Business context and reporting period
DataSea Inc. (formerly Rose Rock Inc.) filed this unaudited Form 10-Q for the quarter ended September 30, 2015, covering the three and nine months ended that date. Although the request metadata labels the period “2015 Q1,” the filing covers the quarter ended September 30 (the third quarter) and nine-month year-to-date period. During the reporting period, the company was a development-stage entity seeking a business combination; it had generated no revenue.
After period-end, on October 29, 2015, DataSea completed a share exchange to acquire Shuhai Information Skill (HK) Limited and related entities. The transaction was to be accounted for as a reverse merger. The filing states this acquisition and related transactions are not reflected in the period’s financial results.
Financial results and liquidity
- Revenue: $0 for both the three and nine months ended September 30, 2015.
- Expenses and loss: General and administrative expense was $6,614 for the quarter and $14,158 year to date; net loss was the same amounts. Basic and diluted loss per share was reported as $0.00 (rounded).
- Cash flow: Operating activities used $7,353 over nine months. Financing activities provided $19,776, comprising $20,000 from common-stock issuance less $224 repayment of a shareholder loan. Cash increased $12,423, from $7,000 at year-end 2014 to $19,423 at September 30, 2015. The filing’s MD&A appears to mislabel this financing cash flow as investing cash flow.
- Balance sheet: Total assets were $19,423, all cash. Current and total liabilities were $6,805, consisting of accrued expenses; the shareholder loan had been repaid. Stockholders’ equity was $12,618, and accumulated deficit was $27,382.
- Margins and debt: Operating and profit margins are not meaningful with no revenue. No debt was reported at September 30, 2015.
- Taxes: No income tax provision was recorded; the company reported a full valuation allowance against deferred tax assets.
Changes, outlook, and risks
- The filing provides no prior comparable-period results, citing the company’s recent formation; therefore, year-over-year performance changes cannot be assessed from the disclosed figures.
- Management said available cash was expected to fund operations into the coming months, but additional cash would be needed beyond that. Funding may be sought through equity or debt; there is no assurance it will be available on acceptable terms. If revenue falls short or working-capital needs exceed expectations, the company may reduce spending and operations.
- The auditor’s going-concern warning is reflected in the filing: no revenue since inception, an accumulated deficit of $27,382, and substantial doubt about the company’s ability to continue as a going concern. Continued operations depend on generating revenue and obtaining capital.
- The October 2015 share exchange issued 4,000,000 shares to acquire Shuhai Skill (HK). The founder had separately sold his shares to Zhixin Liu; following the transactions, Zhixin Liu and Fu Liu held approximately 82% of outstanding shares. The filing reported 11,000,000 shares outstanding as of October 29, 2015.
- Disclosure controls were deemed ineffective due to inadequate segregation of duties and risk assessment, and insufficient written accounting and financial-reporting policies. Planned remediation depended partly on obtaining additional financing.
- Other identified risks include operating in China, regulatory and economic changes, customer demand and order timing, product or service delays, supplier relationships, and access to capital. The company reported no pending legal proceedings or off-balance-sheet arrangements.
Important facts for investors to verify
- Confirm the acquisition’s final accounting, acquired businesses’ financial condition and results, and the impact of the reverse merger.
- Verify post-transaction share ownership, dilution, and any subsequent financing or share issuances.
- Assess the company’s post-acquisition cash needs, financing availability, and progress toward revenue generation.
- Review remediation of the disclosed material weaknesses and whether disclosure controls have improved.
- Reconcile filing-period presentation issues, including the MD&A’s cash-flow classification and the share-count date wording in the balance sheet.