses were $272,375 and $255,440, respectively,
an increase of $16,935, an increase of 6.63%, compared with the same period last year. During the period, the Company increased its investment
in research and development, enhanced its core competitiveness, and contributed to new products and technologies, laying the foundation
for the layout of new products and technologies.
As of December 31, 2023 and June 30, 2023, the
Company’s cash balance was $437,716 and $19,728, respectively, an increase of $417,988, or 21.19 times, from the previous period.
The main reason is that the Company absorbs social funds, expands the scale of the enterprise, enhances the visibility of the enterprise,
enhances the competitiveness of the enterprise, provides strong financial support for the company’s business expansion and projects, and
is used for technology research and development, market expansion, corporate brand building, etc., laying a solid foundation for the sustainable
development of the enterprise. The increased demand for products and services brought about by the Company’s increased sales revenue
and the expansion of financing channels brought about by a number of capital inflows, the Company to optimize the asset structure, enhance
the corporate capital capacity and liquidity.
As of December 31, 2023 and June 30, 2023, the
Company’s accounts receivable balance was $54,123 and $255,725, respectively, a decrease of $201,602 and 78.84% from the prior period.
Mainly, the Company reduces the occurrence of bad debts by strengthening the credit evaluation of customers, and strengthens the collection
work of customers, improving the collection efficiency, shortening the account period, increasing cash liquidity, and improving the management
efficiency of accounts receivable.
As of December 31, 2023 and June 30, 2023, the Company’s inventory
balance was $185,806 and $241,380, respectively, a decrease of $55,574 or 23.02% from the previous period, mainly due to the expansion
of the Company’s sales market. By developing new sales channels, expanding new markets, strengthening advertising and other ways,
the Company expands the sales scale of products, so that the inventory can be quickly realized and the efficiency of capital use can be
improved.
As of December 31, 2023 and June 30, 2023, the
capital reserve balance was $32,251,708 and $24,148,905, respectively, an increase of $8,102,803 from the prior year or an increase of
33.55% from the prior period, primarily due to an increase in the Company’s share issuance. An increase in stock issuance can provide
a company with more capital reserves to help it meet future challenges. For the Company, the increase in stock issuance has introduced
a large number of high-quality funds, which is conducive to the integration of upstream and downstream enterprises and can promote the
growth of the Company’s performance. The Company’s financial strength, market competitiveness and corporate reputation have
also been greatly improved.
As of December 31, 2023 and June 30, 2023, the
Company’s operating lease liabilities were $116,594 and $124,640, respectively, a decrease of $8,046 or 6.46% from the previous
period, mainly due to the Company’s actual operating needs in order to achieve the purpose of saving resources, reducing expenses
and reducing liabilities. Reasonable overall planning has been made for the operating leasing area and leasing cost of each parent and
subsidiary company of the Company, so as to reduce the use area as much as possible, reduce unnecessary expenses, optimize resource allocation
and improve efficiency while meeting the daily office needs, which save costs and improve the overall profits of the Company.
As of December 31, 2023 and June 30, 2023, the
Company’s accounts payable were $339,897 and $1,005,059, respectively, a decrease of $665,162 or 66.18% from the previous period,
mainly due to the Company’s optimization of liabilities and reduction of debt ratio according to the capital situation. The Company
maintains a good and stable relationship with suppliers, enhances the capital turnover ability and supplies chain management ability.
Going forward
Datasea is currently in the process of transitioning
from a China-centric company to a global entity. Our commitment is to evolve into an international technology firm, with manufacturing
facilities, intellectual property presence, sales networks, and customer bases strategically positioned in the United States. We aspire
to attain international leadership in research and development, technological collaborations, talent development, and solidify our footprint
in the U.S. market. Our primary objective is to deliver cutting-edge artificial intelligence solutions, particularly in acoustic intelligence,
contributing to the advancement of the global digital landscape. To realize this vision, the Company’s management has outlined the
following plans:
| ● | Continuing
Advancements in 5G Multimodal Communication Business: |
|
● |
Actively pursuing market share capture. |
|
|
|
|
● |
Improving gross profit margins. |
| ● | Expansion
of Acoustic Intelligence Products: |
|
● |
Diversifying applications in acoustic engineering, agriculture, medicine, beauty, and healthcare. |
| ● | Strategic
Mergers and Acquisitions (M&A): |
|
● |
Obtaining a leading position and greater control over the supply chain in the acoustic intelligence industry, with a focus on the U.S. market. |
|
|
|
|
● |
Facilitating ongoing beneficial vertical integration. |
| ● | Collaborations
with Technical Institutions: |
|
● |
Sustaining partnerships with top-tier domestic and international technical institutions. |
|
|
|
|
● |
Conducting research and development in acoustic intelligence to stimulate demand through supply-side innovation. |
|
● |
Achieving localization of core products. |
|
|
|
|
● |
Aligning with diverse customer demands on a global scale. |
| ● | Advancing
Internationalization Strategy: |
|
● |
Fostering innovation. |
|
|
|
|
● |
Strengthening our position within the acoustic intelligence sector. |
|
● |
Elevating the Company’s brand awareness through omni-channel marketing. |
|
|
|
|
● |
Obtaining PCT international patents to enhance the value of intangible assets. |
| ● | Client
Loyalty and Customer Service: |
|
● |
Maintaining client loyalty through outstanding customer service. |
|
|
|
|
● |
Offering an exclusive service experience with appropriate transparency and publicity. |
These initiatives collectively drive our commitment
to internationalization, innovation, and fortifying our leadership in the dynamic field of acoustic intelligence.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues,
expenses, results of operations, liquidity, capital expenditures or capital resources.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
This item is not applicable as we are currently
considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
As required by Rule 13a-15 of the Securities Exchange
Act of 1934, our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined
in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report.
Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered
by this report, the Company’s disclosure controls and procedures were not effective. This conclusion was reached in light of the
following material weaknesses in internal control over financial reporting:
|
(i) |
inadequate segregation of duties and effective risk assessment; |
| (ii) | lack
of personnel adequately trained in U.S. GAAP; and |
| (iii) | insufficient
written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S.
GAAP and SEC guidelines. |
Management’s Strategies for Enhancing
Internal Control:
In
the previous fiscal year, we recognized the weaknesses in our internal control over financial reporting and have taken proactive steps
to enhance and refine our internal control framework. These initiatives primarily include:
|
1. |
Continuous Improvement of Internal Control Procedures: We remain committed to refining our internal control processes, encompassing various aspects such as the budget approval process, procurement and asset management, credit control, internal audits, and cost accounting. Additionally, we have compiled a comprehensive internal control policy, incorporating guidelines for procurement control, inventory management, and fraud prevention. |
|
2. |
Collaborative Oversight Mechanism: To strengthen internal control implementation, we have established a collaborative mechanism between the internal control department and the legal department. This mechanism involves conducting interviews with department heads, promptly addressing identified risk areas, and ensuring corrective actions are taken. |
|
3. |
Engagement with Financing Underwriters: We have engaged financing underwriters to work closely with our international department to facilitate the company’s financing efforts. This partnership aims to improve our understanding of investor backgrounds and identify financing methods that align best with our objectives. |
|
4. |
Enhanced Collaboration with Legal Professionals: We are reinforcing collaboration between our internal and external legal teams to proactively mitigate risks. |
In
addition to these efforts, we have adopted various internal control policies, including the review of accounting personnel duties and
responsibilities, travel allowances, reimbursement procedures, receivable management, asset control, internal audit processes, and cost
accounting. Furthermore, we have established an internal audit department under the leadership of a director of internal audit, along
with a legal team, to ensure compliance and effective risk management.
Further Enhancements
Include:
|
1. |
Personnel Training: We are committed to training our staff to ensure the proper execution of internal control policies and procedures. |
|
2. |
Regular Reporting to the Audit Committee: We will continue to provide quarterly summaries of internal control and audit reports to the Audit Committee. |
|
3. |
Quarterly Review with U.S. CPA: Each quarter, we will conduct a trial balance review in collaboration with a U.S. Certified Public Accountant (CPA) after their review or audit. |
Specifically
we have also implemented the following practices to enhance Datasea featured internal control system:
1.
Projects Pre-approval:
We
have carried out project development at irregular intervals according to the needs of business development. Before the project is officially
initiated, we have organized the setup of the project review group. The project review group has mainly reviewed the project’s market
development prospect report, project proposal, project report and other documentations that are prepared by the project development team.
After communication and discussion by the review team, the project will be formally approved.
2. Significant Issues:
Significant
issues will go through meetings of the President’s Office. During those meetings, the Company’s strategic adjustments of the
business and major projects or events will be discussed. Only after the board meeting or the resolution of the board of directors, the
decisions will be implemented in accordance with the meetings.
3. HR Management,
Responsibility, Rewards and Penalties System:
We
have strict control over talents and their efficiency, from the probation period to the conversion to regular employees. After the employees
pass the strict evaluation, they will be included in the regular employees pool and sign the job responsibility letter and performance
commitment letter. They will go through monthly performance assessment and evaluation as the basis for salary settlement. We will give
rewards to employees with excellent performance from time to time, and the rewards are not limited to cash and stocks. We also give certain
penalty measures for employees’ work mistakes, such as deduction of performance-based salary.
4. Budget Management:
The
internal control department organizes all departments to participate in the full budget formulation and budget implementation, and comprehensively
develop and implement the annual full budget data according to funds, assets, project initiation, business line revenue, and costs. The
internal control center strictly controls the budget. The execution department, the finance department, the CEO and the chairman of the
board jointly approve and execute the budget. In the process of budget implementation, we adopt the monthly rolling budget system, and
the Company’s financial management internal control center makes statistical analysis of the implementation results to help each
business unit complete the performance targets and strive to achieve the annual target of the Company.
5. Operation
Management:
We
combine centralized and decentralized management styles according to the business line types and operating characteristics of each subsidiary
of the Company. We will give our subsidiaries certain management rights so that we will not miss any business opportunities. In terms
of production and operation, from project initiation, procurement to sales, we have a complete control process. For example, before purchasing,
we need to look around in the market and select high-quality suppliers after the audit of the Company’s financial management internal
control center. We are willing to build long-term stable and friendly cooperation with high-quality suppliers. We will develop a complete
process from the product check-in to check-out. After the approval of all parties, the procedure of product check-out will be completed
to avoid risks.
6. Business
Development Personnel Management:
For
excellent business development personnel, we formulate relevant royalty management measures with comprehensive considerations about different
lines of business, different products combined with different market conditions. We distribute salary and bonus according to performance.
Business development personnel who successfully complete the sales target can get generous remuneration. These measures actively motivate
business development personnel to complete the Company’s annual performance goals.
Changes in Internal Control over Financial
Reporting
Other than as described above, there were no changes
in our internal control over financial reporting during the quarter ending December 31, 2023 that have materially affected or are reasonably
likely to materially affect, our internal control over financial reporting.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not
a party to any pending legal proceedings and no such proceedings are known to be contemplated.
ITEM 1A. RISK FACTORS
Not required of smaller reporting companies.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
During the three months ended December 31, 2023,
there were no modifications, adoptions or terminations by any directors or officers to any contract, instruction or
written plan for the purchase or sale of securities of the Company that is intended to satisfy the affirmative defense conditions of Rule
10b5-1(c) or non-Rule 10b5-1 trading agreements.
ITEM 6. EXHIBITS.
* |
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. |
SIGNATURES
In accordance with Section 13 or 15(d) of the
Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
DATASEA INC. |
|
|
|
Date: February 13, 2024 |
By: |
/s/ Zhixin Liu |
|
Name: |
Zhixin Liu |
|
Title: |
President |
|
|
Chief Executive Officer |
|
|
(principal executive officer) |
Date: February 13, 2024 |
By: |
/s/ Mingzhou Sun |
|
Name: |
Mingzhou Sun |
|
Title: |
Chief Financial Officer |
|
|
(principal financial officer and
principal accounting officer) |
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In connection with the Quarterly Report of Datasea
Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange Commission
(the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
In connection with the Quarterly Report of Datasea
Inc. (the “Company”) on Form 10-Q for the quarter ended December 31, 2023 as filed with the Securities and Exchange Commission
(the “Report”), each of the undersigned, in the capacities and on the dates indicated below, hereby certifies pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that: