Datasea Reports Second Quarter Fiscal Year 2023 Financial Results and Provides Business Updates
Datasea Inc. (NASDAQ: DTSS) reported Q2 2023 financial results, revealing a significant revenue drop of 95% to $425,710, down from $8,979,479 in Q2 2022, primarily due to a decline in 5G SMS services impacted by COVID-19. Gross profit decreased 78% to $54,330, though gross margin improved to 12.8%. The company is shifting its 5G SMS policy to collect advance payments to mitigate risks. Despite current challenges, demand for air purification products remains strong, and Datasea aims to enhance its portfolio and client base, leveraging new SaaS products and expanding into various sectors through targeted marketing strategies.
- Demand for air purifiers remains strong, indicating market opportunities.
- Improved gross margin to 12.8% suggests enhanced operational efficiency.
- Successful launch of SaaS products meeting the needs of over 60,000 entities.
- Expansion of marketing and distribution agreements indicating increased market presence.
- 95% revenue decline indicates significant operational challenges.
- 78% decrease in gross profit reflects ongoing struggles within the 5G SMS sector.
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 or95% 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 or78% . 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 to3.0% 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, | 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.
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