Business context and reporting period
The supplied filing is Rose Rock, Inc.’s unaudited Form 10-Q for the quarter ended March 31, 2015—not a filing identified as Datasea Inc. Rose Rock, incorporated in Nevada in September 2014, describes itself as a development-stage company seeking business opportunities and consulting to U.S. companies interested in China and Chinese companies seeking U.S. markets. It checked the box identifying itself as a shell company.
Financial results and liquidity
- Revenue: $0 for the quarter; the company reports no revenue since inception.
- Expenses and profit: General and administrative expense was $2,777, primarily professional fees. Net loss was $2,777; basic and diluted loss per share was reported as $(0.00).
- Cash flow: Operating activities used $187. Financing activities provided $19,776, comprising $20,000 from common-stock issuance and repayment of a $224 shareholder loan. Cash increased by $19,589 to $26,589.
- Balance sheet and liquidity: At March 31, 2015, cash and total assets were $26,589; current liabilities were $2,590, consisting of accrued expenses. Stockholders’ equity was $23,999. No debt balance was reported at quarter-end.
- Margins: Not meaningful because the company had no revenue.
Material changes versus prior period
The company states that there is no comparable operating-results period because it was formed in September 2014. Compared with December 31, 2014, cash rose from $7,000 to $26,589, current liabilities rose from $224 to $2,590, and accumulated deficit increased from $13,224 to $16,001. Shares issued and outstanding increased from 5,000,000 to 7,000,000 after a sale of 2,000,000 shares to unaffiliated investors for $20,000.
Outlook, risks, and unusual items
- Management says existing cash should fund operations into the coming months, but additional capital will be required beyond that. It may seek equity or debt financing or reduce operations and costs; availability and terms of financing are uncertain.
- The filing identifies substantial doubt about the company’s ability to continue as a going concern, citing no revenue and a $16,001 accumulated deficit. Continued operations depend on generating revenue and obtaining capital; no assurance is given.
- The sole officer/director has other business activities, expects to devote 8–30 hours per week to the company, and will not take a salary during development. No outside sales or development contractor agreements are in place.
- Disclosure controls and procedures were deemed ineffective because of inadequate segregation of duties and insufficient written accounting and reporting policies. Planned remediation depends substantially on obtaining financing.
- The company reported no material subsequent events, pending legal proceedings, or off-balance-sheet arrangements. A full valuation allowance offsets the reported deferred tax asset.
Important facts to verify
- Confirm the issuer: the request names Datasea Inc., while the supplied 10-Q names Rose Rock, Inc.
- Verify the company’s current identity, business status, and whether the shell-company designation remains applicable.
- Assess near-term funding needs and the availability and potential dilution or cost of additional financing.
- Review the going-concern uncertainty and the plan and progress for generating revenue.
- Check the status of control remediation and financing needed to implement it.
- Reconcile the MD&A’s description of $19,776 as cash from investing activities with the statement of cash flows, which classifies it as financing cash flow.