Datasea Reports Second Quarter Fiscal Year 2023 Financial Results and Provides Business Updates
02/13/2023 - 04:30 PM
BEIJING, Feb. 13, 2023 (GLOBE NEWSWIRE) -- Datasea Inc. (NASDAQ: DTSS) (“Datasea” or the “Company”), incorporated in Nevada in September 2014, is a digital technology corporation engaged in three converging and innovative business segments: 5G messaging, acoustic intelligence, and smart city in China, today announced financial results for the quarter ended December 31, 2022, and provided an update on its key strategic and operational initiatives.
“As we progressed through the second quarter, it became evident that the evolving Covid-19 pandemic and the changing prevention and control mechanisms would significantly impact our quarterly earnings and ability to fulfill customer orders, we also adjust our internal policy on 5G SMS business. Therefore, our second quarter revenue was not in-line with our expectations,” said Zhixin Liu, CEO of Datasea. “Fortunately, Datasea saw and continues to see demand, particularly for air purifiers. Furthermore, with the pace of China’s reopening after lifting the Zero-Covid policy, we do not expect similar levels of sequential declines beyond the second quarter of 2023. Moreover, we remain committed to enhancing our product portfolio, streamlining operational efficiencies, and expanding market reach and client acquisition.”
Second Quarter 2023 Financial Results
We had revenues of $425,710 and $8,979,479 for the three months ended December 31, 2022 and December 31, 2021 respectively, which shows a $8,553,769 or 95% decrease by comparing with the same period of 2021. The decrease in revenues was mainly due to the sharp decline in 5G SMS services in China amid the global COVID-19 pandemic. To mitigate operational risks and maintain control over cash flow, the Company implemented a revised business policy for 5G SMS services that involves collecting payment from clients in advance before making any purchases from suppliers. This approach will ensure that the Company's long-term operations can progress at a rapid and stable pace, while help minimizing financial risks. Gross profit was $54,330 for the three months ended December 31, 2022, compared to $246,299 for the three months ended December 31, 2021, representing a decrease of $191,969 or 78% . The decrease in gross profit was mainly due to the decreased delivery of services related to the 5G SMS service platform in 2022. Gross margin was 12.8% for the three months ended December 31, 2022, compared to 3.0% for the three months ended December 31, 2021. The increase in gross margin was mainly due to decreased activities from the lower margin 5G SMS business and indicated that the Company’s measures to improve gross profit margin are gradually showing effect. Second Quarter 2023 Business Highlights
5G Messaging
Client expansion In December 2022, Datasea’s converged cloud platform product passed the relevant audits, officially coming to market as the SaaS product of China Mobile Cloud Energy Center. Following this approval, the product is formally a provider for China Mobile’s ecosystem. According to the enterprise search engine APP, Datasea can now meet the potential needs of more than 60000 business entities, more than 17 million group enterprise customers, and more than 957 million mobile customers.Product update With a unique SaaS and PaaS business model and subscription service, Datasea provides personalized launch services for different industries, rapidly enhanced brand strength, and sustainable marketing growth for enterprise customers. With customizable solutions and applications that can serve broad industries, the Company intends to target more enterprise customers in various sectors such as finance, e-commerce, logistics, tourism, government affairs, education, and power. Acoustic Intelligence
In the second quarter of 2023, Datasea continued to develop its ultrasonic sterilization and antivirus products under the brand name Hailijia. Hailijia concentrates on air purification and has five models focused on in-vehicle sterilization and deodorization, restroom sterilization and deodorization, and air disinfection and sterilization meant to respond to a wide range of market needs.
Client expansion On December 23, 2022, as announced by the Heilongjiang Provincial Government Procurement Network, Shuhai Beijing won the equipment procurement project bid to supply disinfection and sterilization equipment to Tieli Fangcang Hospital, the designated hospital in Yichun City. This achievement is especially notable because procurement projects are characterized by “high requirements and strict review,” which is a “touchstone” to test an enterprise’s comprehensive strength. The agreement also shows that key customers recognize the technical capacity of the Company’s disinfection and sterilization equipment.Marketing and sales expansion On December 3, 2022, the Company kicked off a national Hailijia marketing campaign with an online event and several in-person product showcase events in some of China’s largest cities, such as Beijing, Shenzhen, Tianjin, Hangzhou, and Harbin. With over 50 trade and distribution institutions from China, Southeast Asia, and the Middle East participating in the event, Datasea entered into eight marketing and distribution agreements. Datasea continues to sell its acoustic intelligence products through a direct sales force and a select network of distributors and channel partners. As of the end of the second quarter of 2023, Datasea has 6 channel partners and 3 OEMs. Smart City
Client expansion In November 2022, Datasea’s Shuhai Information Technology Co., Ltd. signed an agreement with Zhongjing Hengji. Under the terms, Shuhai will provide Zhongjing Hengji with a 5G smart elevator platform. Moreover, Shuhai will spearhead several research and development projects for Zhongjing Hengji, including a payment module interface, a payment management module, a financial module, various Internet of Things projects, a smart community, 5G messaging, and other systems. ESG Management Datasea believes incorporating ESG considerations into our operations and strategy will effectively help manage risks and identify opportunities supporting our long-term success. Furthermore, a strong ESG approach can foster positive relationships with stakeholders and enhance the Company's reputation, positioning us for competitive advantages in an industry undergoing rapid change.
Therefore, in the second quarter, Datasea decided to adopt a comprehensive ESG framework. The objective is to align our operations with our values and to make decisions that support sustainable growth and success over the long term.
In 2023, Datasea will begin disclosing information about ESG practices and performance to stakeholders through quarterly and annual ESG reports and sustainability statements. This is an initial step in the Company’s evolution as we build a more unified sustainability framework.
Datasea has started internal preparation and analysis of ESG disclosures aligned with the Sustainability Accounting Standards Board (SASB) framework. The Company plans to distribute its first ESG report soon and present a clear and concise picture of its current ESG performance.
About Datasea Inc. Datasea Inc., through its variable interest entity, Shuhai Information Technology Co., Ltd., a digital technology Company in China, engages in three converging and innovative industries: smart city, acoustic intelligence, and 5G messaging. Datasea leverages facial recognition technology and other visual intelligence algorithms, combined with cutting-edge acoustic and non-visual intelligence algorithms, to provide smart city solutions that meet the security needs of residential communities, schools, and commercial enterprises. Most recently, in response to the growing utilization of 5G technologies and the overall initiative to utilize Datasea’s technology capabilities to expand business coverage and revenue resources, Datasea has also strategically expanded business coverage to 5G messaging and smart payment solutions. Datasea has been certified as one of the High-Tech Enterprises (jointly issued by the Beijing Science and Technology Commission, Beijing Finance Bureau, Beijing State Taxation Bureau, and Beijing Local Taxation Bureau) and one of the Zhongguancun High Tech Enterprises (issued by the Zhongguancun Science Park Administrative Committee) in recognition of the Company’s achievement in high technology products. For additional Company information, please visit: www.dataseainc.com. Datasea routinely posts important information on its website.
Cautionary Note Regarding Forward-Looking Statements This press release contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will", "expects", "anticipates", "future", "intends", "plans", "believes", "estimates", "target", "going forward", "outlook," “objective” and similar terms. Such statements are based upon management's current expectations and current market and operating conditions, and relate to events that involve known or unknown risks, uncertainties and other factors, all of which are difficult to predict and which are beyond Datasea's control, which may cause Datasea's actual results, performance or achievements (including the RMB/USD value of its anticipated benefit to Datasea as described herein) to differ materially and in an adverse manner from anticipated results contained or implied in the forward-looking statements. Further information regarding these and other risks, uncertainties or factors is included in Datasea's filings with the U.S. Securities and Exchange Commission, which are available at www.sec.gov. Datasea does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under law.
Datasea investor and media Contact: International Elite Capital Inc. Annabelle Zhang Telephone: +1(646) 866-7989 Email: datasea@iecapitalusa.com
DATASEA INC. CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31, THREE MONTHS ENDED DECEMBER 31, 2022 2021 2022 2021 Revenues $ 1,590,015 $ 9,650,609 $ 425,710 $ 8,979,479 Cost of goods sold 1,385,488 9,340,715 371,380 8,733,180 Gross profit 204,527 309,894 54,330 246,299 Operating expenses Selling 422,779 386,991 129,715 156,192 General and administrative 2,200,736 2,618,280 1,150,291 1,498,809 Research and development 412,390 719,571 149,058 432,355 Total operating expenses 3,035,905 3,724,842 1,429,064 2,087,356 Loss from operations (2,831,378 ) (3,414,948 ) (1,374,734 ) (1,841,057 ) Non-operating income (expenses) Other income (expense) (13,791 ) 5,247 (36,397 ) 5,224 Interest income 145 32,893 46 12,359 Total non-operating income (expenses), net (13,646 ) 38,140 (36,351 ) 17,583 Loss before income tax (2,845,024 ) (3,376,808 ) (1,411,085 ) (1,823,474 ) Income tax 8 - - - Loss before noncontrolling interest (2,845,032 ) (3,376,808 ) (1,411,085 ) (1,823,474 ) Less: loss attributable to noncontrolling interest (216,719 ) (258,281 ) (120,095 ) (146,181 ) Net loss to the Company (2,628,313 ) (3,118,527 ) (1,290,990 ) (1,677,293 ) Other comprehensive item Foreign currency translation gain (loss) attributable to the Company (48,767 ) 69,992 (61,105 ) 74,689 Foreign currency translation gain attributable to noncontrolling interest 28,736 2,294 32,426 2,548 Comprehensive loss attributable to the Company $ (2,677,080 ) $ (3,048,535 ) $ (1,352,095 ) $ (1,602,604 ) Comprehensive loss attributable to noncontrolling interest $ (187,983 ) $ (255,987 ) $ (87,669 ) $ (143,633 ) Basic and diluted net loss per share $ (0.11 ) $ (0.13 ) $ (0.05 ) $ (0.07 ) Weighted average shares used for computing basic and diluted loss per share 24,324,633 23,637,930 24,324,633 23,919,867
DATASEA INC. CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2022 (UNAUDITED) JUNE 30, 2022 ASSETS CURRENT ASSETS Cash $ 43,309 $ 164,217 Accounts receivable 388,316 259,410 Inventory, net 253,473 211,353 Value-added tax prepayment 57,359 46,509 Prepaid expenses and other current assets 582,694 575,312 Total current assets 1,325,151 1,256,801 NONCURRENT ASSETS Security deposit for rents - 17,181 Long-term investment 57,433 29,800 Property and equipment, net 111,042 187,831 Intangible assets, net 1,447,672 1,741,791 Right-of-use assets, net 316,305 522,273 Total noncurrent assets 1,932,452 2,498,876 TOTAL ASSETS $ 3,257,603 $ 3,755,677 LIABILITIES AND STOCKHOLDERS’ EQUITY CURRENT LIABILITIES Accounts payable $ 628,452 $ 197,573 Unearned revenue 123,073 289,888 Accrued expenses and other payables 1,340,622 994,884 Due to related party 97,279 102,331 Loan payables - current 1,592,403 81,950 Operating lease liabilities 339,571 457,949 Total current liabilities 4,121,400 2,124,575 NONCURRENT LIABILITIES Operating lease liabilities - 31,470 Loan payables - non-current 168,384 - Total noncurrent liabilities 168,384 31,470 TOTAL LIABILITIES 4,289,784 2,156,045 COMMITMENTS AND CONTINGENCIES STOCKHOLDERS’ EQUITY (DEFICIENCY) Common stock, $0.00 1 par value, 375,000,000 shares authorized, 24,324,633 shares issued and outstanding as of December 31, 2022 and June 30, 2022 , respectively 24,325 24,325 Additional paid-in capital 19,980,795 20,729,559 Accumulated comprehensive income 234,820 283,587 Accumulated deficit (21,211,879 ) (18,583,566 ) TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIENCY) (971,939 ) 2,453,905 Noncontrolling interest (60,242 ) (854,273 ) TOTAL EQUITY (DEFICIENCY) (1,032,181 ) 1,599,632 TOTAL LIABILITIES AND EQUITY (DEFICIENCY) $ 3,257,603 $ 3,755,677
DATASEA INC. CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
SIX MONTHS ENDED DECEMBER 31 2022 2021 Cash flows from operating activities: Loss including noncontrolling interest $ (2,845,032 ) $ (3,376,808 ) Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities: Loss (gain) on disposal on fixed assets (7 ) 460 Depreciation and amortization 367,616 233,544 Bad debt expense - 286,055 Operating lease expense 371,871 435,762 Stock compensation expense 233,250 294,750 Changes in assets and liabilities: Accounts receivable (138,565 ) (5,175,377 ) Inventory (49,886 ) (13,850 ) Value-added tax prepayment (12,561 ) 16,702 Prepaid expenses and other current assets (46,374 ) (1,165,822 ) Accounts payable 434,637 4,803,114 Unearned revenue (156,533 ) 63,507 Accrued expenses and other payables 391,950 191,289 Payment on operating lease liabilities (316,856 ) (417,948 ) Net cash used in operating activities (1,766,490 ) (3,824,622 ) Cash flows from investing activities: Acquisition of property and equipment (2,276 ) (23,787 ) Refund / (acquisition) of intangible assets (1,985 ) (198,151 ) Long-term investment (28,764 ) (62,186 ) Net cash provided by (used in) investing activities (33,025 ) (284,124 ) Cash flows from financing activities: Due to related parties (1,387 ) (13,391 ) Proceeds (repayment) of loan payables 1,684,595 (1,493,237 ) Proceeds from capital contribution from a major shareholder - 62,186 Net proceeds from issuance of common stock - 7,681,796 Net cash provided by financing activities 1,683,208 6,237,354 Effect of exchange rate changes on cash (4,601 ) 62,424 Net increase (decrease) in cash (120,908 ) 2,191,032 Cash, beginning of period 164,217 49,676 Cash, end of period $ 43,309 $ 2,240,708 Supplemental disclosures of cash flow information: Cash paid for interest $ - $ - Cash paid for income tax $ - $ - Supplemental disclosures of non-cash operating, investing and financing activities: Right-of-use assets obtained in exchange for operating lease liabilities $ 172,612 $ - Transfer of prepaid software development expenditure to intangible assets $ - $ 50,000 Shares issued for accrued bonus to officers $ - $ 259,023
IMPORTANT NOTICE TO USERS (summary only, please refer to the Form 10-Q for full text of notice); All information is unaudited unless otherwise noted or accompanied by an audit opinion and is subject to the more comprehensive information contained in our SEC reports and filings. We do not endorse third-party information. All information speaks as of the last fiscal quarter or year for which we have filed a Form 10-K or 10-Q, or for historical information the date or period expressly indicated in or with such information. We undertake no duty to update the information. Forward-looking statements are subject to risks and uncertainties described in our Forms 10-Q and 10-K.