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 March
31, 2024
☐ 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 May 13, 2024, 3,057,944 shares of common stock, $0.001 par
value per share, were outstanding.
DATASEA INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
DATASEA INC.
CONSOLIDATED
BALANCE SHEETS
| |
MARCH 31,
2024 (UNAUDITED) | | |
JUNE 30,
2023 | |
| |
| | |
| |
ASSETS | |
| | |
| |
CURRENT ASSETS | |
| | |
| |
Cash | |
$ | 52,529 | | |
$ | 19,728 | |
Accounts receivable | |
| 17,044 | | |
| 255,725 | |
Inventory, net | |
| 184,137 | | |
| 241,380 | |
Value-added tax prepayment | |
| 99,269 | | |
| 71,261 | |
Prepaid expenses and other current assets | |
| 2,264,583 | | |
| 701,423 | |
Total current assets | |
| 2,617,562 | | |
| 1,289,517 | |
| |
| | | |
| | |
NONCURRENT ASSETS | |
| | | |
| | |
Long-term investment | |
| 56,378 | | |
| 55,358 | |
Property and equipment, net | |
| 53,730 | | |
| 85,930 | |
Intangible assets, net | |
| 568,307 | | |
| 1,185,787 | |
Right-of-use assets, net | |
| 78,610 | | |
| 137,856 | |
Total noncurrent assets | |
| 757,025 | | |
| 1,464,931 | |
| |
| | | |
| | |
TOTAL ASSETS | |
$ | 3,374,587 | | |
$ | 2,754,448 | |
| |
| | | |
| | |
LIABILITIES AND STOCKHOLDERS’ EQUITY | |
| | | |
| | |
CURRENT LIABILITIES | |
| | | |
| | |
Accounts payable | |
$ | 266,755 | | |
$ | 1,005,059 | |
Unearned revenue | |
| 54,061 | | |
| 609,175 | |
Accrued expenses and other payables | |
| 579,370 | | |
| 1,409,939 | |
Due to related parties | |
| 714,492 | | |
| 1,162,856 | |
Operating lease liabilities | |
| 96,079 | | |
| 124,640 | |
Bank loan payable | |
| 482,499 | | |
| 594,906 | |
Total current liabilities | |
| 2,193,256 | | |
| 4,906,575 | |
| |
| | | |
| | |
NONCURRENT LIABILITIES | |
| | | |
| | |
Operating lease liabilities | |
| - | | |
| 26,449 | |
Bank loan payable- non-current | |
| - | | |
| 91,215 | |
Loan payable- non-current | |
| - | | |
| 1,310,306 | |
Total noncurrent liabilities | |
| - | | |
| 1,427,970 | |
| |
| | | |
| | |
TOTAL LIABILITIES | |
| 2,193,256 | | |
| 6,334,545 | |
| |
| | | |
| | |
COMMITMENTS AND CONTINGENCIES | |
| | | |
| | |
| |
| | | |
| | |
STOCKHOLDERS’ EQUITY (DEFICIT) | |
| | | |
| | |
Common stock, $0.001 par value, 25,000,000 shares authorized, 3,017,944 and 1,889,315 shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively | |
| 3,018 | | |
| 1,889 | |
Additional paid-in capital | |
| 35,058,598 | | |
| 24,148,868 | |
Accumulated comprehensive income | |
| 250,668 | | |
| 393,252 | |
Accumulated deficit | |
| (34,060,073 | ) | |
| (28,063,258 | ) |
TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIT) | |
| 1,252,211 | | |
| (3,519,249 | ) |
| |
| | | |
| | |
Noncontrolling interest | |
| (70,880 | ) | |
| (60,848 | ) |
| |
| | | |
| | |
TOTAL EQUITY (DEFICIT) | |
| 1,181,331 | | |
| (3,580,097 | ) |
| |
| | | |
| | |
TOTAL LIABILITIES AND EQUITY (DEFICIT) | |
$ | 3,374,587 | | |
$ | 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
MARCH 31, | | |
NINE MONTHS ENDED
MARCH 31, | |
| |
2024 | | |
2023 | | |
2024 | | |
2023 | |
| |
| | |
| | |
| | |
| |
Revenues | |
$ | 1,383,001 | | |
$ | 84,555 | | |
$ | 19,612,213 | | |
$ | 216,014 | |
Cost of goods sold | |
| 1,373,130 | | |
| 12,914 | | |
| 19,425,372 | | |
| 108,944 | |
| |
| | | |
| | | |
| | | |
| | |
Gross profit | |
| 9,871 | | |
| 71,641 | | |
| 186,841 | | |
| 107,070 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Selling | |
| 970,443 | | |
| 45,002 | | |
| 2,204,834 | | |
| 194,704 | |
General and administrative | |
| 3,075,941 | | |
| 755,334 | | |
| 4,392,457 | | |
| 2,506,693 | |
Research and development | |
| 71,178 | | |
| 144,054 | | |
| 343,553 | | |
| 399,494 | |
| |
| | | |
| | | |
| | | |
| | |
Total operating expenses | |
| 4,117,562 | | |
| 944,390 | | |
| 6,940,844 | | |
| 3,100,891 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (4,107,691 | ) | |
| (872,749 | ) | |
| (6,754,003 | ) | |
| (2,993,821 | ) |
| |
| | | |
| | | |
| | | |
| | |
Non-operating income (expenses) | |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| (34,351 | ) | |
| 17,324 | | |
| (88,402 | ) | |
| (18,241 | ) |
Interest income | |
| 217 | | |
| 19 | | |
| 1,946 | | |
| 112 | |
| |
| | | |
| | | |
| | | |
| | |
Total non-operating income (expenses), net | |
| (34,134 | ) | |
| 17,343 | | |
| (86,456 | ) | |
| (18,129 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss before income tax | |
| (4,141,825 | ) | |
| (855,406 | ) | |
| (6,840,459 | ) | |
| (3,011,950 | ) |
| |
| | | |
| | | |
| | | |
| | |
Income tax | |
| - | | |
| - | | |
| - | | |
| 8 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before noncontrolling interest from continuing operation | |
| (4,141,825 | ) | |
| (855,406 | ) | |
| (6,840,459 | ) | |
| (3,011,958 | ) |
Income (loss) before noncontrolling interest from discontinued operation | |
| - | | |
| (441,659 | ) | |
| 833,546 | | |
| (1,130,139 | ) |
| |
| | | |
| | | |
| | | |
| | |
Less: loss attributable to noncontrolling interest from continuing operation | |
| (105 | ) | |
| (57 | ) | |
| (10,098 | ) | |
| (8,924 | ) |
Less: loss attributable to noncontrolling interest from discontinued operation | |
| - | | |
| (1,849 | ) | |
| - | | |
| (209,701 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss attribute to noncontrolling interest | |
| (105 | ) | |
| (1,906 | ) | |
| (10,098 | ) | |
| (218,625 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss to the Company from continuing operation | |
| (4,141,720 | ) | |
| (855,349 | ) | |
| (6,830,361 | ) | |
| (3,003,034 | ) |
Net income (loss) to the Company from discontinued operation | |
| - | | |
| (439,810 | ) | |
| 833,546 | | |
| (920,438 | ) |
| |
| | | |
| | | |
| | | |
| | |
Net loss to the Company | |
| (4,141,720 | ) | |
| (1,295,159 | ) | |
| (5,996,815 | ) | |
| (3,923,472 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other comprehensive item | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation loss attributable to the Company | |
| (15,969 | ) | |
| (20,782 | ) | |
| (142,584 | ) | |
| (69,549 | ) |
Foreign currency translation gain attributable to noncontrolling interest | |
| (42 | ) | |
| 2,012 | | |
| 66 | | |
| 30,748 | |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive loss attributable to the Company | |
$ | (4,157,689 | ) | |
$ | (1,315,941 | ) | |
$ | (6,139,399 | ) | |
$ | (3,993,021 | ) |
| |
| | | |
| | | |
| | | |
| | |
Comprehensive income (loss) attributable to noncontrolling interest | |
$ | (147 | ) | |
$ | 106 | | |
$ | (10,032 | ) | |
$ | (187,877 | ) |
| |
| | | |
| | | |
| | | |
| | |
Basic and diluted net loss per share | |
$ | (1.55 | ) | |
$ | (0.80 | ) | |
$ | (2.49 | ) | |
$ | (2.42 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average shares used for computing basic and diluted loss per share * | |
| 2,666,438 | | |
| 1,621,642 | | |
| 2,413,014 | | |
| 1,621,642 | |
The accompanying notes are an integral part of these consolidated financial statements.
DATASEA INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
NINE AND THREE MONTHS ENDED MARCH 31, 2024 AND 2023
(UNAUDITED)
| |
Common Stock | | |
Additional
paid-in | | |
Accumulated | | |
Accumulated
other
comprehensive
| | |
| | |
Noncontrolling | |
| |
Shares | | |
Amount | | |
capital | | |
deficit | | |
income | | |
Total | | |
interest | |
| |
| | |
| | |
| | |
| | |
| | |
| | |
| |
Balance at July 1, 2023 | |
| 1,889,315 | | |
$ | 1,889 | | |
$ | 24,148,868 | | |
$ | (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 | |
| 2,575,255 | | |
| 2,575 | | |
| 32,229,568 | | |
| (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 | |
| 2,575,255 | | |
| 2,575 | | |
| 32,251,671 | | |
| (29,918,353 | ) | |
| 266,637 | | |
| 2,602,530 | | |
| (70,733 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (4,141,720 | ) | |
| - | | |
| (4,141,720 | ) | |
| (105 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for stock compensation expense | |
| 340,545 | | |
| 341 | | |
| 2,447,431 | | |
| - | | |
| - | | |
| 2,447,772 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for paying officers’ accrued salary and bonus | |
| 102,144 | | |
| 102 | | |
| 359,496 | | |
| - | | |
| - | | |
| 359,598 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation loss | |
| - | | |
| - | | |
| - | | |
| - | | |
| (15,969 | ) | |
| (15,969 | ) | |
| (42 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2024 | |
| 3,017,944 | | |
$ | 3,018 | | |
$ | 35,058,598 | | |
$ | (34,060,073 | ) | |
$ | 250,668 | | |
$ | 1,252,211 | | |
$ | (70,880 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
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 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Net loss | |
| - | | |
| - | | |
| - | | |
| (1,295,159 | ) | |
| - | | |
| (1,295,159 | ) | |
| (1,906 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Shares issued for stock compensation expense | |
| - | | |
| - | | |
| 96,000 | | |
| - | | |
| - | | |
| 96,000 | | |
| - | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Foreign currency translation gain (loss) | |
| - | | |
| - | | |
| - | | |
| - | | |
| (20,782 | ) | |
| (20,782 | ) | |
| 2,012 | |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Balance at March 31, 2023 | |
| 1,621,642 | | |
$ | 1,622 | | |
$ | 20,099,498 | | |
$ | (22,507,038 | ) | |
$ | 214,038 | | |
$ | (2,191,880 | ) | |
$ | (60,136 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
DATASEA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
| |
NINE MONTHS ENDED
MARCH 31 | |
| |
2024 | | |
2023 | |
Cash flows from operating activities: | |
| | |
| |
Loss including noncontrolling interest | |
$ | (6,006,913 | ) | |
$ | (4,142,097 | ) |
Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities: | |
| | | |
| | |
Gain on disposal of subsidiary | |
| (833,546 | ) | |
| (7 | ) |
Bad debt reversal | |
| - | | |
| (21,679 | ) |
Depreciation and amortization | |
| 412,333 | | |
| 532,272 | |
Loss on disposal of fixed assets | |
| 589 | | |
| - | |
Operating lease expense | |
| 137,703 | | |
| 495,160 | |
Stock compensation expense | |
| 2,849,572 | | |
| 329,250 | |
Changes in assets and liabilities: | |
| | | |
| | |
Accounts receivable | |
| (16,190 | ) | |
| (716,695 | ) |
Inventory | |
| 61,298 | | |
| (44,690 | ) |
Value-added tax prepayment | |
| (42,318 | ) | |
| (37,239 | ) |
Prepaid expenses and other current assets | |
| (1,575,526 | ) | |
| 200,625 | |
Accounts payable | |
| (210,979 | ) | |
| 1,021,759 | |
Unearned revenue | |
| (467,475 | ) | |
| (185,477 | ) |
Accrued expenses and other payables | |
| (129,164 | ) | |
| 666,482 | |
Payment on operating lease liabilities | |
| (133,736 | ) | |
| (426,033 | ) |
| |
| | | |
| | |
Net cash used in operating activities | |
| (5,954,352 | ) | |
| (2,328,369 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Acquisition of property and equipment | |
| (3,692 | ) | |
| (2,168 | ) |
Acquisition of intangible assets | |
| (105,184 | ) | |
| (2,335 | ) |
Cash received from disposal of fixed assets | |
| - | | |
| 694 | |
Cash disposed due to disposal of subsidiary | |
| (35 | ) | |
| - | |
Long-term investment | |
| - | | |
| (28,905 | ) |
| |
| | | |
| | |
Net cash used in investing activities | |
| (108,911 | ) | |
| (32,714 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Due to related parties | |
| 417,174 | | |
| 551,072 | |
Proceeds from loan payables | |
| - | | |
| 1,692,853 | |
Repayment of loan payables | |
| (2,269,329 | ) | |
| - | |
Net proceeds from issuance of common stock | |
| 8,061,286 | | |
| - | |
| |
| | | |
| | |
Net cash provided by financing activities | |
| 6,209,131 | | |
| 2,243,925 | |
| |
| | | |
| | |
Effect of exchange rate changes on cash | |
| (113,067 | ) | |
| (3,904 | ) |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| 32,801 | | |
| (121,062 | ) |
| |
| | | |
| | |
Cash, beginning of period | |
| 19,728 | | |
| 164,217 | |
| |
| | | |
| | |
Cash, end of period | |
$ | 52,529 | | |
$ | 43,155 | |
| |
| | | |
| | |
Supplemental disclosures of cash flow information: | |
| | | |
| | |
Cash paid for interest | |
$ | 15,019 | | |
$ | - | |
Cash paid for income tax | |
$ | - | | |
$ | - | |
| |
| | | |
| | |
Supplemental disclosures of non-cash financing activities: | |
| | | |
| | |
Right-of-use assets obtained in exchange for operating lease liabilities | |
$ | 125,138 | | |
$ | 173,455 | |
Transfer of debt owing to the Company’s’ CEO to Mr. Wanli Kuai | |
$ | 729,338 | | |
$ | - | |
Shares issued for paying officers' accrued salary and bonus | |
$ | 359,598 | | |
$ | - | |
The accompanying notes are an integral
part of these consolidated financial statements.
DATASEA INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MARCH 31, 2024 (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 October 24, 2023, Guozhong
Times formed Shuhai Yiyun (Shenzhen) digital technology Co, Ltd (“Yiyun”) with 66% ownership interest, the remaining 34% ownership
interest is held by a third party. As of the report date, Yiyun did not have any operations.
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
was 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 was then 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 March 31, 2024 and 2023, the Company had a net loss of approximately $4.14 million and $1.30 million, respectively.
For the nine months ended March 31, 2024 and 2023, the Company had a net loss of approximately $6.00 million and $3.92 million,
respectively. The Company had an accumulated deficit of approximately $34.06 million as of March 31, 2024, and negative cash flow
from operating activities of approximately $5.95 million and $2.33 million for the nine months ended March 31, 2024 and 2023,
respectively. The historical operating results including recurring losses from operations raise substantial doubt about the Company’s
ability to continue as a going concern.
During
the nine months ended March 31, 2024, the Company made total prepayments of $3.78 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 nine months
ended March 31, 2024, the Company recorded an amortization of prepaid expense of $0.95 million and $ 1.89 million in the selling
expense.
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 nine months ended March 31, 2024 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 March 31, 2024.
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 March 31, 2024 and June 30, 2023, and for the three and nine months ended March 31, 2024 and 2023, respectively.
| |
March 31,
2024 | | |
June
30, 2023 | |
Cash | |
$ | 43,076 | | |
$ | 13,717 | |
Accounts receivable | |
| 17,044 | | |
| 255,725 | |
Inventory | |
| 190,784 | | |
| 241,380 | |
Other current assets | |
| 76,049 | | |
| 649,433 | |
Total current assets | |
| 326,953 | | |
| 1,160,255 | |
Property and equipment, net | |
| 29,642 | | |
| 42,886 | |
Intangible asset, net | |
| 423,247 | | |
| 757,700 | |
Right-of-use asset, net | |
| 17,595 | | |
| 60,348 | |
Other non-current assets | |
| 56,378 | | |
| 55,358 | |
Total non-current assets | |
| 526,862 | | |
| 916,292 | |
Total assets | |
$ | 853,815 | | |
$ | 2,076,547 | |
| |
| | | |
| | |
Accounts payable | |
$ | 68,290 | | |
$ | 650,406 | |
Accrued liabilities and other payables | |
| 631,621 | | |
| 1,480,947 | |
Lease liability | |
| 21,359 | | |
| 39,223 | |
Loans payable | |
| 482,499 | | |
| 594,906 | |
Due to related party | |
| 211,664 | | |
| - | |
Other current liabilities | |
| 53,596 | | |
| 1,639,410 | |
Total current liabilities | |
| 1,469,029 | | |
| 4,404,892 | |
Lease liability - noncurrent | |
| - | | |
| 26,449 | |
Long term long payable | |
| - | | |
| 1,401,521 | |
Total non-current liabilities | |
| - | | |
| 1,427,970 | |
Total liabilities | |
$ | 1,469,029 | | |
$ | 5,832,862 | |
| |
For the Three Months Ended March 31, 2024 | | |
For the Three Months Ended March 31, 2023 | |
Revenues | |
$ | 1,382,827 | | |
$ | 1,787,677 | |
Gross profit | |
$ | 9,920 | | |
$ | 96,527 | |
Net loss | |
$ | (335,151 | ) | |
$ | (567,490 | )* |
| |
For the Nine Months Ended March 31, 2024 | | |
For the Nine Months Ended March 31, 2023 | |
Revenues | |
$ | 19,542,751 | | |
$ | 3,377,692 | |
Gross profit | |
$ | 186,236 | | |
$ | 301,054 | |
Net income (loss) | |
$ | (268,266 | ) | |
$ | (2,477,321 | )* |
USE OF ESTIMATES
The preparation of CFS in conformity
with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during
the reporting periods. Actual results could differ from those estimates. The significant areas requiring the use of management estimates
include, but are not limited to, the estimated useful life and residual value of property, plant and equipment, provision for staff benefits,
recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are
based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately
differ from those estimates and such differences may be material to the CFS.
CONTINGENCIES
Certain conditions may exist
as of the date the CFS are issued, which may result in a loss to the Company but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment
inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the
Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of
any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If
the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can
be estimated, the estimated liability would be accrued in the Company’s CFS.
If the assessment indicates that
a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of
the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. As
of March 31, 2024 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 March 31, 2024 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 $53,891 and $52,915 allowances for slow-moving and obsolete inventory (mainly for Smart-Student Identification cards) as
of March 31, 2024 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 March 31, 2024 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 nine months ended March 31, 2024 and 2023,
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 March 31, 2024 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 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 March 31, 2024 | | |
For the Three Months
Ended March 31, 2023 | |
5G AI Multimodal communication | |
$ | 1,381,986 | | |
$ | 1,545,758 | |
5G AI Multimodal communication | |
| 1,381,986 | | |
| 627,490 | |
Cloud platform construction cooperation project | |
| - | | |
| 918,268 | |
Acoustic Intelligence Business | |
| 841 | | |
| 115,470 | |
Ultrasonic Sound Air Disinfection Equipment | |
| 841 | | |
| 8,760 | |
Other | |
| | | |
| 106,710 | |
Smart City business | |
| - | | |
| 126,449 | |
Smart community broadcasting system | |
| | | |
| 126,449 | |
Other | |
| 174 | | |
| - | |
Total revenue | |
$ | 1,383,001 | | |
$ | 1,787,677 | * |
| |
For the Nine Months Ended March 31, 2024 | | |
For the Nine Months Ended March 31, 2023 | |
5G AI Multimodal communication | |
$ | 19,538,768 | | |
$ | 2,992,189 | |
5G AI Multimodal communication | |
| 19,538,768 | | |
| 2,063,376 | |
Aggregate messaging platform | |
| | | |
| 10,545 | |
Cloud platform construction cooperation project | |
| - | | |
| 918,268 | |
Acoustic Intelligence Business | |
| 3,983 | | |
| 216,354 | |
Ultrasonic Sound Air Disinfection Equipment | |
| 3,983 | | |
| 93,921 | |
Other | |
| | | |
| 122,433 | |
Smart City business | |
| - | | |
| 169,149 | |
Smart community | |
| - | | |
| 39,953 | |
Smart community broadcasting system | |
| | | |
| 122,913 | |
Smart agriculture | |
| | | |
| 6,282 | |
| |
| | | |
| | |
Other | |
| 69,462 | | |
| - | |
Total revenue | |
$ | 19,612,213 | | |
$ | 3,377,692 | * |
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 nine months ended March 31, 2024 and 2023 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 March 31, 2024, the Company had no unrecognized tax positions and no charges during the
three and nine months ended March 31, 2024, 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, 2018 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 March 31, 2024 and 2023, the Company had loss of $105 and $1,906 attributable
to the noncontrolling interest, respectively. During the nine months ended March 31, 2024 and 2023, the Company had loss of $10,098 and
$218,625 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 $49,299 and
$17,432 as of March 31, 2024 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 March 31, 2024 and June 30, 2023, cash of $1,983 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 March 31, 2024 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:
| |
March 31, | | |
March 31, | | |
June 30, | |
| |
2024 | | |
2023 | | |
2023 | |
Period-end date USD: RMB exchange rate | |
| 7.0950 | | |
| 6.8717 | | |
| 7.2258 | |
Average USD for the reporting period: RMB exchange rate | |
| 7.1407 | | |
| 6.9193 | | |
| 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 nine months ended March 31, 2024 and 2023, the Company’s basic and diluted loss per share are the same as a result of
the Company’s net loss. 17,853 and 64,023 warrants (post-reverse stock split) were anti-dilutive and were therefore
excluded from EPS for the three and nine months ended March 31, 2024, respectively. 1,319,953 warrants (post-reverse stock split)
were anti-dilutive and was therefore excluded from EPS for the three and nine months ended March 31, 2023, 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 March 2023, the FASB issued
ASU 2023-01, Lease (Topic 842): Common Control Arrangements, which clarifies the accounting for leasehold improvements associated with
leases between entities under common control (hereinafter referred to as common control lease). ASU 2023-01 requires entities to amortize
leasehold improvements associated with common control lease over the useful life to the common control group (regardless of the lease
term) as long as the lessee controls the use of the underlying asset through a lease, and to account for any remaining leasehold improvements
as a transfer between entities under common control through an adjustment to equity when the lessee no longer controls the underlying
asset. This ASU will be effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years.
Early adoption is permitted for both interim and annual financial statements that have not yet been made available for issuance. An entity
may apply ASU 2023-01 either prospectively or retrospectively. The Company’s management does not believe the adoption of ASU 2023-09
will have a material impact on its financial statements and disclosures.
In November 2023, the FASB issued
ASU 2023-07, the amendments in the ASU are intended to improve reportable segment disclosure requirements, primarily through enhanced
disclosures about significant segment expenses that are regularly provided to the chief operating decision maker and included within each
reported measure of segment profit or loss. In addition, the amendments enhance interim disclosure requirements, clarify circumstances
in which an entity can disclose multiple segment measures of profit or loss, provide new segment disclosure requirements for entities
with a single reportable segment, and contain other disclosure requirements. The purpose of the amendments is to enable “investors
to better understand an entity’s overall performance” and assess “potential future cash flows.” The amendments
in ASU 2023-07 are effective for all public entities for fiscal years beginning after December 15, 2023, and interim periods within fiscal
years beginning after December 15, 2024. The Company’s management does not believe the adoption of ASU 2023-09 will have a material
impact on its financial statements and disclosures.
In December 2023, the FASB issued
ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental
income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements.
ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management
does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures.
The
Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material
effect on the Company’s consolidated financial position, statements of comprehensive income and cash flows.
NOTE
3 – PROPERTY AND EQUIPMENT
Property and equipment are summarized
as follows:
| |
March 31, 2024 | | |
June 30, 2023 | |
Furniture and fixtures | |
$ | 85,098 | | |
$ | 84,014 | |
Vehicle | |
| 493 | | |
| 484 | |
Leasehold improvement | |
| 220,930 | | |
| 216,932 | |
Office equipment | |
| 239,438 | | |
| 261,658 | |
Subtotal | |
| 545,959 | | |
| 563,088 | |
Less: accumulated depreciation | |
| 492,229 | | |
| 477,158 | |
Total | |
$ | 53,730 | | |
$ | 85,930 | |
Depreciation for the three months
ended March 31, 2024 and 2023 was $7,134 and $15,955, respectively. Depreciation for the nine months ended March 31, 2024 and 2023
was $25,598 and $87,624, respectively.
The Company disposed $29,148 property
and equipment with related accumulated depreciation of $19,136 resulting from the disposal of Zhangxun in July 2023 (see Note 13).
NOTE
4 – INTANGIBLE ASSETS
Intangible assets are summarized
as follows:
| |
March 31, 2024 | | |
June 30, 2023 | |
Software registration or using right | |
$ | 1,751,063 | | |
$ | 1,635,307 | |
Patent | |
| 14,795 | | |
| 14,527 | |
Software and technology development costs | |
| 11,823 | | |
| 631,250 | |
Value-added telecommunications business license | |
| 15,657 | | |
| 15,374 | |
Subtotal | |
| 1,793,338 | | |
| 2,299,458 | |
Less: Accumulated amortization | |
| 1,225,031 | | |
| 1,110,671 | |
Total | |
$ | 568,307 | | |
$ | 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 March 31, 2024 and 2023 was $129,083 and $148,701, respectively. Amortization for the nine months ended
March 31, 2024 and 2023 was $386,735 and $444,648, respectively. The amortization expense for the next five years as of March 31,
2024 will be $295,138, $142,563, $69,697 , $60,909 and $ 0.
The Company disposed $0.62 million
intangible assets with related accumulated amortization of $0.28 million resulting from the disposal of Zhangxun in July 2023 (see
Note 13).
NOTE
5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS
Prepaid expenses and other current
assets consisted of the following:
| |
March 31, 2024 | | |
June 30, 2023 | |
Security deposit | |
$ | 65,104 | | |
$ | 15,615 | |
Prepaid expenses | |
| 1,993,794 | | |
| 563,203 | |
Other receivables – Heqin | |
| 469,345 | | |
| 460,850 | |
Advance to third party individuals, no interest, payable upon demand | |
| 155,039 | | |
| 11,764 | |
Others | |
| 50,646 | | |
| 110,841 | |
Total | |
| 2,733,928 | | |
| 1,162,273 | |
Less: allowance for other receivables – Heqin | |
| 469,345 | | |
| 460,850 | |
Total | |
$ | 2,264,583 | | |
$ | 701,423 | |
As of March 31, 2024, prepaid
expenses mainly consisted of prepaid marketing expense of $1,902,396, prepaid rent and property management fees of $4,559 and other
prepayments of $86,839. 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 March 31, 2024, 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 nine months ended
March 31, 2024, the Company recorded an amortization of prepaid expense of $0.58 million and $1.1 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 March 31, 2024, 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 nine months ended March 31, 2024,
the Company recorded an amortization of prepaid expense of $0.42 million and $0.84 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 March 31, 2024 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 $469,345 and $460,850 as of March 31, 2024 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:
| |
March 31, 2024 | | |
June 30, 2023 | |
Other payables | |
$ | 237,103 | | |
$ | 308,841 | |
Due to third parties | |
| 60,709 | | |
| 175,354 | |
Social security payable | |
| 219,113 | | |
| 537,964 | |
Salary payable– employees | |
| 62,445 | | |
| 387,780 | |
Total | |
$ | 579,370 | | |
$ | 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
nine months ended March 31, 2024, the Company made a repayment of $18,097 and $54,017 to this loan. For the three and nine months
ended March 31, 2024, the Company recorded and paid $1,807 and $6,868 interest expense for this loan. As of March 31, 2024,
$54,364 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 nine months ended March 31, 2024, the Company made a repayment
of $2,011 and $6,002 to this loan. For the three and nine months ended March 31, 2024, the Company recorded and paid $177 and
$662 interest expense for this loan. As of March 31, 2024, $6,712 was recorded as 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 nine months ended March 31, 2024, the Company recorded and paid $2,501 and $7,490 interest expense for this loan.
As of March 31, 2024, $421,424 was recorded as current liabilities. As of report date, the loan was paid in full.
The following table summarizes
the loan balance as of March 31, 2024:
| |
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 | % | |
| 6,712 | | |
| - | |
Shenzhen Qianhai WeBank Co., Ltd | |
| 127,070 | | |
12/20/2022 | |
| 24 | | |
| 10.73 | % | |
| 54,363 | | |
| - | |
China Bank Co., Ltd | |
| 422,156 | | |
4/25/2023 | |
| 12 | | |
| 2.35 | % | |
| 421,424 | | |
| - | |
Total | |
| 563,345 | | |
| |
| | | |
| | | |
| 482,499 | | |
| - | |
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 nine months ended March 31, 2024, the Company repaid
$nil and $2.1 million to this unrelated party. As of March 31, 2024 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.
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 the rent yet which was due on April 30, 2023
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 Company did not pay the rent yet which was due on April 30, 2024 as of this report
date. The rental expense for this office location was $9,953 and $8,599, respectively, for the three months ended March
31, 2024 and 2023. The rental expense for this office location was $29,709 and $25,549, respectively, for the nine months
ended March 31, 2024 and 2023.
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 $16,046 and $26,005, respectively, for the three months ended March 31, 2024 and 2023. The rental expense
for those agreements was $47,895 and $91,050, respectively, for the nine months ended March 31, 2024 and 2023.
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 $4,524 and $4,458 for the three months ended March
31, 2024 and 2023, respectively. The rental expense for this lease was $15,755 and $17,574 for the nine months ended March 31,
2024 and 2023, respectively.
Due to related parties
As of March
31, 2024 and June 30, 2023, the Company had due to related parties of $714,492 and $1,162,856, respectively, mainly consisted of 1) $559,453
and $1,162,856, respectively, 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), bore no interest and payable upon demand,
and 2) $155,039 and nil, respectively, loan payable to a related party (who is the shareholder of the Company), with no interest, and
can be repaid any time before December 31, 2024.
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 162,460 shares of the common stock of the Company at a purchase price of $52.2 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 73,107 shares of common stock 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 $67.2 per share, 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 (8,123 warrants), the warrants have an exercise price of $67.2
per share 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 317,333 shares of common stock at a $18 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 197,531 shares of common stock at a $20.25 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 35,273 shares
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 333,333 shares of common stock at a public offering price of
$6.0 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 March 31, 2024:
| |
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 | |
Granted | |
| - | | |
| - | | |
| - | |
Exercised | |
| - | | |
| - | | |
| - | |
Forfeited | |
| - | | |
| - | | |
| - | |
Expired | |
| 81,230 | | |
| 67.20 | | |
| - | |
Outstanding as of March 31, 2024 | |
| - | | |
$ | - | | |
| - | |
Exercisable as of March 31, 2024 | |
| - | | |
$ | - | | |
| - | |
Shares to Independent Directors as
Compensation
During the
three months ended March 31, 2024 and 2023, 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 nine months ended March 31, 2024 and 2023, the Company recorded $13,500 and $13,500 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.
Shares to Officers as
Compensation
On September
24, 2021, under the 2018 Equity Inventive plan, the Company’s Board of Directors granted 1,000 shares of the Company’s common
stock to its CEO each month and 667 shares 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 March 31, 2024 and 2023, the Company recorded $28,272 and $91,500 stock
compensation expense to the Company’s CEO and one of the board members for the quarter. During the nine months ended March
31, 2024 and 2023, the Company recorded $61,475 and $315,750 stock compensation expense to the Company’s CEO and one of
the board members for the quarter.
Shares to Officers in Lieu
of Salary Payable
On December
31, 2023, the Board of Directors approved to issue 102,144 shares to the Company’s CEO and one of
the board members in lieu of payment for salary payable of $359,598.
Shares to Employee and
consultants under the 2018 Equity Incentive Plan
During the three and nine months
ended March 31, 2024, the Company issued 300,000 shares of the Company’s common stock to the Company’s employees
for the services they provided to the Company, these shares were fully vested and approved by Compensation Committee (the “Committee”)
of the Board of Directors under the 2018 Equity Incentive Plan. The fair value of 300,000 shares at issuance date was $2,415,000 and
was recorded as the Company’s stock compensation expense during the three and nine months ended March 31, 2024.
During the
year ended June 30, 2023, the Company issued 230,633 shares of the Company’s common stock to the Company’s employees
and consultants for the services they provided, the shares were fully vested and approved by Compensation Committee (the “Committee”)
of the Board of Directors under the 2018 Equity Incentive Plan. The fair value of 230,633 shares 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 March 31, 2024 and June 30,
2023, the U.S. entity had net operating loss (“NOL”) carry forwards for income tax purposes of $2.93 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 March 31, 2024 and June
30, 2023, the Company has approximately $17.30 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 March 31, 2024 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 March 31, 2024 and 2023:
| |
2024 | | |
2023 | |
US federal statutory rates | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (1.4 | )% | |
| (3.2 | )% |
Permanent difference | |
| 12.8 | % | |
| - | % |
Effect of PRC tax holiday | |
| 0.0 | % | |
| 2.6 | % |
Valuation allowance | |
| 9.6 | % | |
| 21.6 | % |
Effective tax rate | |
| - | % | |
| - | % |
The following table reconciles
the U.S. statutory rates to the Company’s effective tax rate for the nine months ended March 31, 2024 and 2023:
| |
2024 | | |
2023 | |
US federal statutory rates | |
| (21.0 | )% | |
| (21.0 | )% |
Tax rate difference – current provision | |
| (2.0 | )% | |
| (3.0 | )% |
Permanent difference | |
| 7.8 | % | |
| - | % |
Effect of PRC tax holiday | |
| 0.9 | % | |
| 1.9 | % |
Valuation allowance | |
| 14.3 | % | |
| 22.1 | % |
Effective tax rate | |
| - | % | |
| - | % |
The Company’s net deferred
tax assets as of March 31, 2024 and June 30, 2023 is as follows:
| |
March 31, 2024 | | |
June 30, 2023 | |
Deferred tax asset | |
| | |
| |
Net operating loss | |
$ | 2,966,807 | | |
$ | 3,986,827 | |
R&D expense | |
| 123,750 | | |
| 123,750 | |
Depreciation and amortization | |
| 88,849 | | |
| 180,522 | |
Bad debt expense | |
| 116,586 | | |
| 119,932 | |
Social security and insurance accrual | |
| 47,686 | | |
| 149,196 | |
Inventory impairment | |
| 13,387 | | |
| 13,771 | |
ROU, net of lease liabilities | |
| (3,966 | ) | |
| 20,171 | |
Total | |
| 3,353,099 | | |
| 4,594,168 | |
Less: valuation allowance | |
| (3,353,099 | ) | |
| (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 March
31, 2024 | | |
Three Months Ended March 31, 2023 | |
Operating lease expense | |
$ | 30,348 | | |
$ | 123,289 | |
| |
Nine Months Ended March 31, 2024 | | |
Nine Months Ended March 31, 2023 | |
Operating lease expense | |
$ | 137,703 | | |
$ | 495,160 | |
| |
March 31, 2024 | | |
June 30, 2023 | |
Right-of-use assets | |
$ | 78,610 | | |
$ | 137,856 | |
Lease liabilities - current | |
| 96,079 | | |
| 124,640 | |
Lease liabilities - noncurrent | |
| - | | |
| 26,449 | |
Weighted average remaining lease term | |
| 0.61 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 March 31, 2024:
12 Months Ending March 31, | |
Minimum Lease Payment | |
2025 | |
$ | 96,079 | |
Total undiscounted cash flows | |
| 96,079 | |
Less: imputed interest | |
| - | |
Present value of lease liabilities | |
$ | 96,079 | |
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 March 31, 2024 and 2023, respectively.
| |
THREE MONTHS ENDED MARCH 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | 1,703,122 | |
Cost of goods sold | |
| - | | |
| 1,678,235 | |
| |
| | | |
| | |
Gross profit | |
| - | | |
| 24,887 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling | |
| - | | |
| 84,588 | |
General and administrative | |
| - | | |
| 212,073 | |
Research and development | |
| - | | |
| 162,146 | |
| |
| | | |
| | |
Total operating expenses | |
| - | | |
| 458,807 | |
| |
| | | |
| | |
Loss from operations | |
| - | | |
| (433,920 | ) |
Gain on disposal | |
| - | | |
| - | |
Other expense, net | |
| - | | |
| (-7,739 | ) |
| |
| | | |
| | |
Gain (loss) before income tax | |
| - | | |
| (441,659 | ) |
| |
| | | |
| | |
Income tax | |
| - | | |
| - | |
| |
| | | |
| | |
Gain (loss) before noncontrolling interest | |
| - | | |
| (441,659 | ) |
| |
| | | |
| | |
Less: loss attributable to noncontrolling interest | |
| - | | |
| (1,849 | ) |
| |
| | | |
| | |
Net gain (loss) to the Company | |
$ | - | | |
$ | (439,810 | ) |
The following table shows the
results of operations relating to discontinued operations Zhangxun for the nine months ended March 31, 2024 and 2023, respectively.
| |
NINE MONTHS ENDED MARCH 31, | |
| |
2024 | | |
2023 | |
| |
| | |
| |
Revenues | |
$ | - | | |
$ | 3,161,678 | |
Cost of goods sold | |
| - | | |
| 2,967,693 | |
| |
| | | |
| | |
Gross profit | |
| - | | |
| 193,985 | |
| |
| | | |
| | |
Operating expenses | |
| | | |
| | |
Selling | |
| - | | |
| 357,665 | |
General and administrative | |
| - | | |
| 661,450 | |
Research and development | |
| - | | |
| 319,096 | |
| |
| | | |
| | |
Total operating expenses | |
| - | | |
| 1,338,211 | |
| |
| | | |
| | |
Loss from operations | |
| - | | |
| (1,144,225 | ) |
Gain on disposal | |
| 833,546 | | |
| - | |
Other income, net | |
| - | | |
| 14,087 | |
| |
| | | |
| | |
Gain (loss) before income tax | |
| 833,546 | | |
| (1,310,138 | ) |
| |
| | | |
| | |
Income tax | |
| - | | |
| - | |
| |
| | | |
| | |
Gain (loss) before noncontrolling interest | |
| 833,546 | | |
| (1,310,138 | ) |
| |
| | | |
| | |
Less: loss attributable to noncontrolling interest | |
| - | | |
| (209,700 | ) |
| |
| | | |
| | |
Net gain (loss) to the Company | |
$ | 833,546 | | |
$ | (920,438 | ) |
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 following subsequent events need to be disclosed.
On April 5, 2024, the board of directors of Datasea
Inc. approved a plan by Ms. Zhixin Liu, the Company’s Chief Executive Officer and Chairman of the Board, to purchase, with her
personal funds, from time to time over the next 12 months, on the open market or otherwise, up to $3,000,000 of shares of the Company’s
common stock at prevailing market prices (the “Share Purchase Plan”). Ms. Liu intends to establish a trading plan with respect
to potential repurchases of the Company’s shares to comply with the requirements of Rule 10b5-1 and Rule 10b-18 under the
Securities Exchange Act of 1934, as amended.
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 acoustics high tech (including ultrasound, infrasound, directional sound, and Schumann resonance), 5G AI multimodal
communication 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. Datasea serves enterprises
and individual users in China with digital and intelligent services utilizing its AI, machine learning and data analytic capabilities
that result in an array of 5G application products and solutions. 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 acoustics high tech and 5G Multimodal Communication applications, catering to a wide spectrum of commercial enterprises,
households, and individuals in China.
The revenue for the nine months
ended March 31, 2024 was $19,612,213. This would represent an increase of $19,396,199 and growth of approximately 8,879.14% as compared
to $216,014 revenue that the Company recorded for the nine months ended March 31, 2023. This is also approximately 178% 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 acoustics high tech 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. During the reporting period,
the company continued to upgrade its existing series of soundwave disinfection products, including the HAILIJIA soundwave smart Cloakroom
(physical/electronic) dehumidification and disinfection, bathroom model deodorization and disinfection products; as well as the STAR DREAM
Sleep Aid (non-contact sleep assistance for sleep) - a refreshing product developed for long-distance buses, long-distance trucks, and
workplace individuals; and non-contact soundwave beauty products developed for household use. Currently, the HAILIJIA series comprises
over nine flagship products, which are being promoted and sold in the Chinese market through various channels such as direct sales, agents,
e-commerce and live streaming.
Internationalization of acoustic
industrial, acoustic agriculture, acoustic medical aesthetics, acoustic medical health, 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 acoustics high tech 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 iPower Inc. (NASDAQ: IPW) to expand the distribution of
acoustic-related products in the U.S. online market. Furthermore, we continue working with several well-known American local distributors
of smart products to actively promot the deployment of acoustic-related products in major clients and store networks in the United States.
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, 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.
Datasea serves enterprises
and individual users in China with digital and intelligent services utilizing its AI, machine learning and data analytic capabilities
that result in an array of 5G application products and solutions.
Technology and Innovation
The Company has non-visual
Artificial intelligent algorithms and techniques, acoustics high tech technologies such as ultrasound and directional sound, and 5G Multimodal
Communication related technologies.
Datasea is the global initiator,
promoter and practitioner of the concept of acoustic. The acoustic effect refers to the interaction between sound waves and organisms
when sound waves propagate within a biological system, causing physical, chemical, or physiological responses in the organisms. It specifically
denotes the phenomena of “resonance,” “convergence,” and “traction” triggered when sound waves resonate
with the inherent vibrational frequencies of the organisms themselves.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 131 software copyrights in the PRC, which include 13 pending patent applications
in core technologies, to empower and grow the business. On April 26, 2024, Shuhai Beijing was awarded the “Specialized, and
New” Enterprise Certification by the relevant departments of the Beijing municipal government, indicating that the company’s core
competitive advantages in its professional field have been recognized by industry and government agencies.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 such as
Institute of Acoustics at the Chinese Academy of Sciences ,to enhance the integration and collaboration of research resources. 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 acoustics high tech 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.
Datasea serves enterprises
and individual users in China with digital and intelligent services utlilizing its AI, machine learning and data analytic capabilities
that result in an array of 5G application products and solutions. Datasea’s 5G multimodal communication represent a technological breakthrough
based on the Company’s original 5G messaging service. Leveraging the world’s largest 5G network, computational power network, and
middleware capabilities, the Company achieves multimodal data transmission through technological iterations and upgrades. Datasea has
completed a revolutionary upgrade of its core 5G multimodal communication business with AI processing technology. Currently, it can achieve
AI creation and generation of various information forms including sound, text, images, and videos, as well as efficient transmission and
AI digital human marketing functions. This capability can empower numerous industries and clients with potent marketing and video matrix
capabilities. It can contribute to clients in brand enhancement, customer acquisition, market promotion, and revenue uplift.
Operational goals
The primary operational goals
for the Company, its subsidiaries, and VIE include:
Technological Innovation:
Continuously enhance innovation in acoustic-related technologies, increase investment in research and development to ensure the competitiveness
of products and services, and maintain a leading position in the industry. Additionally, acquire more patents through acquisitions, technology
collaborations, and other means to meet global market demands and establish an international patent portfolio
Market Expansion and
Customer Service: Expand market share, Focus on international growth, particularly in the U.S. market. Leverage the operations
of U.S. subsidiaries, engage in mergers and acquisitions. Explore new business areas and customer segments, enhance customer satisfaction,
and maintain good customer relationships.
Financial Performance
and Profit Growth: Achieve robust financial performance, including stable revenue and profit growth, improve gross profit margin
and net profit margin, ensuring investor returns.
Cost Control and Efficiency
Improvement: Optimize enterprise operational processes, reduce costs, enhance production efficiency and resource utilization efficiency
to strengthen profitability.
Brand Building and Reputation
Management: Strengthen corporate brand image, enhance brand awareness and influence, maintain good corporate reputation, ensure
the company’s competitive position and sustainable development in the market.
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
Datasea is a global digital
technology company providing Acoustics high tech products and 5G AI multimodal communications services.
Acoustics high tech Segment:
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 is a leading developer of intelligent acoustics and is committed to its technological advancement. The Company focuses on ultrasound,
infrasound, directional sound and Schumann resonance technology to meet the evolving needs of its customers and communities worldwide.
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.
The core products include
a series of acoustic products under the “Hailijia” brand, equipped with ultrasonic core modules, featuring powerful functions
such as sterilization, odor elimination, and air purification. These products can be widely used in various spaces including bedrooms,
closets, bathrooms, and various public spaces, providing households and businesses with clean, hygienic, and secure environments. The
“Star Dream” brand’s acoustic sleep aid products utilize specific ultrasonic wavelengths to provide users with a quiet and
comfortable sleep environment.
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, 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. The company has already established
partnerships with various online and offline channels in the United States, laying out the market plan for acoustic-related products.
Additionally, measures such as collaborations with universities and research institutions in the United States, obtaining patents through
multiple channels, production assembly planning, and potential acquisitions contribute to the sustainable development of Datasea Acoustics
LLC.
5G AI Multimodal communication
Segment:
Ⅰ. Definition of 5G
AI multimodal communication
5G AI 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 AI multimodal communication is an upgrade of 5G message services and an extension of RCS (Rich Communication Suite).
Ⅱ. The application trend
of 5G AI multimodal communication
The application of 5G AI multimodal
communication technology is extensive, including cross-modal information processing, human-computer interaction, multilingual processing,
and large-scale language models. These applications demonstrate the versatility and importance of 5G multimodal communication technology
in facilitating diversified communication and interaction across various domains.
5G AI multimodal communication
technology serves as the primary gateway for China’s 1.6 billion mobile internet users. As China’s demographic dividend gradually diminishes,
the country’s mobile internet has reached a bottleneck period, with both user numbers and growth rates significantly declining. In the
battle for existing users’ time, enterprises and merchants are facing increased costs for acquiring traffic due to extensive advertising
promotion and high user subsidies. 5G multimodal communication technology functions as a “communication internet” built upon
the foundation of SMS entry. With the decrease in traffic dividends from mobile internet products such as WeChat public accounts, mini-programs,
and apps, the advantages of 5G-AI multimodal communication, which are built upon the SMS entry’s shallower, more direct, and more convenient
access, will become the super gateway of the mobile internet.
Ⅲ. Datasea’s core advantages
and existing 5G AI multimodal communication products
As one of the leading service
providers in the field of 5G AI multimodal communication in China, Datasea’s 5G AI multimodal communication products efficiently integrate
text messages, multimedia messages, session messages, value-added services, and more into one, supporting a wide range of application
services. Users do not need to install any apps or mini-programs, enjoying features such as no need for attention, download, or installation.
Based on users’ phone numbers, the system utilizes the native SMS application channel to reach users’ mobile terminals, ensuring high
reachability, rich media content, strong interactivity, and convenient service capabilities. The intelligent customer service system incorporates
personalized dialogue bots, supporting simultaneous service to multiple users. Datasea’s 5G multimodal communication products feature
one-click activation of chatbots, automated conversation interactions, multi-scenario templates, compatibility with multiple business
channels, and support for brand and enterprise accounts, serving as a powerful tool for private domain marketing. With easy operation,
users can effortlessly complete service discovery, search, payment, and other business experiences within the SMS page.
Datasea has completed a revolutionary
upgrade of its core 5G AI multimodal communication business with AI processing technology. Currently, it can achieve AI creation and generation
of various information forms including sound, text, images, and videos, as well as efficient transmission and AI digital human marketing
functions. This capability can empower numerous industries and clients with potent marketing and video matrix capabilities. It can contribute
to clients in brand enhancement, customer acquisition, market promotion, and revenue uplift.
Datasea utilizes its 5G AI
multimodal platform products as an entry point, while also integrating various scenario-based private domain operation solutions to achieve
a complete closed-loop from entry to management. The internal loop empowers precise connection capabilities across various matrices, while
the external loop supports the management of the user’s entire lifecycle, bringing new services, new methods, new tools, and new business
models to service enterprises, institutions, and organizations, thereby creating commercial value.
Ⅳ. Application and advantaged
fuction of the company’s existing 5G AI multimodal communication products in segmented industries
Datasea has several major
products and services for different customers and needs, including 5G AI multimodal new media marketing service platform,5G AI multimodal
Smart Agriculture (Digital Rural) Service Platform, 5G AI multimodal platform for small and micro-enterprise services platform and 5G
AI multimodal traffic top up platform. 5G AI multimodal 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.
1. 5G AI multimodal 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 provide precision marketing services by generating new advertising materials through AI technology, enabling advertising
subjects to manage ad distribution, targeting regions, and demographic attributes. This facilitates precise targeting in new media marketing.
Additionally, it supports online brand building, short video marketing, and the promotion of products for online sales, primarily targeting
retail, entertainment, tourism, education, and automotive industries.
2.5G AI multimodal Smart Agriculture
(Digital Rural) Service Platform:
The product positioning aims
to utilize the digital capabilities of 5G AI multimodal technology to support rural economic development, increase farmers’ income, and
enhance the digital governance level in rural areas. The platform typically covers multiple domains, including but not limited to agricultural
production, rural e-commerce, rural education, healthcare, and cultural entertainment. Through precise prediction, data analysis, and
other technological means, AI models provide more convenient and intelligent services for rural areas, driving sustainable socioeconomic
development in rural communities.
AI models play a significant
role in rural revitalization platforms, promoting intelligent agricultural management, upgrading rural governance, enhancing the competitiveness
of agricultural products, and supporting rural innovation and entrepreneurship. Rural revitalization digital economy platforms are generally
based on cloud computing and SaaS models, allowing customization and expansion according to actual needs to adapt to the changes and requirements
of rural revitalization development. This ensures the flexibility and scalability of the platform, providing more possibilities for future
rural revitalization efforts. Datasea’s 5G multimodal rural revitalization digital economy platform comprehensively supports rural digital
upgrades through connectivity, linkage, interaction, AI, large-scale markets, security, convenience, and big data, offering eight major
capabilities.
3. 5G AI multimodal platform
for small and micro-enterprise services platform
The product positioning of
the 5G AI multimodal platform for small and micro-enterprise services is to provide convenient, efficient, and secure communication channels
and service platforms, assisting small and micro-enterprises in achieving digital transformation and improving service quality. The target
market for this product primarily consists of small and micro-enterprises, including but not limited to e-commerce, catering, retail,
logistics, and other industries.
Product Features:
Diverse Communication Channels:
5G AI multimodal supports various communication methods including text, voice, images, and videos, meeting the communication needs of
different types of small and micro-enterprises.
Rich Service Functions:
Based on the 5G AI multimodal format, the platform offers a wide range of tool-based cloud applications to support merchants in online
usage and management, such as AI drawing, AI text generation, and big data marketing management.
4, 5G AI multimodal traffic
top up platform
The company’s independently
developed 5G AI multimodal communication traffic top up platform, after a series of technical adjustments, has been put into practical
use. The system includes the following features:
Leveraging Datasea’s unique
5G-AI technology, the platform is built upon the Data Center and AI Billing Service Desk, creating a digital intelligent recharge service
platform. It is a network-based voice recharge transaction analysis and management system that provides agents with fast, secure, and
convenient voice recharge management services. Through technical interfaces, it records and analyzes terminal customer data for agents,
enabling risk control and big data analysis for more accurate customer insights.
Product Features
Message Sending
Interactive, real-time push
notifications
End-to-End Tracking
Record viewing, data statistics,
click feedback.
Operational Analysis
Financial reports, performance
evaluation, strategy optimization.
Carrier Services
China Mobile, China Telecom, China Unicom, and other major Chinese
carriers
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. The sustainable application
trend of 5G AI multimodal communication
With the rapid development
of 5G AI 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 AI 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 AI 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
Recent Developments
Our Products and
achivments of Acoustics Segment
General Information
As of the date of this report,
the company continued to upgrade its existing series of soundwave products, including the “HAILIJIA” sound waves smart Cloakroom
physical dehumidification, deodorization and sterilization special, bathroom deodorization and fresh air special dehumidifier, and the
“Star Dream” Sleep Relief (Non-contact aid 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 Smart Air Sterilizer
Sound Wave Sterilization Eliminates Odors AI Light Sensing Fresh and comfortable Enjoyable Music
This is an efficient sleep
aid device. It induces deep sleep brain waves by causing brain resonance through specific frequencies and regular infrasonic waves, improving
sleep by controlling infrasound in the body. It synchronously regulates the central nervous system and the heart, increasing the duration
of moderate deep and rapid eye movement (REM) sleep.
Mambo sleep aid Relieve fatigue AI Voice commands Intelligent Light Sensing A relaxing, joyful experience
Sales and Distribution
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-channels
and extensively cooperating with new media. We have established new marketing channels both domestic and internationally.
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. For example, in the last quarter, after signing a sales cooperation agreement with the well-known Chinese
e-commerce platform Hunan Jiamei to expand coverage and increase market penetration, Datasea also separately entered into sales agreements
worth approximately $6.91 million (RMB 50 million) each with Shenzhen Xiaoranfang Marketing Co., Ltd. (“Xiaoranfang Marketing”)
and Hangzhou Fubozhonglian Technology Co., Ltd., planning to sell Datasea’s “Hailijia” and “Xingmeng” series of acoustic
products through mainstream e-commerce channels such as Douyin, Kuaishou, and Xiaohongshu.
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.
4)Market Promotion
Team
The company has collaborated
with three influential Chinese market promotion enterprises, which leverage extensive market resources to recommend new clients for the
company and facilitate the signing of contracts with these new clients.
International Market Expansion
On April 19, 2024, the company
entry into a Framework Agreement with iPower Inc. (NASDAQ: IPW) for Product Cooperation, marking the commencement of a joint effort to
bolster product distribution within the US online market. iPower Inc., an esteemed data and tech-driven online merchandiser with robust
logistics capabilities, stands ready to harness its strengths within the online market. This agreement underscores the shared vision and
commitment of both companies to leverage their synergies and collaborate in distributing Datasea’s advanced products across the burgeoning
US online market. As part of the agreement, Datasea will introduce a diverse range of acoustic intelligence products in the United States,
while also providing essential technical support to facilitate their expansion into the American market.
Key Customers and Agreements
On April 4, 2024 , Company’s
wholly-owned subsidiary, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”), entered into a Sales
Agreement (the “Agreement”) with Shenzhen Xiaoranfang Marketing Co., Ltd. (“Xiaoranfang Marketing”) for the sale
of up to approximately $8.45 million (RMB 60 million) of the Company’s acoustic high tech products. The signing of this Agreement
signifies a new milestone for Datasea in promoting the domestic and international sales of its acoustic high tech products and it is expected
to be a key driver of the Company’s future revenue growth. According to the Agreement, Xiaoranfang Marketing has agreed to conduct
online sales of the Company’s “Hailiji”’ brand’s air disinfection machines and closet and bathroom deodorization
and disinfection products, and its “Star Dream” brand of sleep aids, among other series of acoustic high tech products, in
both the Chinese and international markets. This includes traditional mainstream e-commerce platforms such as Taobao, JD.com, and PDD
in China, and emerging new media platforms, such as Douyin, Kuaishou, and Little Red Book. Xiaoranfang Marketing will also access international
channels like Amazon in the U.S. to promote the Company’s products. Xiaoranfang Marketing is a prominent marketing and promotion
firm in China with extensive experience in e-commerce, new media marketing and product sales. They have substantial expertise in online
sales channels through mainstream Chinese internet platforms and new media platforms as well as experience in operating and managing international
Amazon platforms. The Company believes that Xiaoranfang Marketing is a perfect fit for the promotion and sales of the Company’s
high tech acoustic products in both the domestic and the international markets.
On April 16, 2024 ,the Company’s
wholly-owned subsidiary, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”), entered into a Sales
Agreement (the “Agreement”) with Hangzhou Fubo Zhonglian Technology Co., Ltd. (“Fubo Zhonglian Technology”) for
the sale of up to $6.91 million (RMB 50 million) of the Company’s acoustic high tech products. This represents a sustained expansion
of the Company’s sales strategy following the Shuhai Jingwei’s signing of an acoustic product sales agreement worth approximately
$8.45 million in early April with Shenzhen Xiaoranfang Marketing Co., Ltd. The Agreement is expected to drive sales of Datasea’s
innovative acoustic products. According to the Agreement, Fubo Zhonglian Technology plans to sell Datasea’s “Hailijia”
and “Star Dream” series of acoustic products, including air disinfection machines, bathroom deodorant disinfection and sleep
aid products through mainstream ecommerce channels including Douyin, Kuaishou and Little Red Book. Fubo Zhonglian Technology’s sales
methods include digital human sales, livestreaming ecommerce, short video sales and online purchasing agents, with its goal to promote
the sales of Datasea’s high-tech acoustic products.Fubo Zhonglian Technology is a renowned internet promotion and marketing service
provider that focuses on providing customized intelligent marketing services such as mobile internet channel development, comprehensive
new media marketing, brand building and targeted customer penetration. Its team has extensive experience in ecommerce and new media marketing
promotion and product sales and also provides core AI digital marketing functions to create virtual anchors for livestreaming sales events.
These promotion efforts includes highly realistic virtual digital human images with simulated human language and behavior that combines
AI, virtual reality, and real-time rendering technology to provide a real marketing experience that can generates product sales.
5G AI Multimodal Communication
Segment
Our Products and achivments
of 5G AI Multimodal Communication
General Information
As of the date of this report,
we have completed a revolutionary upgrade of its core 5G AI multimodal communication business with AI processing technology. Currently,
it can achieve AI creation and generation of various information forms including sound, text, images, and videos, as well as efficient
transmission and AI digital human marketing functions. This capability can empower numerous industries and clients with highly effective
marketing and video matrix capabilities by our 5G Multimodal Communication products. It can confer highly positive benefits to our clients
in terms of brand enhancement, customer acquisition, market promotion and revenue uplift.
Sales and Distribution
Continuously bringing in client
signings through the business development team
At this stage, it is the golden
period for the company to seize market share using 5G AI multimodal platforms, and it is also a crucial period for enhancing market position.
Therefore, the company has collaborated with three professional marketing agencies. Regardless of time costs, economic costs, or sunk
costs, partnering with professional business development teams for marketing is the optimal choice. In this quarter, one of the promotional
partners has already generated 10.08 million yuan (including tax) in revenue from 5G multimodal traffic top up services for the client
introduced by the company (Xiamen Duoqiao). With the company’s AI technology upgrades in the 5G AI multimodal business and the continuous
improvement of product competitiveness, we have also successively facilitated sales agreements with new clients such as Xiamen Star Miracle.
Key Customers and Agreements
As of March 31, 2024,
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”) Guozhong Haoze (Beijing) Technology Co., Ltd. (“Guozhong Haoze”)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 AI multimodel traffic top up card 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, Qingdao OSaidi,
Shuhai Beijing and its subsidiaries provided a 5G AI multimodel traffic top up service worth approximately $16.52 million
(equivalent to RMB 117.93 million). From May 2023 to March 31 2024,the revenue from Maiduoqiao is $6.89million (equivalent to
RMB49.19 million). From August 2023 to March 31 2024,the revenue from Hainuo Xintong is $4.96 million(equivalent to RMB 35.40
RMB).
As of March 31, 2024, 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 AI multimodel traffic top up card ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period.
From August 2023 to March 31 2024, revenue from Qingdao Osaidi’s was 4.67 million US dollars (equivalent to 33.35 million yuan).
As of March 31, 2024, Datasea’s
Chinese operating entity, Guozhong Times (Beijing) Technology Co., LTD. (hereinafter referred to as the “Subsidiary”), re-entered
into an agreement with an important customer, Xiamen Duoqiao Mai Network Technology Co., LTD. According to the agreement, Xiamen Duoqiao
will purchase 5G AI multi-mode traffic top up cards ranging from 10 yuan to 500 yuan ($1.38 to $69.4) during the 12-month agreement period.
As of March 31, 2024, Shuhai Beijing and its subsidiaries have provided 5G AI multimodel traffic top up services worth approximately $1.33
million (equivalent to RMB 9.51 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, Datasea has several
major products and services for different customers and needs, including 5G AI multimodal new media marketing service platform,5G AI multimodal
Smart Agriculture (Digital Rural) Service Platform, 5G AI multimodal platform for small and micro-enterprise services platform and 5G
AI multimodal traffic top up platform. 5G AI multimodal 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.
Secondly, Datasea has completed
a revolutionary upgrade of its core 5G AI multimodal communication business with AI processing technology. Currently, it can achieve AI
creation and generation of various information forms including sound, text, images, and videos, as well as efficient transmission and
AI digital human marketing functions. This capability can empower numerous industries and clients with potent marketing and video matrix
capabilities. It can contribute to clients in brand enhancement, customer acquisition, market promotion, and revenue uplift.
Thirdly, 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.
Furthermore, 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, and elected as Vice President of the Shenzhen Female Entrepreneurs Association and Business Environment Supervisor in
Heilongjiang Province in 2024, 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.
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 2024, the company continued
to implement its team stock incentive plan, granting equity incentives to key members of the core R&D team who made significant contributions
to the AI upgrade of the company’s 5G multimodal communication business and projects. 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, and In 2023,
elected as CEO, and Vice President of the Shenzhen Female Entrepreneurs Association.
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 and
Patent acquired from July 1, 2023 to March 31, 2024
Software Copyright Owned by Shuhai jingwei
No. |
|
Certification |
|
Certificate
No. |
1 |
|
5G
message comprehensive traceability analysis and data display system |
|
Ruan Zhu Deng Zi
No.12782739 |
2 |
|
The AI semantic copy generation system |
|
Ruan Zhu Deng Zi
No. 12664881 |
3 |
|
Multi-channel integrated payment management system |
|
Ruan Zhu Deng Zi
No.12779467 |
4 |
|
Voice interaction test system based on customer robot |
|
Ruan Zhu Deng Zi
No. 12777940 |
5. |
|
Interactive accurate touch analysis platform |
|
Ruan Zhu Deng Zi
No. 12817101 |
6 |
|
Customer information security management system |
|
Ruan Zhu Deng Zi
No. 12782733 |
7 |
|
Customer marketing management system |
|
Ruan Zhu Deng Zi
No.12780563 |
8 |
|
ShuhaiJingwei 5G message call fee aggregation channel service platform |
|
Ruan Zhu Deng Zi
No.12779116 |
9 |
|
Satellite remote sensing integrated intelligent observation system |
|
Ruan Zhu Deng Zi
No.12778719 |
10 |
|
The Internet of Things interconnection service system |
|
Ruan Zhu Deng Zi
No. 12785025 |
11 |
|
Comprehensive marketing e-commerce platform |
|
Ruan Zhu Deng Zi
No.12782647 |
12 |
|
The Internet of Things terminal edge service form gateway platform |
|
Ruan Zhu Deng Zi
No.12821324 |
Software Copyright owned by Xunrui Technology |
1. |
|
Xunrui Internet of Things cloud platform V1.0 |
|
Ruan Zhu Deng Zi
No.12450190 |
2. |
|
Xunrui smart canteen security system V1.0 |
|
Ruan Zhu Deng Zi
No.12576381 |
Patents
Owned by Shuhai Beijing |
1 |
|
|
|
|
|
|
1 |
|
CN2024100443501
|
|
An information
interaction method and system based on 5G messages |
|
Granted |
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 March
31, 2024 and 2023, the Company had a net loss of approximately $4.14 million and $1.30 million, respectively. For the nine months ended
March 31, 2024 and 2023, the Company had a net loss of approximately $6.0 million and $3.92 million, respectively. The Company had an
accumulated deficit of approximately $34.06 million as of March 31, 2024, and negative cash flow from operating activities of approximately
$5.95 million and $2.33 million for the nine months ended March 31, 2024 and 2023, 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
March 31, 2024, the Company had cash of $52,529.
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 March 31, 2024 and 2023
The following table sets forth
the results of our operations for the three months ended March 31, 2024 and 2023, respectively, indicated as a percentage of net sales.
Certain columns may not add up due to rounding.
| |
2024 | | |
% of Revenues | | |
2023 | | |
% of Revenues | |
Revenues | |
$ | 1,383,001 | | |
| | | |
$ | 84,555 | | |
| | |
Cost of revenues | |
| 1,373,130 | | |
| 99.3 | % | |
| 12,914 | | |
| 15.3 | % |
Gross profit | |
| 9,871 | | |
| 0.7 | % | |
| 71,641 | | |
| 84.7 | % |
Selling expenses | |
| 970,443 | | |
| 70.2 | % | |
| 45,002 | | |
| 53.2 | % |
Research and development | |
| 71,178 | | |
| 5.1 | % | |
| 144,054 | | |
| 170.4 | % |
General and administrative expenses | |
| 3,075,941 | | |
| 222.4 | % | |
| 755,334 | | |
| 893.3 | % |
Total operating expenses | |
| 4,117,562 | | |
| 297.7 | % | |
| 944,390 | | |
| 1,116.9 | % |
Loss from operations | |
| (4,107,691 | ) | |
| (297.0 | )% | |
| (872,749 | ) | |
| (1,032.2 | )% |
Non-operating expenses, net | |
| (34,134 | ) | |
| (2.5 | )% | |
| 17,343 | | |
| 20.5 | % |
Loss before income taxes | |
| (4,141,825 | ) | |
| (299.5 | )% | |
| (855,406 | ) | |
| (1,011.7 | )% |
Income tax expense | |
| - | | |
| - | % | |
| - | | |
| - | % |
Loss before noncontrolling interest from continuing operation | |
| (4,141,825 | ) | |
| (299.5 | )% | |
| (855,406 | ) | |
| (1,011.7 | )% |
Income (loss) before noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (441,659 | ) | |
| (522.3 | )% |
Less: income (loss) attributable to noncontrolling interest from continuing operation | |
| (105 | ) | |
| (0.01 | )% | |
| (57 | ) | |
| (0.1 | )% |
Less: income (loss) attributable noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (1,849 | ) | |
| (2.3 | )% |
Net loss to the Company from continuing operation | |
| (4,141,720 | ) | |
| (299.5 | )% | |
| (855,349 | ) | |
| (1,011.6 | )% |
Net loss to the Company from discontinued operation | |
| - | | |
| - | % | |
| (439,810 | ) | |
| (520.1 | )% |
Net loss to the Company | |
$ | (4,141,720 | ) | |
| (299.5 | )% | |
| (1,295,159 | ) | |
| (1,531.7 | )% |
Revenues
We had revenues of $1,383,001
and $84,555 for the three months ended March 31, 2024 and 2023, respectively, which shows a $1,298,446 increase by comparing with the
same period of 2023. The increase in revenues was mainly due to the rapid increase of 5G AI multimodal communication business in China.
For the three months ended March 31, 2024, revenues mainly consisted of service fees from our 5G AI multimodal communication service.
From January 1, 2024 to March
31, 2024, the Company generated revenue of $1,383,001, including $1,381,986 from the 5G AI multimodal communication business, $841 from
the acoustic intelligence and $174 from others. From January 1, 2023 to March 31, 2023, the Company generated revenue of $84,555, including
$8,760 from Hailijia series air purification and sterilizers, and $75,795 from others.
Cost of Revenues
We recorded $1,373,130 and
$12,914 cost of revenues for the three months ended March 31, 2024 and 2023, respectively, which shows a $1,360,216 increase by comparing
with the same period of 2023. For the three months ended March 31, 2024, 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 March 31, 2024, the cost of 5G Multimodal communication was $1.37 million, the
cost of intelligent acoustics business was $482, and the cost of others was $172. For the three months ended March 31, 2023, the
cost of Hailijia series air purification and sterilizers was $5,756 and $7,158 from others.
Gross Profit
Gross profit for the three
months ended March 31, 2024 was $9,871 compared to $71,641 for the three months ended March 31, 2023, which shows a $61,770 decrease by
comparing with the same period of last fiscal year. The decrease in gross profit was mainly due to the lower gross profit of 5G AI Multimodal
communication service.
Gross margin is 0.7% and 84.7%
for the three months ended March 31, 2024 and 2023. The decrease in gross profit margin was mainly due to the lower gross profit margin
of 5G AI 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 AI 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 AI 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 AI 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 AI 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.2 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 $970,443
and $45,002 for the three months ended March 31, 2024 and 2023, respectively, representing an increase of $925,441 or 2,056.4%. The increase
was mainly due to the increased advertising and marketing expenses by $949,619, which was partly offset by a decrease in payroll expense
of salespersons by $22,805 and decreased meal and entertainment expense by $914.
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 $71,178 and $144,054 during the three months ended March 31, 2024 and 2023, respectively, which shows
a $72,876 or 50.6% decrease by comparing with the same period of 2023.
Research and development expenses
of $71,178 for the three months ended March 31, 2024. The Company’s research and develop results include but are not limited to
the following:
As one of the leading service
providers in the field of 5G multimodal communication in China, Datasea’s 5G multimodal communication products efficiently integrate text
messages, multimedia messages, session messages, value-added services, and more into one, supporting a wide range of application services.
Users do not need to install any apps or mini-programs, enjoying features such as no need for attention, download, or installation. Based
on users’ phone numbers, the system utilizes the native SMS application channel to reach users’ mobile terminals, ensuring high reachability,
rich media content, strong interactivity, and convenient service capabilities. The intelligent customer service system incorporates personalized
dialogue bots, supporting simultaneous service to multiple users. Datasea’s 5G multimodal communication products feature one-click activation
of chatbots, automated conversation interactions, multi-scenario templates, compatibility with multiple business channels, and support
for brand and enterprise accounts, serving as a powerful tool for private domain marketing. With easy operation, users can effortlessly
complete service discovery, search, payment, and other business experiences within the SMS page.
Datasea has completed a revolutionary
upgrade of its core 5G multimodal communication business with AI processing technology. Currently, it can achieve AI creation and generation
of various information forms including sound, text, images, and videos, as well as efficient transmission and AI digital human marketing
functions. This capability can empower numerous industries and clients with potent marketing and video matrix capabilities. It can contribute
to clients in brand enhancement, customer acquisition, market promotion, and revenue uplift.
The Company is one of the
pioneers in introducing the global concept of “acoustic effects.” And our acoustics high tech 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. During the reporting period, the company continued to upgrade its existing series of soundwave disinfection products,
including the HAILIJIA soundwave smart Cloakroom (physical/electronic) dehumidification and disinfection, bathroom model deodorization
and disinfection products; as well as the Xingmi Sleep Aid (non-contact sleep assistance for sleep) - a refreshing product developed for
long-distance buses, long-distance trucks, and workplace individuals; and non-contact soundwave beauty products developed for household
use.
General and administration
expenses increased $2,320,607, or 307.2% from $755,334 during the three months ended March 31, 2023 to $3,075,941 during the three months
ended March 31, 2024. The increase was mainly attributed to increased stock compensation expense by $2,525,000 and increased property
management fee by $22,368, which was partly offset by decreased professional fee by $218,094, and decreased other expenses by $8,667.
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
$34,134 for the three months ended March 31, 2024, consisting mainly of interest income of $217 and other expenses of $34,351. Non-operating
income was $17,343 for the three months ended March 31, 2023, consisting mainly of interest income of $19 and other income of $17,324.
Net Loss from Discontinued
Operation
We generated net loss from
discontinued operation of $ nil and net loss of $439,810 for the three months ended March 31, 2024 and 2023, respectively.
Net Loss from continuing operation
We generated net losses from
continuing operation of $4,141,720 and $855,349 for the three months ended March 31, 2024 and 2023, respectively, an $3,286,371 or 384.2%
increase by comparing with the same period of 2023. The increase in net loss was mainly due to the increase in operating expenses as explained
above.
Comparison of the Nine Months
ended March 31, 2024 and 2023
The following table sets forth
the results of our operations for the nine months ended March 31, 2024 and 2023, respectively, indicated as a percentage of net sales.
Certain columns may not add up due to rounding.
| |
2024 | | |
% of Revenues | | |
2023 | | |
% of Revenues | |
Revenues | |
$ | 19,612,213 | | |
| | | |
$ | 216,014 | | |
| | |
Cost of revenues | |
| 19,425,372 | | |
| 99.0 | % | |
| 108,944 | | |
| 50.4 | % |
Gross profit | |
| 186,841 | | |
| 1.0 | % | |
| 107,070 | | |
| 49.6 | % |
Selling expenses | |
| 2,204,834 | | |
| 11.2 | % | |
| 194,704 | | |
| 90.1 | % |
Research and development | |
| 343,553 | | |
| 1.8 | % | |
| 399,494 | | |
| 184.9 | % |
General and administrative expenses | |
| 4,392,457 | | |
| 22.4 | % | |
| 2,506,693 | | |
| 1,160.4 | % |
Total operating expenses | |
| 6,940,844 | | |
| 35.4 | % | |
| 3,100,891 | | |
| 1,435.5 | % |
Loss from operations | |
| (6,754,003 | ) | |
| (34.4 | )% | |
| (2,993,821 | ) | |
| (1,385.9 | )% |
Non-operating expenses, net | |
| (86,456 | ) | |
| (0.4 | )% | |
| (18,129 | ) | |
| (8.4 | )% |
Loss before income taxes | |
| (6,840,459 | ) | |
| (34.9 | )% | |
| (3,011,950 | ) | |
| (1,394.3 | )% |
Income tax expense | |
| - | | |
| - | % | |
| 8 | | |
| (0.004 | )% |
Loss before noncontrolling interest from continuing operation | |
| (6,840,459 | ) | |
| (34.9 | )% | |
| (3,011,958 | ) | |
| (1,394.3 | )% |
Income (loss) before noncontrolling interest from discontinued operation | |
| 833,546 | | |
| 4.3 | % | |
| (1,130,139 | ) | |
| (523.2 | )% |
Less: loss attributable to noncontrolling interest from continuing operation | |
| (10,098 | ) | |
| (0.1 | )% | |
| (8,924 | ) | |
| (4.1 | )% |
Less: loss attributable noncontrolling interest from discontinued operation | |
| - | | |
| - | % | |
| (209,701 | ) | |
| (97.1 | )% |
Net loss to the Company from continuing operation | |
| (6,830,361 | ) | |
| (34.8 | )% | |
| (3,003,034 | ) | |
| (1,390.2 | )% |
Net income (loss) to the Company from discontinued operation | |
| 833,546 | | |
| 4.3 | % | |
| (920,438 | ) | |
| (426.1 | )% |
Net loss to the Company | |
$ | (5,996,815 | ) | |
| (30.6 | )% | |
| (3,923,472 | ) | |
| (1,816.3 | )% |
Revenues
We had revenues of $19,612,213
and $216,014 for the nine months ended March 31, 2024 and 2023, respectively, which shows a $19,396,199 increase by comparing with the
same period of 2023. The increase in revenues was mainly due to the rapid increase of 5G AI multimodal communication business in China.
For the nine months ended March 31, 2024, revenues mainly consisted of service fees from our 5G AI Multimodal communication.
From July 1, 2023 to March
31, 2024, the Company generated revenue of $19,612,213, including $19,538,768 from the 5G AI multimodal communication business, $69,462
from other services and $3,983 from the acoustic intelligence. From July 1, 2022 to March 31, 2023, the Company generated revenue of $216,014,
including $46,236 from Smart Public broadcasting projects, $93,921 from Hailijia series air purification and sterilizers, and $75,857
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 AI 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 AI 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 AI Multimodal communication business segment.
Cost of Revenues
We recorded $19,425,372 and
$108,944 cost of revenues for the nine months ended March 31, 2024 and 2023, respectively, which shows a $19,316,428 increase by comparing
with the same period of 2023. For the nine months ended March 31, 2024, cost of revenues was mainly the 5G AI 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 AI Multimodal communication. For the nine months ended March 31, 2024, the cost of 5G AI Multimodal communication was $19.35 million,
the cost of other services was $68,314 and the cost of intelligent acoustics business was $2,342. For the nine months ended March 31,
2023, the cost of Smart Public broadcasting projects was $36,082, the cost of Hailijia series air purification and sterilizers was $43,386
and $29,476 for others.
Gross Profit
Gross profit for the nine months
ended March 31, 2024 was $186,841 compared to $107,070 for the nine months ended March 31, 2023, which shows a $79,771 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 nine months ended
March 31, 2024.
Gross margin is 1.0% and 49.6%
for the nine months ended March 31, 2024 and 2023. The decrease in gross margin was mainly due to the lower gross profit margin of 5G
AI Multimodal communication service.
In 2023, the 5G AI 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 traffic top up 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 AI multimodal communicaiton
traffic top up 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 $2,204,834
and $194,704 for the nine months ended March 31, 2024 and 2023, respectively, representing an increase of $2,010,130 or 1,032.4%. The
increase was mainly due to the increased advertising and marketing expenses by $2,145,777, which was partly offset by decreased in payroll
expense of salespersons by $125,087, and decreased service fee by $9,694.
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 $343,553 and $399,494 during the nine months ended March 31, 2024 and 2023, respectively, which shows
a $55,941 or 14.0% decrease by comparing with the same period of 2023.
Research and development expenses
of $343,553 for nine months ended March 31, 2024. 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 AI Multimodal communication field, Datasea has several primary products and services targeting different
customers and needs, including: 5G AI multimodal new media marketing service platform,5G AI multimodal Smart Agriculture (Digital Rural)
Service Platform, 5G AI multimodal platform for small and micro-enterprise services platform and 5G AI multimodal traffic top up platform.
5G AI multimodal 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.
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.
Market Promotion Team
The company has collaborated
with three influential Chinese market promotion enterprises, which leverage extensive market resources to recommend new clients for the
company and facilitate the signing of contracts with these new clients.
General and administration
expenses increased $1,885,764, or 75.2% from $2,506,693 during the nine months ended March 31, 2023 to $4,392,457 during the nine months
ended March 31, 2024. The increase was mainly due to increased stock compensation expense by $2,525,000, which was partly offset by decreased
rent expense by $310,099, decreased payroll expense by $89,593, decreased depreciation expense by $64,496, decreased property management
fee by $41,531, decreased auto expense by $41,441, decreased leaseholder improvement expense by $29,206, and decreased legal expenses
by $63,000.
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
$86,456 for the nine months ended March 31, 2024, consisting mainly of interest income of $1,946 and other expenses of $88,402. Non-operating
expenses were $18,129 for the nine months ended March 31, 2023, consisting mainly of interest income of $112 and other expenses of $18,241.
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 $ 920,438 for the nine months ended March
31, 2024 and 2023, respectively.
Net Loss from continuing operation
We generated net loss from
continuing operation of $6,830,361 and $3,003,034 for the nine months ended March 31, 2024 and 2023, respectively, an $3,827,327 or 127.4%
increase by comparing with the same period of 2023. 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
nine months ended March 31, 2024was $19,612,213, the balance of accounts receivable was $17,044 at March 31, 2024. In the same period
last year, the operating revenue was $216,014, and the accounts receivable balance was $975,020 at March 31, 2023. 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 AI multimodal communication business and acoustic intelligence business, and through continuous product
innovation and development as well as various types of value-added services. In order to maintain working capital sufficient to support
our operations and finance the future growth of our business, we expect to fund any cash flow shortfall through financial support from
our majority stockholders (who are also our board members or officers) and public or private issuance of securities. However, such additional
cash resources may not be available to us on desirable terms, or at all, if and when needed by us.
As of March 31, 2024, we had
a working capital of $424,306 or a current ratio of 1.19:1, and our current assets were $2,617,562. 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 nine months ended March 31, 2024 and 2023, respectively.
| |
2024 | | |
2023 | |
Net cash used in operating activities | |
$ | (5,954,352 | ) | |
$ | (2,328,369 | ) |
Net cash used in investing activities | |
$ | (108,911 | ) | |
$ | (32,714 | ) |
Net cash provided by financing activities | |
$ | 6,209,131 | | |
$ | 2,243,925 | |
Cash Flow from Operating Activities
Net cash used in operating
activities was $5,954,352 during the nine months ended March 31, 2024, compared to net cash used in operating activities of $2,328,369
during the nine months ended March 31, 2023, an increase in cash outflow of $3,625,983. The increase in cash outflow was mainly due to
increased net loss by $1,864,816, increased cash outflow on prepaid expenses and other current assets by $1,776,151, increased gain on
disposal of subsidiary by $833,539, decreased cash inflow on operating lease expense by $357,457, decreased cash inflow on accounts payable
by $1,232,738, decreased cash inflow on accrued expenses and other payables by $795,646, increased cash outflow on unearned revenue by
$281,998, which was partly offset by stock compensation expense by $2,520,322, decreased cash outflow on account receivable by $700,505,
decreased cash outflow on payment on operating lease liabilities by $292,297 and decreased cash outflow on inventory by $105,988.
Cash Flow from Investing Activities
Net cash used in investing
activities totaled $108,911 for the nine months ended March 31, 2024, which consisted of cash paid for the acquisition of office furniture
and equipment of $3,692, cash paid for acquisition of intangible assets by $105,184, and cash loss due to disposal of subsidiary of $35.
Net cash used in investing activities totaled $32,714 for the nine months ended March 31, 2023, which consisted of cash paid for the acquisition
of office furniture and equipment of $2,168, cash paid for acquisition and development of software systems of $2,335, and long-term investment
into high-tech companies of $28,905, which was partly offset by cash received from disposal of fixed assets by $694.
Cash Flow from Financing Activities
Net cash provided by financing
activities was $6,209,131 during the nine months ended March 31, 2024, which was the net proceeds from due to related parties of $417,174
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 $2,269,329. Net cash provided by financing activities was $2,243,925 during the nine months ended March 31, 2023, which
was the net proceeds from loans payable of $1,692,853 and increase in due to related parties of $551,072.
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 nine months ended March 31, 2024, the Company repaid
$nil and $2.3million to this unrelated party. As of March 31, 2024 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.
As of March 31, 2024, the total
liabilities of Datasea are $2,193,256, which shows a 65.4% decrease from June 30, 2023. The decrease of liability is due to the repayment
to related party by $448,364, decreased accrued expenses and other payables by $830,569, decreased lease liability by $55,010, decreased
unearned revenue by $555,114, and decreased accounts payable by $738,304, and decreased loan payable by $1,513,928.
Cash inflows generated from
financing activities for the nine months ended March 31, 2024 were $6,209,131, compared to $2,243,925 in the same period last year. This
year’s net cash inflows are 177% 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 nine months ended March
31, 2024 and the nine months ended March 31, 2023, revenue was $19,612,213 and $216,014, respectively. Operating income increased by $193,96,199
over the same period of last year, an increase of 8,979% over the same period of last year, the main reason for the substantial growth
is that the company locates currently in the 5G AI multi-model R&D technology which belongs to the industry leader, after long-term
expansion of customer groups, the company has formed a stable customer group. This is closely 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 eventually form a huge loyal customer base, but also closely related
to the thriving vitality of the 5G AI multi-model business market.
For the nine months ended March
31, 2024 and the nine months ended March 31, 2023, the Company’s gross profit was $186,841 and $107,070, respectively. Gross profit increased
by $79,771 from the same period last year, an increase of 74.5% from the same period last year, and the current period increased market
share and revenue significantly, so the gross margin increased simultaneously. The increase in gross profit margin means that the company’s
development and operation has great potential ability.
As of March 31, 2024 and June
30, 2023, the Company’s cash balance was $52,529 and $19,728, respectively, an increase of $32,801, or 1.66 times, from the beginning
of the period. The main reason is that the company successfully obtained financing during this period, absorbed social funds, expanded
the scale of the company, enhanced the visibility of the company, enhanced the competitiveness of the company, provided strong financial
support for the company’s business expansion and projects, and used for technology research and development, market expansion, corporate
brand building, etc., laying a solid foundation for the sustainable development of the company. 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 March 31, 2024 and June
30, 2023, the Company’s accounts receivable balance was $17,044 and $255,725, respectively, a decrease of $238,681 or 93.34% from the
prior period. Mainly, the company reduces the occurrence of bad debts by strengthening the credit evaluation of customers, while strengthening
the collection of customers, improving the collection efficiency, shortening the account period, and increasing cash liquidity. The company
has a good sales recovery situation, accelerates the speed of capital turnover, greatly improves the turnover rate, and improves the management
efficiency of accounts receivable.
As of March 31, 2024 and June
30, 2023, the Company’s inventory balance was $184,137 and $241,380, respectively, a decrease of $57,243 or 23.71% from the beginning
of the period, mainly because the Company realized the importance of inventory management and was screening inventory management software
more suitable for enterprises. Plan to optimize the inventory management by optimizing the supply chain and improving the procurement
process, and further improve the inventory turnover rate. To accelerate the expansion of the sales market, the company expands the sales
scale of products by developing new sales channels, expanding new markets, strengthening advertising and other ways, so that the inventory
can be quickly realized and the efficiency of capital use can be improved.
As of March 31, 2024 and June
30, 2023, the capital reserve balance was $35,058,598 and $24,148,868, respectively, an increase of $10,909,730 from the beginning of
the period or 45.18% from the beginning of the 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 March 31, 2024 and June
30, 2023, the Company’s current operating lease liabilities were $96,079 and $124,640, respectively, a decrease of $28,561, or 22.91%,
from the beginning of the period. The Company’s non-current operating lease liabilities were US $0.00 and US $26,449.00 respectively,
a decrease of US $26,449.00 and 100% compared with the beginning of the period, mainly because the Company combined actual operating needs
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 Group, 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. Save
costs and improve the overall profits of enterprises.
As of March 31, 2024 and June
30, 2023, the Company’s accounts payable were $266,755 and $1,005,059, respectively, a decrease of $738,304 from the previous period,
or 73.46% from the beginning of the period, mainly due to the Company’s optimization of liabilities and reduction of debt ratio according
to the capital position. Better maintain a good and stable relationship with suppliers, enhance the capital turnover ability and supply
chain management ability.
As of March 31, 2024 and June
30, 2023, the Company’s non-current liabilities were US $0 and US $1,427,970, respectively, a decrease of US $1,427,970 compared to the
beginning of the period, mainly due to the increase in the Company’s revenue during the current period, the successful financing and absorption
of social funds, the Company’s enhanced ability to obtain cash, the optimization of its asset structure, and the reduction of illiquid
liabilities. Reduce liability risk.
As of March 31, 2024 and March 31, 2023, the Company’s net cash
increase was US $32,801 and decrease US $ 121,062, respectively, an accumulated increase of US $153,863 by comparing with the previous
period, and the current cash inflow was greater than the cash outflow, which was a significant improvement over the negative net cash
of the previous year. By optimizing capital management and operation management, strengthen the management and control of investment and
financing activities, maintain a good cash flow situation, so as to better cope with market competition and achieve sustainable development
of enterprises.
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 high tech, contributing to the advancement of the global digital landscape. To realize this vision, the Company’s management
has outlined the following plans:
| ● | Expansion
of Acoustic high tech Products: |
| ● | Diversifying
applications in acoustic engineering, agriculture, medicine, beauty, and healthcare. |
| ● | Continuing
Advancements in 5G Multimodal Communication Business: |
| ● | Actively
pursuing market share capture. |
| ● | Improving
gross profit margins. |
| ● | 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. |