Datasea(DTSS) - 2025 Q2 - Quarterly Report

Part I - Financial Information Financial Statements The company's financial statements show significant revenue growth and improved equity, but also a continued net loss and a going concern risk Consolidated Balance Sheets Total assets grew to $5.90 million and stockholders' equity turned positive, driven by increased intangible assets and reduced liabilities Consolidated Balance Sheet Highlights (Unaudited) | Account | Dec 31, 2024 ($) | June 30, 2024 ($) | | :--- | :--- | :--- | | Total Current Assets | 1,595,096 | 2,647,892 | | Total Noncurrent Assets | 4,308,437 | 643,812 | | Total Assets | 5,903,533 | 3,291,704 | | Total Current Liabilities | 2,560,305 | 3,599,982 | | Total Liabilities | 2,677,125 | 3,599,982 | | Total Stockholders' Equity (Deficit) | 3,226,408 | (308,278) | - The significant increase in noncurrent assets is mainly due to the growth of intangible assets, which rose from $546,001 to $4,081,544[10] - The company shifted from a stockholders' deficit of $308,278 to a positive equity of $3,226,408, largely due to an increase in additional paid-in capital[10] Consolidated Statements of Operations and Comprehensive Loss Substantial revenue growth for the three and six-month periods led to higher gross profit, though the company remains in a net loss position Three Months Ended December 31, (Unaudited) | Metric | 2024 ($) | 2023 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 20,456,404 | 11,348,469 | +80.3% | | Gross Profit | 417,452 | 102,235 | +308.3% | | Loss from Operations | (1,238,352) | (1,788,536) | -30.8% | | Net Loss to the Company | (1,136,278) | (1,833,039) | -38.0% | | Basic and Diluted Net Loss per Share | (0.16) | (0.72) | -77.8% | Six Months Ended December 31, (Unaudited) | Metric | 2024 ($) | 2023 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 41,537,498 | 18,229,212 | +127.9% | | Gross Profit | 614,433 | 176,970 | +247.2% | | Loss from Operations | (3,268,902) | (2,646,312) | +23.5% | | Net Loss to the Company | (3,098,267) | (1,855,095) | +67.0% | Consolidated Statements of Cash Flows Cash from financing activities funded investments in intangible assets and covered operating cash use, resulting in a slight net cash increase Cash Flow Summary for Six Months Ended December 31, (Unaudited) | Cash Flow Activity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (1,587,572) | (5,633,283) | | Net cash used in investing activities | (3,957,527) | (71,816) | | Net cash provided by financing activities | 5,659,128 | 6,241,781 | | Net increase in cash | 86,839 | 417,988 | - The primary use of cash in investing activities was the acquisition of intangible assets, totaling $3.95 million[17] - Financing activities were a key source of cash, with $5.94 million in net proceeds from the issuance of common stock[17] Notes to Consolidated Financial Statements Notes detail the company's VIE structure, going concern uncertainty, revenue sources, and significant financing and acquisition transactions - The company operates primarily through a Variable Interest Entity (VIE) structure in the People's Republic of China (PRC)[20] - A 1-for-15 reverse stock split was effective on January 19, 2024, with all share amounts retroactively restated[35] - There is substantial doubt about the Company's ability to continue as a going concern due to recurring losses and an accumulated deficit of approximately $42.54 million[36] Revenue Breakdown for Six Months Ended Dec 31, 2024 | Revenue Source | Amount ($) | | :--- | :--- | | 5G AI Multimodal communication | 41,161,572 | | Acoustic Intelligence Business | 45,768 | | Software licensing | 326,936 | | Smart City business | 3,046 | | Other | 176 | | Total revenue | 41,537,498 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses strong revenue growth from its 5G+AI business, ongoing net losses, going concern risks, and material weaknesses in internal controls Overview The company operates via a VIE structure in China, focusing on acoustic tech and a rapidly growing 5G+AI digital business - Datasea is a Nevada-based holding company with business activities in China conducted through a VIE structure[158] - For the six-month period ending Dec 31, 2024, revenue grew 127.86% to $41.54 million, driven by the 5G+AI multimodal digital business[160] - The company is focusing on five key application areas for its acoustic technology: acoustic industry, agriculture, healthcare, health, and IoT[165] - The 5G+AI multimodal digital platform is the main revenue source, serving sectors like banking, insurance, and gaming[184][201] Results of Operations Revenue grew significantly for both three and six-month periods, but widening net loss for the six-month period reflects rising operating expenses Three-Month Operational Comparison (Ended Dec 31) | Metric | 2024 ($) | 2023 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 20,456,404 | 11,348,469 | +80.3% | | Gross Profit | 417,452 | 102,235 | +308.3% | | Gross Margin | 2.0% | 0.9% | +1.1 p.p. | | Net Loss to Company | (1,136,278) | (1,833,039) | -38.0% | Six-Month Operational Comparison (Ended Dec 31) | Metric | 2024 ($) | 2023 ($) | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | 41,537,498 | 18,229,212 | +127.9% | | Gross Profit | 614,433 | 176,970 | +247.2% | | Gross Margin | 1.5% | 1.0% | +0.5 p.p. | | Net Loss from Cont. Ops | (3,098,267) | (2,688,641) | +15.2% | - The increase in G&A expenses for the six-month period was primarily due to a $514,297 increase in stock compensation expense and a $369,845 increase in professional service fees[317] Liquidity and Capital Resources The company faces a working capital deficit and relies on equity financing to fund operations and investments, highlighting going concern risks - As of December 31, 2024, the company had a working capital deficit of $965,209 and a current ratio of 0.62:1[325] Six-Month Cash Flow Summary (Ended Dec 31) | Activity | 2024 ($) | 2023 ($) | | :--- | :--- | :--- | | Net cash used in operating activities | (1,587,572) | (5,633,283) | | Net cash used in investing activities | (3,957,527) | (71,816) | | Net cash provided by financing activities | 5,659,128 | 6,241,781 | - The company's accounts receivable balance decreased by 70.64% to $210,980, indicating improved cash collection[343] Quantitative and Qualitative Disclosures about Market Risk The company is exempt from this disclosure requirement as a "smaller reporting company" - The company is exempt from this disclosure requirement due to its status as a "smaller reporting company"[376] Controls and Procedures Management concluded that disclosure controls were ineffective due to material weaknesses in internal controls over financial reporting - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of the end of the reporting period[377] - Identified material weaknesses include inadequate segregation of duties, a lack of personnel with U.S. GAAP expertise, and insufficient written accounting policies[378] - Management is taking steps to enhance internal controls, including improving cost control and project management[385][386][387][388][389] Part II - Other Information Legal Proceedings The company is not currently a party to any pending legal proceedings - The company is not currently involved in any legal proceedings[393] Risk Factors The company is exempt from this disclosure requirement as a "smaller reporting company" - The company is exempt from this disclosure requirement due to its status as a "smaller reporting company"[394] Unregistered Sales of Equity Securities and Use of Proceeds The company details two significant equity financing events in July and September 2024 to fund R&D and corporate purposes - On July 2, 2024, a registered direct offering raised gross proceeds of approximately $2.25 million[396] - In September 2024, the company issued 1,932,224 shares to three non-U.S. investors at $2.06 per share, including to the CEO and a director[395] Defaults Upon Senior Securities The company reports no defaults upon senior securities - None[401] Mine Safety Disclosures This item is not applicable to the company - Not applicable[402] Other Information No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter - No director or officer adopted, modified, or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the quarter[404] Exhibits This section lists exhibits filed with the Form 10-Q, including Sarbanes-Oxley certifications and XBRL data files - Key exhibits include CEO and CFO certifications (Exhibits 31.1, 31.2, 32.1, 32.2) and Inline XBRL documents (Exhibit 101 series)[405]