DTSS Datasea Inc. - 10-K

Item 1A. Risk Factors

An investment in our common stock is very speculative and involves a high degree of risk. You should carefully consider the following risk factors in evaluating our business before purchasing any shares of our common stock. No purchase of our common stock should be made by any person who is not in a position to lose the entire amount of his or her investment. The order of the following risk factors is presented arbitrarily. You should not conclude the significance of a risk factor because of the order of presentation. Our business and operations could be seriously harmed as a result of any of these risks.

Risks Relating to and financial condition and Capital Requirements

We have a limited operating history as a developer of acoustics high tech, AI multimodal digital and other products and services. Our limited operating history may not provide an adequate basis to evaluate our future prospects, financial performance, and results of operations.

We have a limited operating history, Our operating entity, Shuhai Beijing, was formed in February 2015. We have limited experience and operating history in developing and marketing our products and services and particularly as a developer of acoustics high-tech AI multimodal digital products and services, which are highly competitive business areas. Our limited history may not provide a meaningful basis for investors to evaluate our business, financial performance, and prospects. Although our revenues have grown significantly in fiscal years 2024 and 2025 — in particular, in fiscal year 2025 we generated revenue of $71,616,820, representing an increase of $47,640,953, or 198.70%, compared to the same period of the prior year, and our gross profit increased by $1,969,843, or 415.49%, compared to the same period of the prior year, we continue to incur recurring losses from operations. . If we fail to continue to develop new products to meet customer demand in an increasingly competitive environment, we may lose business opportunities and may be unable to recover our research and development and marketing costs, which could adversely affect our future operating results and growth strategies.

Our independent registered public accounting firm’s auditors’ report includes an explanatory paragraph stating that there is substantial doubt about our ability to continue as a going concern.

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. The Company’s ability to continue as a going concern is dependent upon its ability to improve profitability and the ability to acquire funding in the future.

For the fiscal years ended June 30, 2025 and 2024, the Company had a net loss of approximately $5.09 million and $11.38 million, respectively. The Company had an accumulated deficit of approximately $44.53 million as of June 30, 2025, and negative cash flow from operating activities of approximately $2.37 million and $6.40 million for the years ended June 30, 2025 and 2024, respectively. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Our resources and source of funds have primarily consisted of loans and capital contributions from shareholders and funds raised from equity financing. While the Company believes in the viability of its strategy and in its ability to raise additional funds, there can be no assurances to that effect. Although for the fiscal year 2025, the Company’s revenue significantly increased, and the recurring operating losses has narrowed, there can be no assurance the Company will become profitable or obtain necessary financing for its business and investments or that it will be able to continue in business and investments. As a result of these factors, there is substantial doubt about our ability to continue as a going concern.

We anticipate to incur indebtedness or issue new equity securities to fund future growth. If we cannot obtain additional capital, our ability to operate or expand our business may be impaired and our results of operations could be adversely affected.

Our business requires significant levels of capital to finance the research and development of new products and service platforms that meet the constantly evolving industry standards and consumer demands. As such, we expect that we will need additional capital to fund our future growth. For the time being, we are primarily dependent on contribution from shareholders, equity financing and cash income. If cash from such sources is insufficient or unavailable, or if cash is used for unanticipated needs, we may require additional capital sooner than anticipated. Our ability to obtain additional capital on acceptable terms or at all is subject to a variety of uncertainties, including:

investors’ perceptions of, and demand for, companies operating in China;

conditions of the U.S. and other capital markets in which we may seek to raise funds;

our future results of operations, financial condition and cash flows

governmental regulation of foreign investment in China;

economic, political and other conditions in the United States, China and other countries; and

governmental policies relating to foreign currency borrowings.

The sale of additional equity securities would result in dilution of our existing shareholders. In addition, the incurrence of indebtedness would result in increased debt service obligations and could result in operating and financial covenants that would restrict our operations. It is highly uncertain whether financing will be available in amounts or on terms acceptable to us, if at all. If we are not able to obtain additional capital, our ability to operate or expand our business may be impaired and our results of operations could be adversely affected.

Risks Related to Our Business, Industry and Business Operations

Supply chain issues that increase our costs or cause a delay in our ability to fulfill orders, could have an adverse impact on our business and operating results, and our failure to estimate customer demand properly may result in excess or obsolete component supply, which could adversely affect our gross margins.

We do not own or operate our own manufacturing facilities and instead rely on third-party contract manufacturers to produce our products. Under current conditions, this cooperative model is the best option for the Company to save costs and reduce investment risks. However, such reliance may result in increased costs or delays in fulfilling orders, which could adversely affect our business and operating results.

Any financial problems of our contract manufacturers or component suppliers could limit supply or increase costs;

Reservation of manufacturing capacity at our contract manufacturers by other companies, inside or outside of our industry, could limit supply or increase costs; and

Industry consolidation occurring within one or more component supplier markets could limit supply or increase costs.

In addition, the following supply-chain-related issues could adversely affect our customer relationships, operating results and financial condition:

a reduction or interruption in supply of one or more components;

a significant increase in the price of one or more components；

a failure to adequately authorize procurement of inventory by our contract manufacturers; and

a failure to appropriately cancel, reschedule or adjust our requirements based on our business needs.

We intend to invest in R&D, sales, marketing activities and M&As, however, these investments could be deleyed, or achieve lower than expected benefits, which could harm our operating results.

We intend to focus on managing our costs and expenses, over the long term, as well as to invest in personnel and other resources related to our R&D, sales, marketing and M&A functions as we realign and dedicate resources to key growth areas, such as acoustics high tech, AI multimodal digital and other products and services. We are likely to recognize the costs and expenses associated with these investments earlier than some of the anticipated benefits, and the return on these investments may be lower, or may develop more slowly than we expect. If we do not achieve the benefits anticipated from these investments, or if the achievement of these benefits is delayed, our operating results may be adversely affected.

Our business operations substantially depend upon the continued growth of acoustics high tech, AI multimodal digital and other products and services, the decrease of which could have a negative impact on our business.

A substantial portion of our business operations and revenue depends on the growth of acoustics high tech, 5G communication in the PRC and globally, including the continued development and expansion of the Internet. To the extent that an economic slowdown or economic uncertainty and any related reductions in capital spending adversely affect spending on Internet infrastructure, we could experience material harm to our business, operating results and financial condition.

Because of the rapid introduction of new products and changing customer requirements related, we believe that we could receive a high degree of publicity and visibility. Because smart security systems are our major products and resources, our business, operating results and financial condition may be materially adversely affected, regardless of whether or not these problems are due to the performance of our own products or services. Such an event could also result in a material adverse effect on the market price of our common stock independent of direct effects on our business.

Product quality problems could lead to reduced revenue, gross margins, and net income.

The sonic air sterilization products we provide is highly complex as the products incorporate both hardware and software technologies. There can be no assurance that the pre-shipment testing programs we develop in the future will be adequate to detect all defects, including defects in individual products or defects affecting numerous shipments. Such potential defects might interfere with customer satisfaction, reduce sales opportunities or affect gross margins. As an example, software typically contains bugs that can unexpectedly interfere with expected operations. From time to time, we will have to replace certain components and provide remediation in response to the discovery of defects or bugs in our products. There can be no assurance that such remediation, depending on the product involved, would not have a material adverse impact on our business. An inability to cure a product defect could result in the failure of a product line, temporary or permanent withdrawal from a product or market, damage to our reputation, additional inventory costs, or product reengineering expenses, any of which could have a material adverse impact on our revenue, margins and net income.

Our success depends on retaining key personnel who would be difficult to replace.

Our success depends largely on the continued services of our key management and technical staff. In particular, our success depends on the continued efforts of Ms. Zhixin Liu, our Chairman of the Board of Directors, Chief Executive Officer, President and Corporate Secretary, and Mr. Fu Liu, one of our directors and Ms. Liu’s father. Ms. Liu and Mr. Liu have been instrumental in developing our business model and are crucial to our business development. There can be no assurance that they will continue in their present capacities for any particular period of time. The loss of the services of Ms. Liu and/or Mr. Liu could materially and adversely affect our business development.

The various industries we are in are characterized by constant and rapid technological change and evolving standards. If we fail to anticipate and adapt to these changes and evolutions, our sales, gross margins and profitability will be adversely affected.

Technologies change rapidly in the acoustics high tech, AI multimodal digital industries with frequent new products and service developments and evolving industry standards. Companies operating within these industries are continuously developing new products and services with heightened performance and functionality, putting pricing pressure on existing products. Accordingly, we believe that our future success will depend on our ability to continue to anticipate technological changes and to offer additional product and service opportunities that meet evolving standards on a timely and cost-effective basis. Our failure to accurately anticipate the introduction of new technologies or adapt to fluctuations in the industry could lead to our having significant amounts of obsolete inventory that can only be sold at substantially lower prices and profit margins than anticipated. In addition, if we are unable to develop planned new technologies, we may be unable to compete effectively due to our failure to offer products or services most demanded by the marketplace. Products and services that our competitors develop or introduce may also render our products and services noncompetitive or obsolete. If any of these failures occur, our business and results of operations would be adversely affected.

We depend on contract manufacturers, and our production and products could be harmed if they are unable to meet our volume and quality requirements and alternative sources are not available.

We rely on third party contract manufacturers to provide manufacturing services for our products. Although such manufacturers are widely available in China and engage in significant price competition, allowing us to select among them to meet our requirements, if these services were to become unavailable, we would have to seek new contract manufacturers or bring manufacturing in-house. Such circumstances could severely disrupt production and increase costs, which could have a material adverse effect on our business and results of operations.

Our financial controls and procedures may not be sufficient to ensure timely and reliable reporting of financial information, which, as a public company, could materially harm our stock price. While we have improved our internal control over financial reporting, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock.

We require significant financial resources to maintain our public reporting status. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States of America. Our management has assessed the effectiveness of our internal control over financial reporting with an assessment report as of June 30, 2025, and has determined that our internal control over financial reporting was not effective because of the following weaknesses, which are indicative of many small companies with a small staff: (i) the segregation of duties in several departments is not clear enough; (ii) the testing cycle for the effectiveness of internal control measures should be shortened and the frequency be increased; (iii) lack of accounting personal trained in the Generally Accepted Accounting Principle of United States.

The Company plans to shorten the cycle and increase the frequency concerning the testing cycle for the effectiveness of internal control measures. The annual risk control assessment reporting system will be improved to a quarterly risk control assessment system.

Our efforts in the building of our internal control system are not limited to the formulation and implementation of financial management and control measures, but focuses on the combination of comprehensive and targeted control to build up an internal control system that best fits us. According to the management system imperfections concerning job responsibilities and departmental processes that are identified through self-examination, the Company, by highlighting six elements of “internal environment, risk assessment, control activities, information and communication, and internal supervision” and seven control measures of separate control of incompatible functions, authorization and approval control, accounting system control, property protection control, budget control, operation analysis control and performance appraisal control”, is gradually establishing and improving an internal control system featuring organizational structure, development strategy, human resources, social responsibility, corporate culture, financial activities, procurement business sales business, research and development, financial reports, comprehensive budget, contract management, internal information transfer and information system and other contents, and it is formulating the internal control system applicable to the whole company and organizing related implementation in accordance with relevant laws and regulations and supporting measures.

By the end of the fiscal year ended June 30, 2025, we 1) established a Risk Control Department led by the internal control director and external legal counsels to ensure the Company’s compliance with relevant regulations and risk management requirements; 2) formulated new policies or integrated a series of internal control policies, including but not limited to the process from procurement to payment, the process from payment to the sales, cash management, cost management, budget process, accounts receivable policy, policy to prevent and detect fraud, assets and inventory management, internal audit policy and cost accounting; 3) set up bookkeeping under U.S. GAAP and we provided training for our employees, such as the Finance Department, Marketing Department, and senior executives, and 4) set up the International Affair Department to strengthen our compliance and financing management in the international capital market.

Despite these controls, because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective, they can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies like us face additional limitations (they employ fewer individuals and can find it difficult to employ resources for complicated transactions and effective risk management and tend to utilize general accounting software packages that lack a rigorous set of software controls).

If we fail to have effective controls and procedures for financial reporting in place, we may not be able to accurately or timely report our financial condition or results of operations, which may adversely affect investor confidence in us and, as a result, the value of our common stock. We also may be subject to investigation by the SEC and civil or criminal sanctions.

Our compliance with complicated U.S. regulations concerning corporate governance and public disclosure will result in additional expenses. Moreover, our ability to comply with all applicable laws, rules and regulations is uncertain given our management’s relative inexperience with operating U.S. public companies.

As a public company, our directors and senior management have been learning and adapting to disclosure, corporate governance, and other compliance-related laws and regulations, including but not limited to the Sarbanes–Oxley Act (SOX) and the Dodd–Frank Wall Street Reform and Consumer Protection Act. However, due to language barriers, cultural differences, and practical application challenges, there remain areas of ambiguity in our understanding of these regulations. In addition, we are not always able to promptly track new guidance issued by regulatory authorities, which results in continued uncertainty in interpreting regulatory requirements, higher communication costs, and increased compliance expenses. Consequently, our efforts to comply with the evolving legal and regulatory framework applicable to U.S. public companies are expected to continue to increase our general and administrative expenses and divert management’s time and attention away from revenue-generating activities toward compliance-related matters.

Moreover, our executive officers have little experience in operating a U.S. public company, which makes our ability to comply with applicable laws, rules and regulations uncertain. Our failure to comply with all laws, rules and regulations applicable to U.S. public companies could subject us or our management to regulatory scrutiny or sanction, which could harm our reputation and stock price.

Failure to comply with the Foreign Corrupt Practices Act could adversely affect our business.

We are required to comply with the United States Foreign Corrupt Practices Act (or FCPA), which prohibits U.S. companies from engaging in bribery or other prohibited payments to foreign officials for the purpose of obtaining or retaining business. Foreign companies, including some of our competitors, are not subject to these prohibitions. Corruption, extortion, bribery, pay-offs, theft and other fraudulent practices occur from time-to-time in mainland China. If our competitors engage in these practices, they may receive preferential treatment from personnel of other companies or government agencies, giving our competitors an advantage in securing business or from government officials who might give them priority in obtaining new licenses, which would put us at a disadvantage.

We have operations, agreements with third parties, and make sales in China. Companies with operations in China have been accused and found guilty of sales practices that involve unlawful activity, including violations of the FCPA. We believe to date we have complied in all material respects with the provisions of the FCPA. However, our existing safeguards and any future improvements may prove to be less than effective, and the employees, consultants and/or distributors of our Company may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect our business, operating results and financial condition. In addition, the government may seek to hold our Company liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.

We may be subject to liability if private information that we receive is not secure or if we violate privacy laws and regulations.

Because we store, process and use data, some of which contain personal information, we are subject to complex and evolving federal, state and foreign laws and regulations regarding privacy, data protection and other matters. Many of these laws and regulations are subject to constant change and uncertain interpretation. Any violation of these laws could result in investigations, claims, changes to our business practices, increased cost of operations and declines in user growth, retention or engagement, any of which could materially adversely affect our business, results of operations and financial condition.

In November 2016, the Standing Committee of the National People’s Congress passed China’s first cybersecurity law, or CSL, which took effect in June 2017. The CSL systematically lays out cybersecurity and data protection regulatory requirements and subjects many previously under-regulated or unregulated activities in cyberspace and data management to government scrutiny. Compliance costs and other burdens related to CSL as well as China’s regulatory measures on the collection, storage, use and provision of network data may affect users’ use and acceptance of our products and services, and may have a significant adverse impact on our business, directly affecting our market development channels and financial revenue capacity.

The European Union General Data Protection Regulation 2016/679 (“GDPR”), which came into effect on May 25, 2018, includes operational requirements for companies that receive or process personal data of residents of the European Economic Area. The GDPR establishes new requirements applicable to the processing of personal data ( i.e. , data which identifies an individual or from which an individual is identifiable), affords new data protection rights to individuals ( e.g. , the right to erasure of personal data) and imposes penalties for serious data breaches. Individuals also have a right to compensation under the GDPR for financial or non-financial losses. Although we do not conduct any business in the European Economic Area, in the event that residents of the European Economic Area access our website and input protected information, we may become subject to provisions of the GDPR. Compliance with the GDPR will impose additional responsibilities and liabilities in relation to our processing of personal data. The GDPR may require us to change our policies and procedures and, if we are not compliant, could materially adversely affect our business, results of operations and financial condition.

We are also subject to laws restricting disclosure of information relating to our employees. We strive to comply with all applicable laws, policies, legal obligations, and industry codes of conduct relating to privacy, data security, cybersecurity and data protection. However, given that the scope, interpretation, and application of these laws and regulations are often uncertain and may be conflicting, it is possible that these obligations may be interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other rules or our practices. Any failure or perceived failure by us or our third-party service-providers to comply with our privacy or security policies or privacy-related legal obligations, or any compromise of security that results in the unauthorized release or transfer of personally identifiable information or other user data, may result in governmental enforcement actions, litigation, or negative publicity, and could have an adverse effect on our business and operating results.

Risks Relating to Our Corporate Structure

Our corporate structure, in particular, the Variable Interest Entity (or VIE), and their agreements (or VIE Agreements), are subject to significant risks, as set forth in the following risk factors.

If the PRC government deems that the VIE Agreements do not comply with PRC regulatory restrictions on foreign investment in the relevant industries or other laws or regulations of the PRC, or if these regulations or the interpretation of existing regulations change in the future, we could be subject to severe penalties or be forced to relinquish our interests in those operations, which may therefore materially reduce the value of our ordinary shares.

We are a holding company incorporated in Nevada. As a holding company with no material operations of our own, we conduct a substantial majority of our operations through the operating entities established in the People’s Republic of China, or the PRC, primarily our variable interest entity (the “VIE”) and its subsidiaries. Due to PRC legal restrictions on foreign ownership in any internet-related businesses we may explore and operate, we do not have any equity ownership of the VIE, instead we control and receive the economic benefits of the VIE’s business operations through certain contractual arrangements. Our common stock currently listed on the Nasdaq Capital Markets are shares of Datasea, our Nevada holding company, that maintains service agreements with the associated operating companies. The Chinese regulatory authorities could disallow our structure, which could result in a material change in our operations and the value of our securities could decline or become worthless. For a description of our corporate structure and contractual arrangements, see “Our Organizational Structure” on page 24 and “VIE Agreements” on page 3.

We believe that our corporate structure and contractual arrangements comply with the current applicable PRC laws and regulations. We also believe that each of the contracts among our wholly-owned PRC subsidiary, the consolidated VIE and its shareholders is valid, binding and enforceable in accordance with its terms. However, there are substantial uncertainties regarding the interpretation and application of current and future PRC laws and regulations. Thus, the PRC governmental authorities may take a view contrary to the opinion of our PRC legal counsel. It is uncertain whether any new PRC laws or regulations relating to variable interest entity structure will be adopted or if adopted, what they would provide. PRC laws and regulations governing the validity of these contractual arrangements are uncertain and the relevant government authorities have broad discretion in interpreting these laws and regulations.

If these regulations change or are interpreted differently in the future and our corporate structure and contractual arrangements are deemed by the relevant regulators that have competent authority, to be illegal, either in whole or in part, we may lose control of the consolidated VIE, which conducts our manufacturing operations, holds significant assets and accounts for significant revenue, and have to modify such structure to comply with regulatory requirements. However, there can be no assurance that we can achieve this without material disruption to our business. Further, if our corporate structure and contractual arrangements are found to be in violation of any existing or future PRC laws or regulations, the relevant regulatory authorities would have broad discretion in dealing with such violations, including:

revoking our business and operating licenses;

levying fines on us;

confiscating any of our income that they deem to be obtained through illegal operations;

shutting down our services;

discontinuing or restricting our operations in China;

imposing conditions or requirements with which we may not be able to comply;

requiring us to change our corporate structure and contractual arrangements;

restricting or prohibiting our use of the proceeds from overseas offering to finance the consolidated VIE’s business and operations; and

taking other regulatory or enforcement actions that could be harmful to our business.

Furthermore, new PRC laws, rules and regulations may be introduced to impose additional requirements that may be applicable to our corporate structure and contractual arrangements. The occurrence of any of these events could materially and adversely affect our business, financial condition and results of operations and the market price of our common stock. In addition, if the imposition of any of these penalties or requirement to restructure our corporate structure causes us to lose the rights to direct the activities of the consolidated VIE or our right to receive their economic benefits, we would no longer be able to consolidate the financial results of such VIE in our consolidated financial statements, which may cause the value of our securities to significantly decline or even become worthless.

We depend upon the VIE Agreements in conducting our business in the PRC, which may not be as effective as equity ownership.

We rely on contractual arrangements with the consolidated VIE and its shareholders, Zhixin Liu, Chairman of the Board, CEO and President of Datasea, and Fu Liu, a Director of Datasea (Fu Liu is the father of Zhixin Liu), to operate our business. The affiliation with Shuhai Beijing is managed through the VIE Agreements, which agreements may not be as effective in providing us with control over Shuhai Beijing as equity ownership. These contractual arrangements may not be as effective as equity ownership in providing us with control over the consolidated VIE. If the consolidated VIE or its shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by the consolidated VIE is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in the consolidated VIE, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.

All of these contractual arrangements are governed by PRC law and provide for the resolution of disputes through arbitration in the PRC. Accordingly, these contracts would be interpreted in accordance with PRC laws and any disputes would be resolved in accordance with PRC legal procedures. The legal environment in the PRC is not as developed as in other jurisdictions, such as the U.S. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over the consolidated VIE, and our ability to conduct our business and our financial condition and results of operations may be materially and adversely affected.

We may not be able to consolidate the financial results of some of the affiliated companies or such consolidation could materially adversely affect our operating results and financial condition.

All of our business is conducted through Shuhai Beijing, which is considered a VIE for accounting purposes, and we are considered the primary beneficiary, thus enabling us to consolidate its financial results in our consolidated financial statements. In the event that in the future a company we hold as a VIE no longer meets the definition of a VIE under applicable accounting rules, or we are deemed not to be the primary beneficiary, we would not be able to consolidate line by line that entity’s financial results in our consolidated financial statements for reporting purposes. Also, if in the future an affiliate company becomes a VIE and we become the primary beneficiary, we would be required to consolidate that entity’s financial results in our consolidated financial statements for accounting purposes. If such entity’s financial results were negative, this would have a corresponding negative impact on our operating results for reporting purposes.

Because we rely on the Operation and Intellectual Property Service Agreement with Shuhai Beijing for our revenue, the termination of this agreement Or be forcibly discharged would severely and detrimentally affect our continuing business viability under our current corporate structure.

We are a holding company and all of our business operations are conducted through the VIE Agreements. As a result, our revenues mainly rely on dividend payments from Tianjin Information after it receives payments from Shuhai Beijing pursuant to the Operation and Intellectual Property Service Agreement. Shuhai Beijing may terminate the Operation and Intellectual Property Service Agreement for any or no reason by Chinese government at all. Because neither we, nor the subsidiaries, own equity interests of Shuhai Beijing, the termination of the Operation and Intellectual Property Service Agreement would sever our ability to continue receiving payments from Shuhai Beijing under our current holding company structure. While we are currently not aware of any event or reason that may cause the Operation and Intellectual Property Service Agreement to terminate, we cannot assure you that such an event or reason will not occur in the future. In the event that the Operation and Intellectual Property Service Agreement is terminated, this would have a severe and detrimental effect on our continuing business viability under our current corporate structure, which, in turn, may affect the value of your investment.

Contractual arrangements entered into by the subsidiary and the PRC operating affiliate may be subject to scrutiny by the PRC tax authorities. Such scrutiny may lead to additional tax liability and fines, which would hinder our ability to achieve or maintain profitability.

Under PRC law, arrangements and transactions among related parties may be subject to audit or challenge by the PRC tax authorities. If any of the transactions entered into by the subsidiary and the PRC operating affiliate are found not to have been conducted on an arm’s length basis or to result in an unreasonable reduction in tax under PRC law, the PRC tax authorities have the authority to disallow tax savings, adjust the profits and losses of the respective PRC entities and assess late payment interest and penalties.

The shareholders of the VIE may have potential conflicts of interest with us, which may materially and adversely affect our business and financial condition.

Ms. Zhixin Liu and Mr. Fu Liu are majority shareholders of Datasea and the shareholders of the VIE, Shuhai Beijing. Ms. Liu is our Chairman, Chief Executive Officer, President and Secretary, while Mr. Liu is one of our directors. They may have potential conflicts of interest with us. These shareholders may breach, or cause the VIE to breach, or refuse to renew, the existing contractual arrangements we have with them and the VIE, which would have a material and adverse effect on our ability to effectively control the VIE and receive substantially all the economic benefits from it. For example, the shareholders may be able to cause our agreements with Shuhai Beijing to be performed in a manner adverse to us by, among other things, failing to remit payments due under the contractual arrangements to us on a timely basis. We cannot assure you that when conflicts of interest arise, any or all of these shareholders will act in the best interests of our company or such conflicts will be resolved in our favor.

Currently, we do not have any arrangements to address potential conflicts of interest between these shareholders and our company. We rely on Ms. Liu and Mr. Liu to abide by the laws of the State of Nevada and China, which provide that directors owe a fiduciary duty to the Company that requires them to act in good faith and in what they believe to be the best interests of the Company and not to use their position for personal gains. If we cannot resolve any conflict of interest or dispute between us and the shareholders of Shuhai Beijing, we would have to rely on legal proceedings, which could result in disruption of our business and subject us to substantial uncertainty as to the outcome of any such legal proceedings.

If any of the affiliated entities becomes the subject of bankruptcy or liquidation proceeding, we may lose the ability to use and enjoy assets held by such entity, which could materially and adversely affect our business, financial condition and results of operations.

We currently conduct our operations in China through contractual arrangements with the affiliated entities. As part of these arrangements, substantially all of our assets that are important to the operation of our business are held by the affiliated entities. If any of these entities goes bankrupt and all or part of their assets become subject to liens or rights of third-party creditors, we may be unable to continue some or all of our business activities, which could materially and adversely affect our business, financial condition and results of operations. If any of the affiliated entities undergoes a voluntary or involuntary liquidation proceeding, its equity owner or unrelated third-party creditors may claim rights relating to some or all of these assets, which would hinder our ability to operate our business and could materially and adversely affect our business, our ability to generate revenue and the market price of our common stock.

Risks Associated With Doing Business in China

Changes in the policies of the PRC government could have a significant impact upon the business we may be able to conduct in the PRC and the profitability of our business.

China is currently prioritizing the development of high-tech enterprises, particularly promoting the advancement of new quality productive forces. The significant revenue growth of our company in the past two years has also benefited from strong national support for high-tech enterprises, which has driven the development of artificial intelligence and related industries. If such policies were to change, it could affect the further expansion of our business.

In addition, policy uncertainty remains a risk: the speed and intensity of policy changes often exceed market expectations, making it difficult for investors to prepare in advance, which may result in significant stock price volatility.

The approval and/or other requirements of the CSRC or other mainland China governmental authorities may be required in connection with our issuance of securities overseas under mainland China rules, regulations or policies, and, if required, we cannot predict whether or for how long we will be able to obtain such approval or complete such other requirements.

The Regulations on Mergers and Acquisitions of Domestic Enterprises by Foreign Investors, or the M&A Rules, purport to require offshore special purpose vehicles that are controlled by mainland China companies or individuals and that have been formed for the purpose of seeking a public listing on an overseas stock exchange through acquisitions of mainland China domestic companies or assets to obtain CSRC approval prior to publicly listing their securities on an overseas stock exchange. The interpretation and application of the regulations remain unclear. If CSRC approval is required, it is uncertain how long it will take for us to obtain such approval, and, even if we obtain such CSRC approval, the approval could be rescinded. Any failure to obtain or a delay in obtaining CSRC approval for our future issuance of securities overseas may subject us to sanctions imposed by the CSRC and other mainland China regulatory agencies, which could include fines and penalties on our operations in mainland China, restrictions or limitations on our ability to pay dividends outside of mainland China, and other forms of sanctions that may materially and adversely affect our business, financial condition, and results of operations.

Furthermore, on July 6, 2021, the PRC government promulgated the Opinions on Strictly Cracking Down on Illegal Securities Activities, or the July 6 Opinions, which, among other things, called for enhanced administration and supervision of overseas-listed mainland China-based companies, proposed to strengthen the supervision of the overseas issuance and listing of shares by mainland China-based companies and clarified the responsibilities of competent domestic industry regulators and government authorities. On December 28, 2021, the CAC, together with other relevant administrative departments, jointly released the Cybersecurity Review Measures, which took effect on February 15, 2022. Pursuant to the Cybersecurity Review Measures, network platform operators with personal information of over one million users shall apply with the Cybersecurity Review Office for a cybersecurity review before going to list abroad.

The new rules for the filing-based administration of overseas securities offerings and listings by Chinese domestic companies released on February 17, 2023, or New Filing Rules, establish a new filing-based regime to regulate overseas offerings and listings by domestic companies. According to the New Filing Rules, (i) an overseas offering and listing by a domestic company, whether directly or indirectly, shall be filed with the CSRC; and (ii) the issuer or its affiliated domestic company, as the case may be, shall file with the CSRC for its initial public offering, follow-on offering, issuance of convertible bonds, offshore relisting after go-private transactions and other equivalent offing activities. In addition, after a domestic company has offered and listed securities in an overseas markets, it is required to file a report to the CSRC after the occurrence and public disclosure of certain material corporate events, including but not limited to, change of control and voluntary or mandatory delisting. From March 31, 2023, enterprises that have been listed overseas shall constitute existing enterprises and are not required to conduct the overseas listing filing procedure immediately, but shall carry out filing procedures as required if they conduct future offshore offerings or capital raising activities or are involved in other circumstances that require filing with the CSRC.

On February 24, 2023, the CSRC, together with other relevant government authorities, issued the Provisions on Strengthening Confidentiality and Archives Administration of Overseas Securities Offering and Listing by Domestic Companies, or the Archives Rules, which became effective on March 31, 2023. According to the Archives Rules, domestic mainland China companies, whether offering and listing securities overseas directly or indirectly, must strictly abide the applicable laws and regulations when providing or publicly disclosing, either directly or through their overseas listed entities, documents and materials to securities companies, securities services providers such as accounting firms, or overseas regulators in the process of their overseas offering and listing. If such documents or materials contain any state secrets or government authorities work secrets, domestic companies must obtain the approval from competent governmental authorities according to the applicable laws, and file with the secrecy administrative department at the same level with the approving governmental authority. Furthermore, the Archives Rules also provides that securities companies and securities service providers shall also fulfill the applicable legal procedures when providing overseas regulatory institutions and other relevant institutions and individuals with documents or materials containing any state secrets or government authorities work secrets or other documents or materials that, if divulged, will jeopardize national security or public interest.

International tariff and rising threats of international tariffs, including tariffs applied to goods between the U.S. and China, may materially and adversely affect our business and financial results. If relations between the United States and China worsen, investors may be unwilling to hold or buy our stock and our stock price may decrease .

International tariffs and rising threats of international tariffs, particularly between the U.S. and China, could materially and adversely affect our business and results of operations. While some of our business operations are in U.S., substantially all of our business operations are in China, and we are developing our business in other countries. As such, we face risks from U.S. tariff policies and trade uncertainties. As of April 2025, U.S. tariff measures, including a 10% customs duty on all imported goods effective April 5, 2025, as per an Executive Order issued by President Trump on April 2, 2025, with potentially higher duties on imports from specific countries, could significantly increase costs for our supply chain. For China, tariffs have been particularly aggressive. Such increases could lead to higher production costs, potentially reducing our profit margins or requiring price adjustments that may affect customer demand.

Furthermore, tariff-related disruptions could cause supply chain delays, impacting our ability to meet customer delivery schedules and increasing operational expenses. Retaliatory tariffs or trade barriers imposed by other nations in response to U.S. policies could also limit our competitiveness in export markets, potentially reducing sales volumes or necessitating costly shifts to alternative suppliers or markets. Additionally, trade-driven volatility in commodity prices and foreign exchange rates could further complicate cost forecasting and financial stability. There is no assurance that we can fully mitigate these adverse effects. The evolving landscape of global trade policies, including the potential for further tariff escalations or broader economic impacts, could materially adversely affect our business, financial condition, and growth prospects.

Additionally, changes in political conditions in China and China-U.S. relations, particularly concerning tensions around Taiwan, are difficult to predict and could adversely affect our operations and financial condition. A deterioration in political or trade relations could also harm our business’s public perception and revenue generation.

A slowdown or other adverse developments in the PRC economy, including future inflation, may harm our customers and the demand for our services and our products, and negatively affect profitability of our business in PRC.

Substantially all of our operations are conducted in the PRC. Although the PRC economy has grown significantly in recent years, there is no assurance that this growth will continue. A slowdown in overall economic growth, an economic downturn, a recession or other adverse economic developments in the PRC could significantly reduce the demand for our products and services.

In recent years, the Chinese economy has experienced periods of rapid expansion and high rates of inflation. Rapid economic growth can lead to growth in the money supply and rising inflation. If prices for our services and products rise at a rate that is insufficient to compensate for the rise in the costs of supplies, it may have an adverse effect on profitability. These factors have led to the adoption by Chinese government, from time to time, of various corrective measures designed to restrict the availability of credit or regulate growth and contain inflation. High inflation may in the future cause the Chinese government to impose controls on credit and/or prices, or to take other action, which could inhibit economic activity in China, and thereby harm the market for our services and products.

The fluctuation of the Renminbi may have a material adverse effect on your investment.

The change in value of the Renminbi against the U.S. dollar and other currencies is affected by, various factors, such as changes in China’s political and economic conditions and China’s foreign exchange controls. On July 21, 2005, the PRC government changed its decade-old policy of pegging the value of the Renminbi to the U.S. dollar. Under such policy, the Renminbi was permitted to fluctuate within a narrow and managed band against a basket of certain foreign currencies. Later on, the People’s Bank of China has decided to further implement the reform of the RMB exchange regime and to enhance the flexibility of RMB exchange rates. Such changes in policy have resulted in a significant appreciation of the Renminbi against the U.S. dollar since 2005. There remains significant international pressure on the PRC government to adopt a more flexible currency policy, which could result in a further and more significant adjustment of the Renminbi against the U.S. dollar. Any significant appreciation or revaluation of the Renminbi may have a material adverse effect on the value of, and any dividends payable on, shares of our common stock in foreign currency terms. More specifically, if we decide to convert our Renminbi into U.S. dollars, appreciation of the U.S. dollar against the Renminbi would have a negative effect on the U.S. dollar amount available to us. To the extent that we need to convert U.S. dollars we receive from our 2018 offering into Renminbi for our operations, appreciation of the Renminbi against the U.S. dollar would have an adverse effect on the Renminbi amount we would receive from the conversion. In addition, appreciation or depreciation in the exchange rate of the Renminbi to the U.S. dollar could materially and adversely affect the price of shares of our common stock in U.S. dollars without giving effect to any underlying change in our business or results of operations.

Restrictions on currency exchange may limit our ability to receive and use our revenue effectively.

Substantially all of our revenue is denominated in Renminbi. As a result, restrictions on currency exchange may limit our ability to use revenue generated in Renminbi to fund any business activities we may have outside China in the future or to make dividend payments to our shareholders in U.S. dollars. Under current PRC laws and regulations, Renminbi is freely convertible for current account items, such as trade and service-related foreign exchange transactions and dividend distributions. However, Renminbi is not freely convertible for direct investment or loans or investments in securities outside China, unless such use is approved by SAFE. For example, foreign exchange transactions under the subsidiary’s capital account, including principal payments in respect of foreign currency-denominated obligations, remain subject to significant foreign exchange controls and the approval requirement of SAFE. These limitations could affect our ability to convert Renminbi into foreign currency for capital expenditures. And the Chinese government is further strengthening the control of foreign exchange, we will not be able to change the Chinese government’s decision in our own power.

The subsidiaries and affiliated entities in China are subject to restrictions on making dividends and other payments to us.

Datasea is a holding company and relies principally on dividends paid by its subsidiaries in China for our cash needs, including paying dividends and other cash distributions to our shareholders to the extent we choose to do so, servicing any debt we may incur and paying our operating expenses. Tianjin Information’s income in turn depends on the service fees paid by its affiliated entities, including the VIE, in China. Current PRC regulations permit the subsidiary in China to pay dividends to us only out of its accumulated profits, if any, determined in accordance with Chinese accounting standards and regulations. Under the applicable requirements of PRC law, Tianjin Information may only distribute dividends after it has made allowances to fund certain statutory reserves. These reserves are not distributable as cash dividends. In addition, if the subsidiaries or affiliated entities in China incur debt on their own behalf in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments to us. Any such restrictions may materially affect such entities’ ability to make dividends or make payments, in service fees or otherwise, to us, which may materially and adversely affect our business, financial condition and results of operations.

Uncertainties with respect to the PRC legal system could have a material adverse effect on us.

The PRC legal system is a civil law system based on written statutes. Unlike the common law system, prior court decisions in a civil law system may be cited as reference but have limited precedential value. Since 1979, newly introduced PRC laws and regulations have significantly enhanced the protections of interest relating to foreign investments in China. However, since these laws and regulations are relatively new and the PRC legal system continues to evolve rapidly, the interpretations of such laws and regulations may not always be consistent, and enforcement of these laws. In different administrative areas and regulations involves significant uncertainties, any of which could limit the available legal protections. In addition, the PRC administrative and judicial authorities have significant discretion in interpreting, implementing or enforcing statutory rules and contractual terms, and it may be more difficult to predict the outcome of administrative and judicial proceedings and the level of legal protection we may enjoy in the PRC than under some more developed legal systems. These uncertainties may affect our decisions on the policies and actions to be taken to comply with PRC laws and regulations, and may affect our ability to enforce our contractual or tort rights. In addition, the regulatory uncertainties may be exploited through unmerited legal actions or threats in an attempt to extract payments or benefits from us. Such uncertainties may therefore increase our operating expenses and costs, and materially and adversely affect our business and results of operations.

The PRC’s legal and judicial system under special circumstances may not adequately protect our business and operations and the rights of foreign investors.

The legal and judicial systems in the PRC are still rudimentary, and enforcement of existing laws is uncertain. As a result, it may be impossible to obtain swift and equitable enforcement of laws that do exist, Different administrative regions have different legal and judicial interpretations or to obtain enforcement of the judgment of one court by a court of another jurisdiction. The PRC’s legal system is based on the civil law regime, that is, it is based on written statutes. A decision by one judge does not set a legal precedent that is required to be followed by judges in other cases. In addition, the interpretation of Chinese laws may be varied to reflect domestic political changes.

The promulgation of new laws, changes to existing laws and the pre-emption of local regulations by national laws may adversely affect foreign investors. There can be no assurance that a change in leadership, social or political disruption, or unforeseen circumstances affecting the PRC’s political, economic or social life, will not affect the PRC government’s ability to continue to support and pursue these reforms. Such a shift could have a material adverse effect on our business and prospects.

Certain PRC regulations, including the M&A Rules and national security regulations, may require a complicated review and approval process which could make it more difficult for us to pursue growth through acquisitions in China.

The M&A Rules established additional procedures and requirements that could make merger and acquisition activities in China by foreign investors more time-consuming and complex. For example, the MOFCOM must be notified in the event a foreign investor takes control of a PRC domestic enterprise. In addition, certain acquisitions of domestic companies by offshore companies that are related to or affiliated with the same entities or individuals of the domestic companies, are subject to approval by the MOFCOM. In addition, the Implementing Rules Concerning Security Review on Mergers and Acquisitions by Foreign Investors of Domestic Enterprises, issued by the MOFCOM in August 2011, require that mergers and acquisitions by foreign investors in “any industry with national security concerns” be subject to national security review by the MOFCOM. In addition, any activities attempting to circumvent such review process, including structuring the transaction through a proxy or contractual control arrangement, are strictly prohibited. There is significant uncertainty regarding the interpretation and implementation of these regulations relating to merger and acquisition activities in China. In addition, complying with these requirements could be time-consuming, and the required notification, review or approval process may materially delay or affect our ability to complete merger and acquisition transactions in China. As a result, our ability to seek growth through acquisitions may be materially and adversely affected. In addition, if the MOFCOM determines that we should have obtained its approval for our entry into contractual arrangements with the affiliated entities, we may be required to file for remedial approvals. There is no assurance that we would be able to obtain such approval from the MOFCOM. We may also be subject to administrative fines or penalties by the MOFCOM that may require us to limit our business operations in the PRC, delay or restrict the conversion and remittance of our funds in foreign currencies into the PRC or take other actions that could have material and adverse effect on our business, financial condition and results of operations.

PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to the PRC subsidiary and affiliated entities, which could harm our liquidity and our ability to fund and expand our business.

Datasea is a Nevada corporation conducting substantially all of its operations in China through its PRC subsidiaries, the VIE and its subsidiaries established in China. Datasea may make loans to the PRC subsidiaries and VIE entities subject to the approval from governmental authorities and limitation of amount, or may make additional capital contributions to subsidiaries and VIE entities in China.

Any loans to the subsidiaries or VIE entities in China are subject to foreign investment and are under PRC regulations and foreign exchange loan registrations. For example, loans by us to the wholly foreign-owned subsidiaries or VIE entities in China to finance their activities must be registered with the local counterpart of SAFE. In addition, a foreign invested enterprise shall use its capital pursuant to the principle of authenticity and self-use within its business scope. The capital of a foreign invested enterprise shall not be used for the following purposes: (i) directly or indirectly used for payment beyond the business scope of the enterprises or the payment prohibited by relevant laws and regulations; (ii) directly or indirectly use for investment in securities or investments other than banks’ principal-secured products unless otherwise provided by relevant laws and regulations; (iii) the granting of loans to non-affiliated enterprises, except where it is expressly permitted in the business license; and (iv) paying the expenses related to the purchase of real estate that is not for self-use (except for the foreign-invested real estate enterprises).

On October 23, 2019, the SAFE PRC regulation of loans and direct investment by offshore holding companies to PRC entities may delay or prevent us from making loans or additional capital contributions to the PRC subsidiary and affiliated entities, which could harm our liquidity and our ability to fund and expand our business.

On October 23, 2019, the State Administration of Foreign Exchange (“SAFE”) promulgated the Notice on Further Promoting the Facilitation of Cross-border Trade and Investment (“Circular 28”), which allows all foreign-invested enterprises to convert foreign currency-denominated capital into Renminbi for use in domestic equity investments, provided that such investments are genuine, compliant with applicable laws, and do not fall within the prohibited categories of the negative list for foreign investment. Since then, the PRC government has continued to promote cross-border financing and investment facilitation. In 2025, it introduced the “Foreign Investment Action Plan,” which further encourages foreign-invested enterprises to reinvest capital or retained earnings in China and, under certain conditions, permits the use of domestic loans for equity investments. While these policies signal a trend toward greater flexibility, in practice, local branches of SAFE and relevant banks may still impose stringent reviews on registrations, approvals, and fund usage, with variations across different regions. As a result, we cannot assure you that we will be able to complete the necessary government registrations or obtain the required approvals in a timely manner. Such regulatory requirements may continue to delay or restrict our ability to provide funding to our PRC subsidiaries and affiliated entities, which could adversely affect our liquidity and our ability to expand our business.

We must remit offering proceeds to China in a future securities issuance before they may be used to benefit our business in China, the process of which may be time-consuming, and we cannot assure that we can complete all necessary governmental registration processes in a timely manner.

The proceeds of a future offering may be remitted back to the PRC, and the process for wiring such proceeds back to the PRC may be time-consuming after the closing of a future offering. We may be unable to use these proceeds to grow our business until the PRC subsidiaries receive such proceeds in the PRC. Any transfer of funds by us to the PRC subsidiaries, either as a shareholder loan or as an increase in registered capital, are subject to approval by or registration or filing with relevant governmental authorities in China. Any foreign loans procured by the PRC subsidiaries is required to be registered with China’s State Administration of Foreign Exchange (“SAFE”) or its local branches or satisfy relevant requirements, and the PRC subsidiaries may not procure loans which exceed the difference between their respective total project investment amount and registered capital or 2 times (which may be varied year by year due to the change of PRC’s national macro-control policy) of the net worth of the PRC subsidiary. According to the relevant PRC regulations on foreign-invested enterprises in China, capital contributions to the PRC subsidiaries are subject to the approval of or filing with State Administration for Market Regulation in its local branches, the Ministry of Commerce in its local branches and registration with a local bank authorized by SAFE.

In light of the various requirements imposed by PRC regulations on loans to, and direct investment in, PRC entities by offshore holding companies, we cannot assure you that we will be able to complete the necessary government registrations or obtain the necessary government approvals on a timely basis, if at all, with respect to future loans by us to the PRC subsidiary or with respect to future capital contributions by us to the PRC subsidiary. If we fail to complete such registrations or obtain such approvals, our ability to capitalize or otherwise fund the PRC operations may be negatively affected, which could materially and adversely affect our liquidity, our ability to fund and expand our business and our securities.

A failure by our PRC beneficial owners to comply with certain PRC foreign exchange regulations could restrict our ability to distribute profits, restrict our overseas and cross-border investment activities and subject us to liability under PRC law.

SAFE has promulgated regulations, including the Notice on Relevant Issues Relating to Domestic Residents’ Investment and Financing and Round-Trip Investment through Special Purpose Vehicles (or SAFE Circular No. 37), effective on July 4, 2014, and its appendices, that require PRC residents, including PRC institutions and individuals, to register with local branches of SAFE in connection with their direct establishment or indirect control of an offshore entity, for the purpose of overseas investment and financing, with such PRC residents’ legally owned assets or equity interests in domestic enterprises or offshore assets or interests, referred to in SAFE Circular No. 37 as a “special purpose vehicle.” SAFE Circular No. 37 further requires amendment to the registration in the event of any significant changes with respect to the special purpose vehicle, such as increase or decrease of capital contributed by PRC individuals, share transfer or exchange, merger, division or other material event. In the event that a PRC shareholder holding interests in a special purpose vehicle fails to fulfill the required SAFE registration, the PRC subsidiaries of that special purpose vehicle may be prohibited from making profit distributions to the offshore parent and from carrying out subsequent cross-border foreign exchange activities, and the special purpose vehicle may be restricted in its ability to contribute additional capital into its PRC subsidiary. Further, failure to comply with the various SAFE registration requirements described above could result in liability under PRC law for foreign exchange evasion.

These regulations apply to our direct and indirect shareholders who are PRC residents and may apply to any offshore acquisitions or share transfers that we make in the future if our shares are issued to PRC residents. However, in practice, different local SAFE branches may have different views and procedures on the application and implementation of SAFE regulations, and since SAFE Circular No. 37 was relatively new, there remains uncertainty with respect to its implementation. As of the date of this report, all PRC residents known to us that currently hold direct or indirect interests in our company have completed the necessary registrations with SAFE as required by SAFE Circular 37. However, we may not be informed of the identities of all the PRC residents or entities holding direct or indirect interest in our company, nor can we compel our beneficial owners to comply with the requirements of SAFE Circular 37. However, we cannot assure you that these individuals or any other direct or indirect shareholders or beneficial owners of our company who are PRC residents will be able to successfully complete the registration or update the registration of their direct and indirect equity interest as required in the future. If they fail to make or update the registration, our shareholders could be subject to fines and legal penalties, and SAFE could restrict our cross-border investment activities and our foreign exchange activities, including restricting the PRC subsidiary’s ability to distribute dividends to, or obtain loans denominated in foreign currencies from, our company, or prevent us from paying dividends. As a result, our business operations and our ability to make distributions to you could be materially and adversely affected.

We may be subject to fine due to our insufficient payment of the social insurance and housing fund of the employees.

Pursuant to the Social Insurance Law of the PRC, as amended on December 29, 2018,and the Regulation on the Administration of Housing Accumulation Funds, as amended on March 24, 2019, employers in China shall register with relevant social insurance agency and relevant housing provident fund management center and open special housing provident fund accounts for each of their employees, and pay contributions to the social insurance plan and the housing provident fund for their employees, such contribution amount payable shall be calculated based on the employee’s actual salary in accordance with the relevant regulations. In case the employer failed to make sufficient payment of the social insurance, it may be subject to fine up to 3 times of the insufficient amount and pay late fees. If the employer failed to register with relevant housing provident fund management center or failed to open special housing provident fund accounts for the employees within the ordered time limit, a fine of not less than RMB10,000 nor more than RMB50,000 may be imposed. In addition, if the employer fails to pay sufficient contributions to housing provident fund as required, the housing provident fund management center shall order it to make the payment and deposit within a prescribed time limit; where the payment has not been made after the expiration of the time limit, the housing provident fund management center may request the people’s court for compulsory enforcement. On July 20, 2018, the General Office of the Communist Party of China and the General Office of the State Council jointly issued the Reform Plan on Tax Collection and Administration Systems for Local Offices of the State Administration of Taxation and Local Taxation Bureaus, according to which the collection and administration of social insurance will be transferred from the social insurance departments to competent tax authorities, and the supervision over the payment of social insurance will be significantly strengthened in the way that an enterprise must pay social insurance for its employees based on their overall salary at certain legally required rates. If we are fined due to insufficient payment of the social insurance and housing fund of the employees, our business operations could be materially and adversely affected.

You may face difficulties in protecting your interests and exercising your rights as a stockholder of ours since we conduct substantially all of our operations in China and all of our officers and directors reside in China.

We conduct substantially all of our operations in China through Shuhai Beijing, our consolidated VIE in China. All of our current officers and directors reside outside the United States and substantially all of the assets of those persons are located outside of the United States. Because of this, it may be difficult for you to conduct due diligence on our company, our executive officers or directors and attend stockholder meetings if the meetings are held in China. As a result, our public stockholders may have more difficulty in protecting their interests through actions against our management, directors or major stockholders than would stockholders of a corporation doing business entirely or predominantly within the United States.

You may experience difficulties in protecting your rights through the United States courts.

Currently, substantially all of our operations are conducted in China and substantially all of our assets are located in China. All of our officers are nationals or residents of the PRC and a substantial portion of their assets are located outside the United States. As a result, it may be difficult for a stockholder to effect service of process within the United States upon these persons, or to enforce judgments against us which are obtained in United States courts, including judgments predicated upon the civil liability provisions of the securities laws of the United States or any state in the United States.

In addition, it may be difficult or impossible for you to effect service of process within the United States upon us our directors and officers in the event that you believe that your rights have been violated under United States securities laws or otherwise. Even if you are successful in effecting service of process and bringing an action of this kind, the laws of China may render you unable to enforce a judgment against our assets or the assets of our directors and officers. There is no statutory recognition in the PRC of judgments obtained in the United States.

Increases in labor costs in the PRC may adversely affect our business and our profitability.

The economy of China has been experiencing significant growth, leading to inflation and increased labor costs. China’s overall economy and the average wage in the PRC are expected to continue to grow. Future increases in China’s inflation and material increases in the cost of labor may materially and adversely affect our profitability and results of operations.

Our auditor is headquartered in the United States and is subject to inspection by the PCAOB on a regular basis. To the extent that our independent registered public accounting firm’s audit documentation related to their audit reports for our company become located in China, the PCAOB may not be able inspect such audit documentation and, as such, you may be deprived of the benefits of such inspection and our common stock could be delisted from the stock exchange pursuant to the Holding Foreign Companies Accountable Act and Accelerating Holding Foreign Companies Accountable Act.

Our independent registered public accounting firm issued an audit opinion on the financial statements included in this report filed with the SEC and will issue audit reports related to our company in the future. As auditors of companies that are traded publicly in the United States and a firm registered with the PCAOB, our auditor is required by the laws of the United States to undergo regular inspections by the PCAOB. However, to the extent that our auditor’s work papers become located in China, such work papers will not be subject to inspection by the PCAOB because the PCAOB is currently unable to conduct inspections without the approval of the Chinese authorities. Inspections of certain other firms that the PCAOB has conducted outside of China have identified deficiencies in those firms’ audit procedures and quality control procedures, which may be addressed as part of the inspection process to improve future audit quality. On December 2, 2021, the Securities and Exchange Commission adopted amendments to finalize rules implementing the submission and disclosure requirements in the HFCAA. We are required by the HFCAA to have an auditor that is subject to the inspection by the PCAOB. Pursuant to the HFCAA, the PCAOB issued a Determination Report on December 16, 2021, which found that the PCAOB was unable to inspect or investigate completely certain named registered public accounting firms headquartered in mainland China and Hong Kong. Our independent registered public accounting firm is headquartered in the United States and has been inspected by the PCAOB on a regular basis and as such, it is not affected by or subject to the PCAOB’s Determination Report. To the extent this status changes in the future and our auditor’s audit documentation related to their audit reports for our company becomes outside of the inspection by the PCAOB, our common stock could be delisted from the stock exchange pursuant to the Holding Foreign Companies Accountable Act.

Our securities may be prohibited from trading on a national exchange or over-the-counter in the United States under the Holding Foreign Companies Accountable Act, if the PCAOB determines that it cannot inspect or fully investigate our auditors for two consecutive years. As a result, an exchange may determine to delist our securities.

In light of recent events indicating greater oversight by the CAC over data security, we may be subject to a variety of PRC laws and other obligations regarding cybersecurity and data protection, and any failure to comply with applicable laws and obligations could have a material adverse effect on our business and our securities.

Since 2021, the Chinese government has strengthened its anti-monopoly supervision, mainly in three aspects: (1) establishing the National Anti-Monopoly Bureau; (2) revising and promulgating anti-monopoly laws and regulations, including: the Anti-Monopoly Law (draft Amendment published on October 23, 2021 for public opinions), the anti-monopoly guidelines for various industries, and the detailed Rules for the Implementation of the Fair Competition Review System; and (3) expanding the anti-monopoly law enforcement targeting Internet companies and large enterprises. As of the date of this report, the Chinese government’s recent statements and regulatory actions related to anti-monopoly concerns have not impacted our ability to conduct business, accept foreign investments, or list on a U.S. or other foreign exchange because neither the Company nor its PRC operating entities engage in monopolistic behaviors that are subject to these statements or regulatory actions.

On November 14, 2021, the Cyberspace Administration of China (“CAC”) released the Regulations on the Network Data Security Management (Draft for Comments), or the Data Security Management Regulations Draft, to solicit public opinion and comments till December 13, 2021, which has not been promulgated as of the date of this report. Pursuant to the Data Security Management Regulations Draft, data processors holding more than one million users/users’ individual information shall be subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. According to the latest amended Cybersecurity Review Measures, which was promulgated on November 16, 2021 and became effective on February 15, 2022, an online platform operator holding more than one million users/users’ individual information shall be subject to cybersecurity review before listing abroad.

As of the date of this Annual Report, Datasea, its subsidiaries, the VIE and VIE’s subsidiaries have not received any notice from any authorities requiring the PRC subsidiaries to go through cybersecurity review or network data security review by the CAC. Given that Datasea, its subsidiaries, the VIE and VIE’s subsidiaries do not possess personal data of at least one million individual clients and do not collect data that affects or may affect national security in their business operations as of the date of this report and do not anticipate that they will be collecting over one million users’ personal information or data that affects or may affect national security in the near future. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future, which could materially and adversely affect our business, financial conditions, and results of operations.

Compliance with China’s new Data Security Law, Measures on Cybersecurity Review (revised draft for public consultation), Personal Information Protection Law (second draft for consultation), regulations and guidelines relating to the multi-level protection scheme and any other future laws and regulations may entail significant expenses and could materially affect our business.

China has implemented or will implement rules and is considering a number of additional proposals relating to data protection. China’s new Data Security Law promulgated by the Standing Committee of the National People’s Congress of China in June 2021, or the Data Security Law, will take effect in September 2021. The Data Security Law provides that the data processing activities must be conducted based on “data classification and hierarchical protection system” for the purpose of data protection and prohibits entities in China from transferring data stored in China to foreign law enforcement agencies or judicial authorities without prior approval by the Chinese government. As the Data Security Law has not yet come into effect, we may need to make adjustments to our data processing practices to comply with this law.

Additionally, China’s Cyber Security Law, requires companies to take certain organizational, technical and administrative measures and other necessary measures to ensure the security of their networks and data stored on their networks. Specifically, the Cyber Security Law provides that China adopt a multi-level protection scheme (MLPS), under which network operators are required to perform obligations of security protection to ensure that the network is free from interference, disruption or unauthorized access, and prevent network data from being disclosed, stolen or tampered. Under the MLPS, entities operating information systems must have a thorough assessment of the risks and the conditions of their information and network systems to determine the level to which the entity’s information and network systems belong-from the lowest Level 1 to the highest Level 5 pursuant to the Measures for the Graded Protection and the Guidelines for Grading of Classified Protection of Cyber Security. The grading result will determine the set of security protection obligations that entities must comply with. Entities classified as Level 2 or above should report the grade to the relevant government authority for examination and approval.

Recently, the Cyberspace Administration of China has taken action against several Chinese internet companies in connection with their initial public offerings on U.S. securities exchanges, for alleged national security risks and improper collection and use of the personal information of Chinese data subjects. According to the official announcement, the action was initiated based on the National Security Law, the Cyber Security Law and the Measures on Cybersecurity Review, which are aimed at “preventing national data security risks, maintaining national security and safeguarding public interests.” On July 10, 2021, the Cyberspace Administration of China published a revised draft of the Measures on Cybersecurity Review, expanding the cybersecurity review to data processing operators in possession of personal information of over 1 million users if the operators intend to list their securities in a foreign country.

It is unclear at the present time how widespread the cybersecurity review requirement and the enforcement action will be and what effect they will have on the life sciences sector generally and the Company in particular. China’s regulators may impose penalties for non-compliance ranging from fines or suspension of operations, and this could lead to us delisting from the U.S. stock market.

In addition, our securities may be prohibited from trading on a national exchange or over-the-counter in the United States under the Holding Foreign Companies Accountable Act, if the PCAOB determines that it cannot inspect or fully investigate our auditors for two consecutive years.

Also, on August 20, 2021, the National People’s Congress passed the Personal Information Protection Law, which will be implemented on November 1, 2021. The law creates a comprehensive set of data privacy and protection requirements that apply to the processing of personal information and expands data protection compliance obligations to cover the processing of personal information of persons by organizations and individuals in China, and the processing of personal information of persons in China outside of China if such processing is for purposes of providing products and services to, or analyzing and evaluating the behavior of, persons in China. The law also proposes that critical information infrastructure operators and personal information processing entities who process personal information meeting a volume threshold to-be-set by Chinese cyberspace regulators are also required to store in China personal information generated or collected in China, and to pass a security assessment administered by Chinese cyberspace regulators for any export of such personal information. Lastly, the draft contains proposals for significant fines for serious violations of up to RMB 50 million or 5% of annual revenues from the prior year.

Interpretation, application and enforcement of these laws, rules and regulations evolve from time to time and their scope may continually change, through new legislation, amendments to existing legislation and changes in enforcement. Compliance with the Cyber Security Law and the Data Security Law could significantly increase the cost to us of providing our service offerings, require significant changes to our operations or even prevent us from providing certain service offerings in jurisdictions in which we currently operate or in which we may operate in the future. Despite our efforts to comply with applicable laws, regulations and other obligations relating to privacy, data protection and information security, it is possible that our practices, offerings or platform could fail to meet all of the requirements imposed on us by the Cyber Security Law, the Data Security Law and/or related implementing regulations. Any failure on our part to comply with such law or regulations or any other obligations relating to privacy, data protection or information security, or any compromise of security that results in unauthorized access, use or release of personally identifiable information or other data, or the perception or allegation that any of the foregoing types of failure or compromise has occurred, could damage our reputation, discourage new and existing counterparties from contracting with us or result in investigations, fines, suspension or other penalties by Chinese government authorities and private claims or litigation, any of which could materially adversely affect our business, financial condition and results of operations. Even if our practices are not subject to legal challenge, the perception of privacy concerns, whether or not valid, may harm our reputation and brand and adversely affect our business, financial condition and results of operations. Moreover, the legal uncertainty created by the Data Security Law and the recent Chinese government actions could materially adversely affect our ability, on favorable terms, to raise capital, including engaging in follow-on offerings of our securities in the U.S. market.

On November 14, 2021, the Cyberspace Administration of China released the Regulations on the Network Data Security Management (Draft for Comments), or the Data Security Management Regulations Draft, to solicit public opinion and comments till December 13, 2021, which has not been promulgated as of the date of this report. Pursuant to the Data Security Management Regulations Draft, data processors holding more than one million users/users’ individual information shall be subject to cybersecurity review before listing abroad. Data processing activities refers to activities such as the collection, retention, use, processing, transmission, provision, disclosure, or deletion of data. According to the latest amended Cybersecurity Review Measures, which was promulgated on November 16, 2021 and became effective on February 15, 2022, an online platform operator holding more than one million users/users’ individual information shall be subject to cybersecurity review before listing abroad.

As of the date of this report, Datasea, its subsidiaries and VIE entities have not received any notice from any authorities requiring the PRC subsidiaries to go through cybersecurity review or network data security review by the CAC. Given that the PRC subsidiaries do not possess personal data of at least one million individual clients and do not collect data that affects or may affect national security in their business operations as of the date of this report and do not anticipate that they will be collecting over one million users’ personal information or data that affects or may affect national security in the near future. There remains uncertainty, however, as to how the Cybersecurity Review Measures and the Security Administration Draft will be interpreted or implemented and whether the PRC regulatory agencies, including the CAC, may adopt new laws, regulations, rules, or detailed implementation and interpretation related to the Cybersecurity Review Measures and the Security Administration Draft. If any such new laws, regulations, rules, or implementation and interpretation come into effect, we will take all reasonable measures and actions to comply and to minimize the adverse effect of such laws on us. We cannot guarantee, however, that we will not be subject to cybersecurity review and network data security review in the future, which could materially and adversely affect our business, financial conditions, and results of operations.

We may be subject to intellectual property infringement claims, which may force us to incur substantial legal expenses and, if determined adversely to us, materially disrupt our business.

Internet and technology companies are frequently involved in litigation based on allegations of infringement of intellectual property rights, unfair competition, invasion of privacy, defamation and other violations of third-party rights. The validity, enforceability and scope of protection of intellectual property in Internet-related industries, particularly in China, are uncertain and still evolving. In addition, many parties are actively developing and seeking protection for Internet-related technologies, including seeking patent protection. There may be patents issued or pending that are held by others that cover significant aspects of our technologies, products, business methods or services. As we face increasing competition and as litigation becomes more common in China in resolving commercial disputes, we face a higher risk of being the subject of intellectual property infringement claims.

In particular, if we are found to have violated the intellectual property rights of others, we may be enjoined from using such intellectual property, may be ordered to pay damages or fines, and may incur licensing fees or be forced to develop alternatives. We may incur substantial expense in defending against third party infringement claims, regardless of their merit. Successful infringement claims against us may result in substantial monetary liability or may materially disrupt the conduct of our business by restricting or prohibiting our use of the intellectual property in question. Any intellectual property litigation could have a material adverse effect on our business, financial condition or results of operations .

Risks Relating to Investment in Our Common Stock

We incur additional increased costs as a publicly traded company listed on Nasdaq, and our management is required to devote substantial time to new compliance initiatives and reporting requirements.

As a public company, we incur significant accounting, legal and other expenses as a result of the listing of our common stock on Nasdaq. These include costs associated with corporate governance requirements of the SEC, and the Marketplace Rules of Nasdaq, as well as requirements under Section 404 and other provisions of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. These rules and regulations increase our legal and financial compliance costs, introduce costs such as investor relations, stock exchange listing fees and stockholder reporting, and make some activities more time-consuming and costly. Any future changes in the laws and regulations affecting public companies in the United States, including Section 404 and other provisions of the Sarbanes-Oxley Act, the rules and regulations adopted by the SEC and the rules of the Nasdaq Stock Market may result in increased costs to our company as we respond to such changes. These laws, rules and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.

If we fail to comply with the continued listing requirements of Nasdaq, we would face possible delisting, which would result in a limited public market for our shares and make obtaining future debt or equity financing more difficult for us.

We have been not in compliance with Nasdaq continued listing rules, particularly in May 2024 when we received a letter from Nasdaq that we were not in compliance with Nasdaq Listing Rule 5550(b)(1), because (i) the stockholders’ equity of the Company for the quarter ended March 31, 2024 was below the minimum stockholders’ equity requirement of $2,500,000 and (ii) the Company did not meet the alternatives standards of market value of listed securities or net income from continuing operations for compliance with Nasdaq Listing Rule 5550(b)(1).

While we regained compliance with these Nasdaq listing rules and also effected the Reverse Stock Split of our common stock on January 19, 2024, to continue our compliance with a minimum price requirement set forth in Nasdaq Listing Rule 5550(a)(2) of $1.00 per share, we cannot ensure that we will be able to comply with all continued Nasdaq listing rules.

Furthermore, we are aware that recently, U.S. public companies that have substantially all of their operations in China have been the subject of intense scrutiny, criticism and negative publicity by investors, financial commentators and regulatory agencies. Much of the scrutiny, criticism and negative publicity has centered around financial and accounting irregularities, a lack of effective internal controls over financial accounting, inadequate corporate governance policies or a lack of adherence thereto and, in some cases, allegations of fraud. As a result of the scrutiny, criticism and negative publicity, the publicly traded stock of many of these companies has decreased in value and, in some cases, has become virtually worthless. Many of these companies are now subject to shareholder lawsuits and SEC enforcement actions and are conducting internal and external investigations into the allegations. It is not clear what effect this sector-wide scrutiny, criticism and negative publicity will have on us, our business and this Offering. If we become the subject of any unfavorable allegations, whether such allegations are proven to be true or untrue, we will have to expend significant resources to investigate such allegations and/or defend our company. This situation may be a major distraction to our management. If such allegations are not proven to be groundless, our business operations will be severely hindered and your investment in our common stock could be rendered worthless.

If we are delisted from Nasdaq, trading in our securities may be conducted, if available, on the OTC Markets or, if available, via another market. In the event of such delisting, our stockholders would likely find it significantly more difficult to dispose of, or to obtain accurate quotations as to the value of our securities, and our ability to raise future capital through the sale of our securities could be materially and adversely affected if our common stock is not traded on a national securities exchange.

Our majority stockholders will control our Company for the foreseeable future, including the outcome of matters requiring shareholder approval.

Our officers and directors collectively hold approximately 57.4% beneficial ownership of our Company. Two directors are members of the same family. As a result, such individuals will have the ability, acting together, to control the election of our directors and the outcome of corporate actions requiring shareholder approval, such as: (i) a merger or a sale of our Company, (ii) a sale of all or substantially all of our assets, and (iii) amendments to our articles of incorporation and bylaws. This concentration of voting power and control could have a significant effect in delaying, deferring or preventing an action that might otherwise be beneficial to our other shareholders and be disadvantageous to our shareholders with interests different from those individuals. These individuals also have significant control over our business, policies and affairs as officers and directors of our Company. Therefore, you should not invest in reliance on your ability to have any control over our Company.

An active and visible trading market for our common stock may not develop.

We cannot predict whether an active market for our common stock will develop in the future. In the absence of an active trading market:

Investors may have difficulty buying and selling or obtaining market quotations;

Market visibility for our common stock may be limited; and

A lack of visibility for our common stock may have a depressive effect on the market price for our common stock.

The trading price of our common stock is subject to significant fluctuations in response to variations in quarterly operating results, changes in analysts’ earnings estimates, announcements of innovations by us or our competitors, general conditions in the industry in which we operate and other factors. These fluctuations, as well as general economic and market conditions, may have a material or adverse effect on the market price of our common stock.

The market price for our common stock may be volatile.

The market price for our common stock may be volatile and subject to wide fluctuations due to factors such as:

the perception of U.S. investors and regulators of U.S. listed Chinese companies;

actual or anticipated fluctuations in our quarterly operating results;

changes in financial estimates by securities research analysts;

negative publicity, studies or reports;

conditions in Chinese and global cybersecurity product markets;

our capability to match and compete with technology innovations in the industry;

changes in the economic performance or market valuations of other companies in the same industry;

announcements by us or our competitors of acquisitions, strategic partnerships, joint ventures or capital commitments;

addition or departure of key personnel;

fluctuations of exchange rates between RMB and the U.S. dollar; and

general economic or political conditions in or impacting China.

In addition, the securities market has from time to time experienced significant price and volume fluctuations that are not related to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.

Our common stock is thinly traded and you may be unable to sell at or near ask prices or at all if you need to sell your shares to raise money or otherwise desire to liquidate your shares.

Our common stock is “thinly-traded,” meaning that the number of persons interested in purchasing our common stock at or near bid prices at any given time may be relatively small or non-existent. This situation may be attributable to a number of factors, including the fact that we are relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and might be reluctant to follow an unproven company such as ours or purchase or recommend the purchase of our shares until such time as we became more seasoned. As a consequence, there may be periods of several days or more when trading activity in our shares is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on share price. Broad or active public trading market for our common stock may not develop or be sustained.

Our common stock may be considered a “penny stock,” and thereby be subject to additional sale and trading regulations that may make it more difficult to sell.

Our common stock may be considered to be a “penny stock” if it does not qualify for one of the exemptions from the definition of “penny stock” under Section 3a51-1 of the Exchange Act, as amended. Our common stock may be a “penny stock” if it meets one or more of the following conditions: (i) the stock trades at a price less than $5.00 per share; (ii) it is NOT traded on a “recognized” national exchange; (iii) it is not quoted on the NASDAQ Capital Market, or even if so, has a price less than $5.00 per share; or (iv) is issued by a company that has been in business less than three years with net tangible assets less than $5 million. The principal result or effect of being designated a “penny stock” is that securities broker-dealers participating in sales of our common stock will be subject to the “penny stock” regulations set forth in Rules 15-2 through 15g-9 promulgated under the Exchange Act. For example, Rule 15g-2 requires broker-dealers dealing in penny stocks to provide potential investors with a document disclosing the risks of penny stocks and to obtain a manually signed and dated written receipt of the document at least two business days before effecting any transaction in a penny stock for the investor’s account. Moreover, Rule 15g-9 requires broker-dealers in penny stocks to approve the account of any investor for transactions in such stocks before selling any penny stock to that investor. This procedure requires the broker-dealer to: (i) obtain from the investor information concerning his or her financial situation, investment experience and investment objectives; (ii) reasonably determine, based on that information, that transactions in penny stocks are suitable for the investor and that the investor has sufficient knowledge and experience as to be reasonably capable of evaluating the risks of penny stock transactions; (iii) provide the investor with a written statement setting forth the basis on which the broker-dealer made the determination in (ii) above; and (iv) receive a signed and dated copy of such statement from the investor, confirming that it accurately reflects the investor’s financial situation, investment experience and investment objectives. Compliance with these requirements may make it more difficult and time consuming for holders of our common stock to resell their shares to third parties or to otherwise dispose of them in the market or otherwise.

We are a “controlled company” within the meaning of the NASDAQ Stock Market Rules and, as a result, may rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other companies.

We are a “controlled company” as defined under the NASDAQ Stock Market Rules because Mr. Liu and Ms. Liu hold more than 50% of our voting power. For so long as we remain a controlled company under that definition, we are permitted to elect to rely, and will rely, on certain exemptions from the obligation to comply with certain corporate governance requirements, including:

the requirement that our director nominees must be selected or recommended solely by independent directors; and

the requirement that we have a corporate governance and nominating committee that is composed entirely of independent directors with a written charter addressing the committee’s purpose and responsibilities.

As a result, you will not have the same protections afforded to shareholders of companies that are subject to all of the corporate governance requirements of the NASDAQ Stock Market.

FINRA sales practice requirements may also limit your ability to buy and sell shares of our common stock, which could depress the price of shares of our common stock.

FINRA rules require broker-dealers to have reasonable grounds for believing that an investment is suitable for a customer before recommending that investment to the customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status and investment objectives, among other things. Under interpretations of these rules, FINRA believes that there is a high probability such speculative low-priced securities will not be suitable for at least some customers. Thus, FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell shares of our common stock, have an adverse effect on the market for shares of our common stock, and thereby depress price of our common stock.

Potential future sales under Rule 144 may depress the market price for our common stock.

In general, under Rule 144, a person who has satisfied a minimum holding period of between six months to one-year, as well as meeting any other applicable requirements of Rule 144, may thereafter sell such shares publicly. Therefore, the possible sale of unregistered shares may, in the future, have a depressive effect on the price of our common stock in the over-the-counter market.

Volatility in our common stock price may subject us to securities litigation.

The market for our common stock may have, when compared to seasoned issuers, significant price volatility and we expect that our share price may continue to be more volatile than that of a seasoned issuer for the indefinite future. In the past, plaintiffs have often initiated securities class action litigation against a company following periods of volatility in the market price of its securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs and liabilities and could divert management’s attention and resources.

We are not likely to pay cash dividends in the foreseeable future.

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any cash dividends in the foreseeable future, but will review this policy as circumstances dictate. Should we determine to pay dividends in the future, our ability to do so will depend upon the receipt of dividends or other payments from Shuhai Beijing. Shuhai Beijing may, from time to time, be subject to restrictions on its ability to make distributions to us, including restrictions on the conversion of RMB into U.S. dollars or other hard currency and other regulatory restrictions.

Nevada law and provisions in our articles of incorporation and bylaws could make a merger, tender offer or proxy contest difficult, thereby depressing the market price of our common stock.

Our status as a Nevada corporation and the anti-takeover provisions of the Nevada Revised Statutes may discourage, delay or prevent a change in control by prohibiting us from engaging in a business combination with an interested stockholder for a period of three years after the date of the transaction in which the person became an interested stockholder, even if a change of control would be beneficial to our existing stockholders. In addition, our articles of incorporation and bylaws contain provisions that may make the acquisition of our Company more difficult, including the following:

our stockholders will only be able to take action at a meeting of stockholders and will not be able to take action by written consent for any matter;

a special meeting of our stockholders may only be called by a majority of our board of directors;

advance notice procedures apply for stockholders to nominate candidates for election as directors or to bring matters before an annual meeting of stockholders; and

certain litigation against us can only be brought in Nevada.

These provisions, alone or together, could discourage, delay or prevent a transaction involving a change in control of our company. These provisions could also discourage proxy contests and make it more difficult for stockholders to elect directors of their choosing and to cause us to take other corporate actions they desire, any of which, under certain circumstances, could limit the opportunity for our stockholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock..

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Cautionary Note Regarding Forward-Looking Statements

This Annual Report contains forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue, or other financial items; any statements of the plans, strategies, and objectives of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions of performance; and statements of belief; and any statements of assumptions underlying any of the foregoing. Such forward-looking statements involve known and unknown risks, uncertainties, and other factors that may cause our actual results, performance, or achievements to be materially different from any future results, performance, or achievements expressed or implied by such forward-looking statements.

In some cases, you can identify forward-looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management’s current expectations, which it believes are reasonable. However, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward-looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to several factors, including:

uncertainties relating to our ability to establish and operate our business and generate revenue;

uncertainties relating to general economic, political, and business conditions in China;

industry trends and changes in demand for our products and service；

uncertainties relating to customer plans and commitments and the timing of orders received from customers;

announcements or changes in our advertising model and related pricing policies or that of our competitors;

unanticipated delays in the development, market acceptance, or installation of our products and services;

changes in Chinese government regulations; and

availability, terms and deployment of capital, relationships with third-party equipment suppliers

Overview and Recent Developments

Datasea Inc. (“Datasea” or the “Company”, NASDAQ: DTSS) is a technology company incorporated under the laws of the State of Nevada on September 26, 2014, with subsidiaries and operating entities located in Delaware, USA, and China. Since its incorporation in 2014, Datasea has been committed to the exploration, application, and commercialization of cutting-edge technologies. As a global high-tech company spanning both the Chinese and U.S. markets, Datasea’s business focuses on two main segments: Acoustic High-Tech and AI Multimodal Digitalization. Through continuous R&D investment, product innovation, and industrial collaboration, the company has gradually built a complete “technology – product – market” closed-loop system, achieving large-scale application and rapid growth in several industries. As a global high-tech company with deep integration of acoustics and artificial intelligence as the technological foundation, Datasea advances its dual-business engines of “Acoustic High-Tech + AI Multimodal Digitalization” to drive cross-industry applications. As one of the global proponents and industrial promoters of the “acoustic effect” concept, the Company leverages acoustic technology to establish unique technological barriers in five key fields—industrial, agricultural, healthcare, medical, and IoT—achieving full-chain value conversion from technological R&D to industry applications. In the past fiscal years, as high-margin solutions from both segments have gradually scaled, Datasea has transitioned from “scale growth” to “quality improvement,” laying a solid foundation for long-term objectives and maximizing shareholder value.

The Company operates in two core business segments: Acoustic High-Tech and AI Multimodal Digitalization

In the Acoustic High-Tech field, the company focuses on the innovation of acoustic technology in multiple scenarios, with “non-hearable mechanical wave effects” as the R&D core. In the environmental domain, the company has launched a series of acoustic environmental products to meet the purification needs of public and household settings; in the health domain, it has launched a series of acoustic medical and healthcare products, breaking through in areas such as neuro-regulation and acupoint stimulation, extending acoustic applications from environmental assistance to precise health management and clinical intervention. In the industrial domain, the company explores the application of ultrasound in fields such as industrial precision processing, agricultural pest control, and agricultural product preservation, forming a cross-industry empowerment model of “acoustics + AI + vertical scenarios.”

In the AI Multimodal Digitalization field, the company positions itself as a core service provider for the digitalization of the Chinese industry. With its self-developed multimodal data processing platform, it achieves real-time collection, analysis, and generation of text, voice, image, video, and other data types. The company focuses on the efficient and accurate matching of community services and consumer needs, offering full-spectrum services from standardized platform services (such as intelligent marketing, business process automation) to customized system solutions (such as full-process digital management for beauty salons, rural revitalization agricultural management platforms), helping customers optimize costs and improve efficiency.

Substantially all business operations of the Company are in China and the United States, and the Company also continuing to expand its business operations in other countries. In China, the Company has established a research, production, and sales network through entities such as Shuhai Tianjin and Shuhai Beijing, focusing on application of Acoustic markets in healthcare, medical aesthetics, industrial, and agricultural sectors. In the United States, through its wholly owned subsidiary, Datasea Acoustics LLC, the Company is planning to promote the distribution of acoustic products and patent deployment and is working with U.S. partners to expand local channels. Together, these initiatives support the development of a global operational framework characterized by technical collaboration and complementary market access.

Datasea, through the collaboration of its “product-based business (acoustic hardware + solutions)” and “platform-based business (AI multimodal services),” not only strengthens its commercialization achievements in fields like environmental disinfection and health assistance but also makes breakthroughs in high-value fields such as neuro-regulation, brain-computer interfaces, and industrial digitalization. The company aims to become a new generation of technology enterprises based on acoustic technology and driven by AI, establishing a unique competitive advantage in the global wave of acoustic intelligence and digitalization.

Business Strategy

The Company will continue to promote interdisciplinary research between acoustic science and artificial intelligence, striving to maintain a global leading position in areas such as non-hearable mechanical wave effects, acoustic coupling, and AI multimodal algorithms. The company has partnered with top research institutions such as the Chinese Academy of Sciences and Tsinghua University to establish joint laboratories and industrial research projects, continuously pushing scientific breakthroughs to be applied in industries.

Datasea is committed to broadening the application of acoustic technologies such as ultrasound, infrasound, and Schumann resonance in various industries. Combining acoustic technology with artificial intelligence as a technological foundation, it integrates into different industries’ products and services, enhancing existing solutions and extending them into high-value applications, realizing the cross-industry empowerment model of “acoustics + AI + application scenarios.”

Beyond the existing applications such as acoustic sterilization and sleep assistance, the Company aims to implement “acoustics + neuro-regulation” to intervene precisely in the brain (brain-computer interface), heart, and foot acupoints (foot-computer interface), constructing a closed-loop system for “detection — analysis — diagnosis — real-time intervention” to meet the growing global demand for non-pharmacological, precise health interventions.

In Acoustic Agriculture , the Company will leverage ultrasound to extend the shelf life of agricultural products, reduce pesticide use, and improve crop yield and quality.

In Acoustic Industrial Applications , the Company is developing ultrasound-assisted separation devices and 3D printing technologies to upgrade manufacturing processes.

In the IoT (Internet of Things) field, based on both acoustic high-tech and AI multimodal technologies, Datasea will tap into smart cities and consumer scenarios.

Overall Fiscal Year Performance

For the fiscal year ended June 30, 2025, the Company had revenue of $71,616,820, compared to $23,975,867 in fiscal year 2024, representing an increase of $47,640,953, or 198.70% compared to the same period in 2024.

This revenue growth is primarily due to the rapid expansion of our 5G AI multimodal communication business in China, with the company’s 5G AI digital business maintaining a leading position in the industry. Our growing customer base continues to support substantial business growth.

As of June 30, 2025, the Company recorded $2,443,948 in gross profit, an increase of $1,969,843, or 415.49%, compared to the same period of the prior year.

In the AI Multimodal Digitalization Business segment, the Company generated revenue of $70.68 million, compared to $23.60 million last year, an increase of 199.49%, which was due to rapid expansion of core clients. During fiscal year ended June 30, 2025, the 5G+AI multimodal digitalization business demonstrated robust growth momentum., by advancing both platform-based and customized services, which increased the Company’s revenue in this business segments, as well as its customer base.

In the acoustic technology business segment, the Company generated revenue of RMB 3,773,584.91 (approximately $527,110) from comprehensive acoustic technology solutions due to increase in deployment of beauty and health salons, by increasing the number of core clients, and establishing an offline network for showcasing and selling acoustic products.

During the fiscal year 2025, the Company significantly optimized its customer structure:

The number of AI multimodal clients increased from 8 to 15, with leading clients such as Qingdao Ruizhi Yixing, Wuhan Xiaoming Technology, and Xinyi Xinfanfa each contributing revenue exceeding $10 million, demonstrating strong customer stickiness and deepened cooperation.

More than 200 new SME clients were added, building a foundation for scalable growth.

In the acoustic business, deployment across 463 beauty and health salons enabled deep offline scenario penetration, while online live-streaming e-commerce channels complemented distribution, creating a B2B + B2C integrated sales network.

The multi-layered structure (leading clients driving growth, SME expansion, and end-user channel empowerment) enables the Company to achieve breakthroughs across different market levels simultaneously.

During the fiscal year 2025, Datasea expanded its acoustic business through both online and offline channels while optimizing its customer base across B2B and B2C markets :

The Company signed agreements with 14 beauty service companies in Tianjin, Beijing, and other cities, deploying products into 463 beauty and personal care salons across Northern China. This strengthened market penetration and solidified leadership in beauty and health management. As of June 2025, the Company’s network in Northern China covered 463 beauty and health salons, serving as product display and sales hubs, while also preparing the ground for future deployment of AI multimodal systems such as store management solutions. Through e-commerce platforms such as Douyin and Xiaohongshu, Datasea’s products began reaching personal consumers. The “Star Dream” sleep aid device, in particular, received strong consumer feedback and gained rapid traction through online live-streaming sales.

This diversified customer structure enables strong business momentum across industries and market segments, enhancing resilience and sustaining competitiveness.

Datasea leverages its dual business engines of Acoustic High-Tech and AI Multimodal Digitalization to continuously enhance its core technological strengths and adaptability across industries. In the acoustic field, the Company advances research and application of non-audible mechanical wave effects, exploring commercialization in areas such as healthcare and medical neuro-regulation, acupoint stimulation, industrial precision processing and liquid-phase separation, and agricultural preservation and pest control. In the AI multimodal field, the Company optimizes algorithm architectures and expands platform functions to process multimodal data across speech, image, text, and video, enabling applications in healthcare, enterprise services, and consumer markets.

By combining the cross-scenario expansion of acoustic technologies with the industry-specific applications of its AI platform, Datasea delivers a mix of standardized tools and customized solutions, balancing scalability with differentiation and ensuring stable, efficient performance across complex business environments.

Market Expansion and Future Potential

Growth in the domestic market has provided a strong foundation of technology validation and customer adoption, supporting further expansion. Looking ahead, Datasea intends to leverage its dual operational bases in China and the United States to pursue international opportunities. In China, the Company will continue to strengthen its presence in acoustic applications across healthcare, beauty, agriculture, and industrial sectors, while expanding AI multimodal services to support the digital transformation of SMEs. In the United States, through its wholly owned subsidiary Datasea Acoustics LLC, the Company is advancing the commercialization of acoustic products and patent cooperation, supported by partnerships with local distributors and technology collaborators.

The Company’s strategic objective is to establish differentiated advantages in both acoustic and digitalization technologies through continuous innovation and high-efficiency solutions, and in the medium to long term, to achieve cross-industry, multi-scenario global applications, building a sustainable path of steady growth.

Development Strategy

Datasea Inc.’s overall development strategy is based on “Acoustic High-Tech” and “AI Multimodal Digitalization” as its dual core engines. With the five major acoustic application areas (Acoustic Industry, Acoustic Agriculture, Acoustic Healthcare, Acoustic Medical and Elderly Care, Acoustic IoT) as the technological foundation, and four major product clusters (Acoustic Environmental Products, Acoustic Intelligent Manufacturing Products, Acoustic Wellness Products, Acoustic Medical Products) as business pillars, the Company is constructing a vertically integrated strategy system from technology R&D to industrial implementation. The Company relies on the dual operational platforms in the U.S. and China (the U.S. parent company oversees capital and strategy, while the China WFOE+VIE structure handles R&D and production), and through continuous high-intensity R&D investment, clear product roadmap planning, diversified market channel expansion, and proactive global intellectual property layout, the company is driving its business from “scale expansion” to “high-quality growth.” Our ultimate goal is to become a globally influential leader in the field of acoustic intelligence and digital solutions, creating sustainable value for shareholders, customers, and society through innovative “Acoustic + AI” technology product combinations.

Acoustic High-Tech Strategy

The acoustic high-tech strategy focuses on the “non-hearable mechanical wave effect,” deeply engaging in the R&D and commercialization of ultrasound, infrasound, and Schumann resonance technologies. The strategy aims to achieve multidimensional market expansion through the “four major product clusters.” The implementation path is as follows:

Core Technology Focus and Productization Path :

Environmental Product Cluster Scaling : Based on the “Datasea Tian Ear” disinfection series, the company uses both offline beauty salons (463 locations) and online live-streaming e-commerce channels to drive market penetration. The company also develops smart environmental monitoring and purification systems based on Acoustic IoT technology, strengthening its core revenue base.

Intelligent Manufacturing Product Breakthrough: The Company is focusing on advancing ultrasonic precision machining equipment (e.g., 3D metal printing) in the acoustic industry and ultrasonic pest control and crop growth promotion devices in the acoustic agriculture sector. The company is forming industry alliances with industrial groups and agricultural research institutions to create benchmark industry cases.

Wellness Product Ecosystem : Focusing on neuro-regulation (brain-computer interfaces) and foot health interventions, the company is building a “hardware + AI algorithm + health platform” closed-loop system. Through a B2B2C model, the company is cooperating with health management organizations and insurance companies to provide personalized health management services.

Acoustic Medical Product Frontier Layout: The Company is continually investing in the R&D of advanced technologies like Low-Intensity Focused Ultrasound (LIFU) and establishing clinical collaborations, reserving technologies and patents for future entry into the high-end medical device field.

AI Digital Platform Strategy

The AI digital platform strategy is built on multimodal intelligent technologies as the foundation, with industry deep empowerment at its core. The company is developing a “platform + solutions + ecosystem cooperation” three-in-one business model to provide strong digital support and collaborative value for the acoustic high-tech strategy.

Platform Service Strategy :

Based on the self-developed Transformer-based multimodal platform, the company continues to enhance its capabilities in integrating and generating text, speech, image, and video data. By offering standardized API interfaces and modular services, the company provides rapidly integrable AI capabilities to clients in industries such as finance, logistics, healthcare, and entertainment. The platform uses a subscription-based (SaaS) and pay-per-use model to ensure continuous revenue and scalability.

Industry Deep Solutions Strategy :

Focusing on high-growth scenarios, the company offers customized solutions:

SME Digital Solutions : Integrating membership management, intelligent marketing, and other functions to lower the digitalization threshold for SMEs.

Digital Rural Solutions : Providing smart agriculture management, rural logistics dispatch, and remote public services, supporting national rural revitalization policies.

Beauty and Health Industry Digital Solutions : Offering full-process digital management systems for offline beauty salons, creating synergies with the acoustic hardware business.

New Media Marketing Solution: Provides functions such as content generation and management, advertising placement and monitoring, and user engagement and interaction. This solution helps clients achieve precise marketing campaigns and brand promotion, empowering enterprises to digitally transform their presence on emerging platforms such as Douyin and Xiaohongshu.

Technology R&D Strategy

The company’s technology R&D strategy adheres to the principle of “balancing independent R&D and open cooperation,” driving forward through both frontier technology exploration and industrial application. The goal is to build an R&D system with continuous innovation capabilities.

R&D Focus Areas :

Acoustic Technology R&D : Focus on non-hearable sound applications, including acoustic neuro-regulation technology (low-intensity focused ultrasound + functional ultrasound imaging), brain-computer interface integration, and the application of acoustics in precision industrial processing and agricultural pest control. The company is establishing a complete R&D chain of “fundamental theoretical research — core technology breakthroughs — product development.”

AI Multimodal R&D : Continuously optimize cross-modal semantic calibration algorithms and develop scenario-specific modules for particular industries (e.g., beauty salon digital systems, new media marketing solution). Strengthen the data interactivity between AI multimodal platforms and acoustic hardware to achieve intelligent analysis and feedback adjustment of data collected by acoustic devices.

R&D System Construction :

The company has established a three-tier R&D system:

Frontier Technology Research Institute : Focused on 3-5 years of long-term technology development.

Product R&D Center : Responsible for 1-2 years of product development.

Customer Solutions Department : Focused on quick responses and customized development for customer needs.

Through an R&D management process of “project initiation — milestone monitoring — evaluation,” the company ensures effective resource allocation and project progress.

Industry-University-Research Collaborative Innovation : The Company has established joint laboratories with institutions such as Institute of Acoustics, Chinese Academy of Sciences , Internet Industry Research Institute, Tsinghua University , and Artificial Intelligence Research Institute, Harbin Institute of Technology , driving the rapid transformation of cutting-edge technologies through industrial research projects. The company actively participates in industry standard formulation and co-published the Acoustic High-Tech Industry White Paper ,

M&A Strategy

The company’s M&A strategy focuses on “technology enhancement, market synergy, and ecosystem improvement,” aiming to accelerate technological breakthroughs and market expansion through strategic acquisitions, achieving exterior growth .

Domestic Acquisitions :

The Company focuses on three major directions with high synergy to its core business:

Acoustic Technology Companies: The Company prioritizes acquiring innovative companies that possess core acoustic modules, sensor technologies, or patent portfolios to enhance its technological capabilities in the acoustic hardware field.

Artificial Intelligence and Big Data Companies: The Company targets teams with algorithm advantages or industry-specific data resources, strengthening the professional capabilities of its AI multimodal platform.

Industry Application Companies : The Company focuses on companies with mature customer resources and experience in industries such as smart agriculture and precision manufacturing, accelerating the commercialization of products in the acoustic industry and acoustic agriculture segments.

M&A standards emphasize technological synergy and the feasibility of team integration. The Company adopts a “cooperation first, acquisition later” strategy, deepening relationships through project collaboration and equity investment before proceeding with acquisitions, ensuring smooth integration of technologies and team stability post-acquisition.

International Acquisitions :

Focusing on the North American market , the Company conducts acquisitions along two main lines:

Technology-Oriented Acquisitions: The Company targets innovative enterprises with patents and technologies related to ultrasound neuro-regulation and brain-computer interfaces, rapidly acquiring cutting-edge technologies and intellectual property assets.

Market-Oriented Cooperation and Acquisitions: The Company forms deep partnerships with local distributors and manufacturers in the U.S., establishing localized sales networks and production capabilities through equity investment or acquisitions, thereby reducing cross-border operational costs.

International acquisitions emphasize compliance risk assessments and cross-cultural integration. The Company works with professional institutions to conduct due diligence, develops detailed post-merger integration plans, and ensures alignment with the company’s global strategy.

International Strategy

The international strategy follows a path of “gradual progress, key breakthroughs, and localized operations”, starting with the North American market and gradually building a global business presence and market influence.

Phased Market Expansion Strategy :

Phase 1 : Focus on developing  the U.S. market by establishing a localized operational system through its US subsidiary, Datasea Acoustics LLC. The Company will initially introduce acoustic environmental products (disinfection and purification devices) and acoustic medical and elderly care products (sleep aid devices) as its flagship products and to partner with local distributors like iPower Inc.

Phase 2 : Expand into the European market, focusing on promoting acoustic medical and intelligent manufacturing products. Through collaborations with local research institutions and channel partners, the company will achieve product localization certification and market access.

Phase 3 : Gradually expand to Asia-Pacific and other emerging markets, forming a global sales network and service system.

Localized Operational System Construction :

The Company will establish localized teams in key overseas markets responsible for market promotion, customer service, and channel management. It will actively explore cooperation opportunities with local manufacturers, achieving product localization through technology licensing or cooperative manufacturing, thereby reducing tariffs and logistics costs, and enhancing market responsiveness. Additionally, the Company will establish product customization and capability output mechanisms to ensure its products and services meet local regulations and cultural preferences.

Global Resource Integration :

The Company will establish a global R&D collaboration network, building relationships with top overseas research institutions and attracting international talent to achieve global distribution of technological resources. At the same time, the company will participate in international industry exhibitions and standard-setting activities to enhance its brand influence and voice in the global acoustic intelligence sector.

Recent Developments

During the fiscal year ended June 30, 2025, the Company and its subsidiaries entered into the following material agreements with its key customers:

On August 12, 2024, Datasea Information Technology Co., Ltd. (“Shuhai Beijing”), Heilongjiang Xunrui Technology Co., Ltd. (“Xunrui Technology”), Datasea Jingwei (Shenzhen) Information Technology Co., Ltd. (“Datasea Jingwei”), Guozhong Haoze (Beijing) Technology Co., Ltd. (“Guozhong Haoze”), and Guozhong Times (Beijing) Technology Co., Ltd. (“Guozhong Times”) entered into an agreement with Qingdao Ruizhi Yixing Information Technology Co., Ltd. (“Ruizhi Yixing”). The agreement stipulates the purchase of 5G+AI multimodal data recharge cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83) over a 12-month period from the effective date of the agreement. From July 1, 2024, to June 30, 2025, revenue from Ruizhi Yixing reached RMB 392,182,085.13 (equivalent USD 54,775,147).

On August 9, 2024, Shuhai Beijing signed an agreement with Shanghai Shixun Network Technology Co., Ltd. (“Shixun Network”), under which, for a 12-month period from the effective date, Shixun Network will purchase 5G+AI multimodal data cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83). Between July 1, 2024, and June 30, 2025, revenue from Shixun Network reached RMB 10,981,054.18 (equivalent USD 1,533,698).

From August 9, 2024, to October 18, 2024, Shuhai Beijing, Heilongjiang Xunrui, and Guozhong Times signed an agreement with Wuhan Xiaoming Technology Co., Ltd. (“Xiaoming Technology”). Under these agreement, over a 12-month period from its effective date, Xiaoming Technology will purchase 5G+AI multimodal data recharge cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83). From July 1, 2024 to June 30, 2025, revenue from Xiaoming Technology reached RMB 25,000,429.43 ( equivalent USD 3,491,751).

From August 8, 2024, to February 13, 2025, Guozhong Times , Guozhong Haoze and Shuhai Beijing entered into an agreement with Xinyi Xinfanfa Information Technology Co., Ltd. (“Xinfanfa Technology”), under which, over a 12-month period from the effective date, Xinfanfa Technology will purchase 5G+AI multimodal data recharge cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83). From July 1, 2024, to June 30, 2025, revenue from Xinfanfa Technology reached RMB 41,736,607.01 (equivalent USD 5,829,253).

From October 8, 2024, to November 11, 2024, Shuhai Beijing, Guozhong Haoze, and Guozhong Times signed an agreement with Jiajie Technology Co., Ltd. (“Jiajie”), under which, over a 12-month period from the effective date, Jiajie will purchase 5G+AI multimodal data recharge cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83). From July 1, 2024, to June 30, 2025, revenue from Jiajie reached RMB 23,843,624.39 (equivalent USD 3,330,183).

On Septembert 18, 2024, Guozhong Haoze signed an agreement with Wuhan Xinze Shixiang Technology Co., Ltd. (“Xinze Shixiang”), under which, for a 12-month period from the effective date, Xinze Shixiang will purchase 5G+AI multimodal data cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83). From July 1, 2024 to June 30, 2025, revenue from Xinze Shixiang reached RMB 2,810,454.20 (equivalent USD392,530).

On August 12, 2024, Datasea Information Technology Co., Ltd. (“Shuhai Beijing”), Heilongjiang Xunrui Technology Co., Ltd. (“Xunrui Technology”), Datasea Jingwei (Shenzhen) Information Technology Co., Ltd. (“Datasea Jingwei”), Guozhong Haoze (Beijing) Technology Co., Ltd. (“Guozhong Haoze”), and Guozhong Times (Beijing) Technology Co., Ltd. (“Guozhong Times”) entered into an agreement with Qingdao Dong’an Information Technology Co., Ltd. (“Qingdao Dong’an”). The agreement stipulates the purchase of 5G+AI multimodal data recharge cards with face values ranging from RMB 10 to RMB 500 (approximately USD 1.40 to USD 69.83) over a 12-month period from the effective date of the agreement. From July 1, 2024, to June 30, 2025, revenue from Qingdao Dong’an reached RMB 614,663.73 (equivalent USD 85,849).

On November 1, 2024, Guozhong Haoze signed an agreement with Nanjing Linghui Information Engineering Co., Ltd. (“Linghui Information”), under which, upon the agreement’s effective date, two software copyrights were purchased for a total price of RMB 2,333,451.32. As of June 30, 2025, revenue from Linghui Information reached RMB 2,333,451 (equivalent USD 325,908).

On October 8, 2024, Shuhai Beijing signed an agreement with Anhui Gu Kai Business Co., Ltd.(“Anhui Gu Kai”), The agreement stipulates that within 50 days after the agreement takes effect, Shuhai Beijing will provide Anhui Gu Kai with a 5G-AI multi-modal small and medium-sized enterprise service platform technology solution. As of June 30, 2025, revenue from Anhui Gu Kai reached RMB 1,415,094.34 (equivalent USD197,666).

On December 25, 2024, the Company’s wholly owned subsidiary, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”), signed an agreement with Tianjin Qianli Cultural Media Co., Ltd. (“Qianli Cultural Media”) to sale air purifiers (Hailijia). As of June 30, 2025, the revenue from Qianli Cultural Media reached RMB 267,936 (approximately USD 37,422). The signing and execution of this contract marks a strong start for the entry of acoustic environmental disinfection products into the end-consumer market, laying a solid foundation for the future expansion of the business and the brand’s influence.

In December 2024, the Company’s VIE entity subsidiary, Guozhong Haoze, signed an agreement with 14 beauty industry service companies in Tianjin, Beijing, and other cities in China, to deploy its acoustic high-tech products to 263 beauty and body care stores in northern China, including Tianjin and Hebei Province. According to the agreement, the Company plans to sell approximately 140,000 units of acoustic air purifiers, sleep products, and 5G AI digital service systems specifically developed for the beauty industry by the end of 2025, with expected revenue of USD 11 million (approximately RMB 77 million). This agreement not only expands Datasea’s market share in the beauty industry but also strengthens its penetration in northern China, further driving the industrial application of the Company’s products and technologies.

In January 2025, an additional agreement was signed with 9 health management companies in Tianjin, further expanding its business coverage in northern China. According to these agreements, Datasea’s acoustic high-tech products will be introduced into 200 beauty stores in key northern markets such as Tianjin and Hebei Province. By the end of 2025, approximately 90,000 units are expected to be sold, generating additional revenue of around USD 6.8 million. The signing of these new agreement further consolidates Datasea’s market leadership in health management and beauty sectors, creating more opportunities for long-term growth and market expansion in the future.

On February 20, 2025, Shuhai Beijing signed an agreement with Beijing Meimei Partnership Network Technology Co., Ltd.(“Beijing Meimei”), The agreement stipulates that within 30 days after the agreement takes effect, Shuhai Beijing will provide Beijing Meimei with a 5G-AI multi-modal small and medium-sized enterprise service platform technology solution. As of March 31, 2025, revenue from Beijing Meimei reached RMB 1,509,433.96 (equivalent USD 210,844).

On March 4, 2025, the Company’s wholly owned subsidiary, Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Shuhai Jingwei”), signed an agreement with Tianjin Zhongzhi Times Technology Development Co., Ltd. (“Zhongzhi Times”) to acoustic high-tech products.

On May 15, 2025, Shuhai Beijing signed an agreement with Beijing Meimei Partnership Network Technology Co., Ltd.(“Beijing Meimei”), The agreement stipulates that within 35 days after the agreement takes effect, Shuhai Beijing will provide 5G-AI multi-modal digital rural service platform technology solutions for Beijing Meimei. As of June 30, 2025, revenue from Beijing Meimei reached RMB 1,886,792.45 (equivalent USD263,555).

On May 16, 2025, Shuhai Beijing signed an agreement with Beijing Meimei Partnership Network Technology Co., Ltd.(“Beijing Meimei”), The agreement stipulates that Shuhai Beijing will provide specialized services for Beijing Meimei, including customized technical solutions for a new media marketing platform. As of June 30, 2025, revenue from Beijing Meime reached RMB 1,981,132.08 (equivalent USD276,733).

On May 20, 2025, Shuhai Jingwei (Shenzhen) Technology Co., Ltd. signed a contract with Yuxiang Zhiyang (Tianjin) Innovation Technology Co., Ltd.（“Yuxiang Zhiyang”, based on the product concept and application scenarios proposed by Yuxiang Zhiyang, focusing on the combined principle of ultrasonic cavitation and ozone oxidation. Design a complete core technical solution for the “Bathroom Ultrasonic Sterilization and Odor Removal Treasure” product and issue a report. The contract amount (including tax) is RMB 1,800,000.00 (equivalent to US $251,431.76). As of June 30, 2025, Shuhai Jingwei has achieved revenue (excluding tax) of RMB 1,698,113.21 (equivalent to US $237,199.78).

On May 20, 2025, Shuhai Jingwei (Shenzhen) Technology Co., Ltd. signed a contract with Yuxiang Zhiyang (Tianjin) Innovation Technology Co., Ltd.（“Yuxiang Zhiyang”), based on the product demand concept proposed by Yuxiang Zhiyang, focusing on the principle of sound wave and Schumann wave resonance for sleep assistance. Provide a complete set of technical solutions for the core technical architecture, key module design, functional logic description, system integration logic, and software and hardware interface definition of the “Sleep Treasure” product, and issue a report. The contract amount (including tax) is RMB 2,200,000.00 (equivalent to US $307,305.49). As of June 30, 2025, Shuhai Jingwei achieved revenue (excluding tax) of RMB 2,075,471.70 (equivalent to US $289,910.84).

On May 22, 2025, Shuhai Beijing signed an agreement with Tianjin Qianli Culture Media Co., Ltd.(“Qianli Cultural Media”), The agreement stipulates that Shuhai Beijing will provide specialized services for Qianli Cultural Media, including customized technical solutions for a new media marketing platform. As of June 30, 2025, revenue from Qianli Cultural Media reached RMB 2,075,471.70 (equivalent USD 289,910).

During the reporting period, the Company’s primary revenue was derived from service fees associated with 5G+AI multimodal digital business services. From July 1, 2024 to June 30, 2025, the revenue reached USD69.44 million, an increase of USD49.89 million compared with USD19.55 million in the same period of 2024, with a growth rate of 255.20%. This revenue growth is mainly attributable to the rapid expansion of China’s 5G+AI multimodal digital business, which has maintained a leading position within the industry. The continuously growing customer base has further supported the Company’s significant business expansion.

The technical solutions such as AI multi-modal services for small, medium and micro enterprises, AI multi-modal digital rural services, and AI multi-modal new media marketing services have all achieved revenue realization, totaling RMB8.9 million (Approximately USD1.24 million) indicating the full implementation and blooming of the company’s 5G AI multi-modal digital business. At the same time, the high-margin attribute of the technical solutions has lifted and improved the overall gross profit margin level.

ESG Management (2025)

Datasea remains committed to integrating ESG (Environmental, Social, and Governance) principles into its operations and long-term strategy, positioning ESG as a key engine for sustainable development. We recognize that ESG is not only an important tool for risk management and opportunity identification but also a pathway to strengthening resilience, enhancing competitiveness, and building long-term, positive relationships with stakeholders.

Green Supply Chain Management : In 2025, the Company worked closely with core suppliers to establish green production standards. By introducing energy-saving equipment across supplier networks, energy consumption per production line decreased by more than 10%, saving tens of thousands of kWh annually. A full lifecycle management system was also established, increasing the compliant disposal rate of waste by 20%.

Green Office and Energy-Saving Practices : The Shenzhen subsidiary continued upgrading its green office initiatives, adding a smart waste-sorting system. With special recycling for biodegradable waste, sorting accuracy for recyclables improved to over 90%. Paperless workflows reduced quarterly paper usage by 50% year-over-year, while office energy consumption per unit area fell by 15%.

ESG Data Transparency : The Company launched an ESG data transparency platform with a new supply chain carbon footprint tracking module. Most Tier-1 suppliers have achieved real-time data integration, laying the foundation for building supplier carbon accounts in the future.

Social

Employee Development and Diversity : ESG training coverage rose to 85% in fiscal year 2025, up 10 percentage points from the previous quarter. Adoption of internal green proposals increased by 35%. The Company launched an internal “ESG Action Points Program” , with over 90% employee participation, collectively logging more than 12,000 kilometers of green commuting.

Public Welfare and Community Engagement : The Company continued initiatives such as “Love Education” and the “Sunshine Volunteer Charity Club.” CEO Ms. Zhixin Liu, serving as a council member of the National Association of Women Entrepreneurs , actively promoted female entrepreneurship and philanthropic collaboration.

International Talent and Inclusion : The proportion of female employees continued to rise, with women holding 40% of management positions, reflecting the Company’s strong commitment to diversity, equality, and inclusion.

Going Concern

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the years ending June 30, 2025 and 2024, the Company had a net loss of approximately $5.09 million and $11.38 million, respectively. The Company had an accumulated deficit of approximately $44.53 million as of June 30, 2025, and negative cash flow from operating activities of approximately $2.37 million and $6.40 million for the years ended June 30, 2025 and 2024, respectively.

The historical operating results indicate the Company has recurring losses from operations which raise the question related to the Company’s ability to continue as a going concern although the range of such recurring operating losses has narrowed in recent years. There can be no assurance the Company will become profitable or obtain necessary financing for its business and investments or that it will be able to continue in business and investments. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As of June 30, 2025, the Company had cash of $620,807.

We will continue to bring in additional investors to support the Company’s research and development, marketing and operations.

Use multiple marketing channels to attract customers, enhance brand awareness and increase sales. By optimizing and integrating multiple marketing channels, it can cover a wider range of target customer groups, improve efficiency and effectiveness, meet customer needs, reduce risks, achieve multi-channel comprehensive coverage, and achieve success in market competition.

Strengthen brand image building, design a unique brand identity, unify the brand image, strengthen word-of-mouth marketing, use social media and word-of-mouth network, increase the authority and visibility of the brand, and continue to follow up and maintain the brand image, improve product strength and creativity.

Maintain enterprise competitiveness and achieve sustainable development. Strengthen research and development investment and in-depth understanding of market needs, establish an innovation culture, encourage employees to propose new ideas and creativity, and create an open innovation atmosphere. Reward and recognize the innovation results to stimulate the innovation enthusiasm of employees. Strengthen cooperation and exchanges, establish cooperative relations with universities and scientific research institutions, and jointly carry out research and development projects.

Participate in industry exhibitions, seminars and other activities to exchange experience with peers and obtain the latest technology and information. Optimize product development process, adopt agile development, lean production and other methods to improve product development efficiency and quality. We will pay attention to the protection of intellectual property rights, apply for patents, trademarks and other intellectual property rights in a timely manner, and protect innovation achievements.

If deemed necessary, management could seek to raise additional funds by the way of introducing strategic investors or private or public offerings, or by obtaining loans from banks or others, to support the Company’s research and development, procurement, marketing and daily operation. However, there can be no assurance that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us. We may be required to pursue sources of additional capital through various means, including debt or equity financings.

Future financings through equity investments are likely to be dilutive to existing stockholders. Also, the terms of securities we may issue in the future capital transactions may be more favorable for new investors. Further, we may incur substantial costs in pursuing future capital and/or financing, including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other costs. Our ability to obtain needed financing may be impaired by such factors as the capital markets and our history of losses, which could impact the availability or cost of future financings. If the amount of capital we are able to raise from financing activities, together with our revenues from operations, is not sufficient to satisfy our capital needs, even to the extent that we reduce our operations accordingly, we may be required to cease operations.

Sustainable operation can help enterprises improve operating efficiency, enhance the competitiveness of enterprises, and enhance the market share of enterprises.

Sustainable operation can help enterprises better control risks, reduce operating costs, and ensure the safety of enterprises.

Sustainable operation can help enterprises better grasp market opportunities, grasp market trends, and achieve a win-win situation between enterprises and society.

Significant Accounting Policies

Please refer to our significant accounting policies in Note 2 to our consolidated financial statements included in this report.

Results of Operations

Comparison of the years ended June 30, 2025, and 2024

The following table sets forth the results of our operations for the years ended June 30, 2025, and 2024, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.

Revenues

Revenues

Revenues

Cost of revenues

Gross profit

Selling expenses

Research and development

General and administrative expenses

Total operating expenses

Loss from operations

Non-operating income (expenses), net

Loss before income taxes

Income tax expense

Loss before noncontrolling interest from continuing operation

Income before noncontrolling interest from discontinued operation

Less: loss attributable to noncontrolling interest from continuing operation

Net loss to the Company from continuing operation

Net income (loss) to the Company from discontinued operation

Net loss to the Company

Revenues

We had revenues of $71,616,820 and $23,975,867 for the years ended June 30, 2025, and 2024, respectively, which shows a $47,640,953 or 198.7% increase as compared with the same period of 2024. The increase in revenues was mainly due to the rapid increase of 5G AI multimodal digital business in China. For the year ended June 30, 2025, revenues mainly consisted of service fees from our 5G AI Multimodal digital. The Company’s 5G AI multimodal digital business is an industry leader, and the continued expansion of the Company’s customer base supports the continued significant improvement of the business.

From July 1, 2024 to June 30, 2025, the Company generated revenue of $71,616,820, including $70,682,408 from the 5G AI multimodal digital business, $584,788 from acoustic intelligence business, $325,908 from software sales and $23,716 from others. From July 1, 2023 to June 30, 2024, the Company generated revenue of $23,975,867, including $23,971,879 from the 5G AI multimodal digital business, $3,988 from Acoustic Intelligence Business..

This is inseparable from the Company’s research and development support and personnel support over the years, the Company’s upstream and downstream chain maintenance and experience accumulation and precipitation eventually formed a huge loyal customer base, but also closely related to the thriving vitality of the 5G market.

Through its own sales team, the Company vigorously promotes and publicizes its research and development results and technology display in 5G sales, actively participates in important seminars and business fairs around the country and deeply explores the target customers related to 5G news. Through painstaking efforts and keen business acumen, we have actually obtained a stable customer flow.

The Company’s top five customers for 5G AI multimodal digital business at this stage are Qingdao Ruizhi Yixing Information Technology Co., LTD., Shanghai Shixun Network Technology Co., LTD., Wuhan Xiaoming Technology Co., LTD., Xinyi Xinfanfa Information Technology Co., LTD., Nanjing Linghui Information Engineering Co., LTD. Through close business cooperation, the above customers have become stable and loyal partners of the Company and will work together in the future.

Since Q4 2023, the 5G Multimodal Communication business has demonstrated explosive growth, with Q2 2024 sales achieving a substantial improvement compared to the same period last year.

Cost of Revenues

For the year ended June 30, 2025, we recorded a cost of revenues of $69,172,872, compared to $23,501,762 for the same period in 2024, reflecting an increase of $45,671,110 or 194.3%. The cost of revenues for the year ended June 30, 2025, was primarily driven by 5G AI multimodal digital platform fees and cloud platform construction costs paid to suppliers. The increase in the cost of revenues was mainly due to the higher revenue generated from the 5G AI multimodal digital segment.

For the year ended June 30, 2025, the costs were as follows: $68.82 million for 5G AI multimodal digital, $316,415 for software sales, and $41,007 for the acoustic intelligence business. For the year ended June 30, 2024, the cost of 5G AI multimodal digital was $23.40 million, the cost of other services was $68,391, the cost of smart city was $30,928 and the cost of Acoustic Intelligence business was $2,345.

Gross Profit

Gross profit for the year ended June 30, 2025, was $2,443,948 compared to $474,105 for the year ended June 30, 2024, representing an increase of $1,969,843. This increase in gross profit was primarily driven by higher sales during the year ended June 30, 2025.

Gross margin was 3.4% for the year ended June 30, 2025, compared to 2.0% for the same period in 2024. The improvement in gross margin was primarily driven by the rapid growth of high-margin customized solution projects, along with the Company’s significant increase in market share and operating income. The growth in gross profit indicates that the Company has substantial development potential in its operations, including:

Improved Shareholder Returns:  An increase in gross profit typically leads to higher net profit, which boosts dividend distribution and stock value for shareholders. This, in turn, enhances shareholder confidence and attracts more investors.

Consolidation of Market Position:  A higher gross profit makes the Company more competitive, enabling it to attract more customers through price advantages, superior product quality, or service differentiation. This allows the Company to expand its market share and further strengthen its position in the market.

Innovation and R&D Investment:  The increase in gross profit provides the Company with more resources for innovation and R&D. This supports the development of new products, improvements to existing offerings, and the ability to adapt to changing market demands, all of which contribute to maintaining technological leadership and sustainable growth.

Improving Business Model Integration and Market Channels:

Use Multiple Marketing Channels:  By optimizing and integrating various marketing channels, the Company can reach a broader range of target customers, improve efficiency, meet customer needs, and reduce risks. This multi-channel strategy enhances the effectiveness of market coverage, positioning the Company for success in the competitive landscape.

Enhance Product Brand:  Strengthening brand image is key to building customer loyalty and recognition. The Company should focus on designing a unique brand identity, unifying its image, and leveraging word-of-mouth marketing through social media to increase brand visibility and authority. Continuous maintenance of the brand’s image will improve product strength and creativity.

Improve Sales Personnel Effectiveness:  Salespeople should be focused on achieving results, ensuring that every sales activity addresses customer pain points and drives conversions. A deep understanding of customer needs allows for tailored solutions, fostering trust and recognition. Salespeople should continuously enhance their communication and negotiation skills, undergo professional development, and adapt to market changes in order to provide the best possible customer service.

Foster Innovative Product Development and Production:  To maintain competitiveness and achieve sustainable development, the Company should increase investment in R&D and deepen its understanding of market needs. Building a culture of innovation, encouraging employee creativity, and collaborating with universities and research institutions will drive progress.

By focusing on these areas, the Company can strengthen its position in the market, enhance its growth potential, and continue to deliver value to shareholders and customers alike.

Selling, General and Administrative, and Research and Development Expenses

Selling expenses for the year ended June 30, 2025 were $1,980,224, compared to $3,279,627 for the same period in 2024, reflecting a decrease of $1,299,403, or 39.6%. The decrease was mainly due to the decrease of advertising and marketing expenses by $1,431,505, which was partly offset by increased service fee by $37,037, increased payroll expense by $7,148, increased rent expense and property management fee by $43,255 and increased other selling expenses by $36,620.

Currently, we are focusing on expanding the Company’s leading acoustics high-tech technologies and products, while continuing to develop 5G-related applications. We incurred R&D expenses of $914,996 and $359,342 during the years ended June 30, 2025 and 2024, respectively, representing an increase of $555,654 or 154.6% as compared to the same period of 2024.

Research and development expenses for the year ended June 30, 2025, totaled $914,996. The Company’s research and development efforts have yielded several significant outcomes, including:

As one of the leading service providers in China’s 5G AI multimodal digital field, Datasea has developed a range of primary products and services targeting different customer needs. These include:

5G AI multimodal new media marketing service platform

5G AI multimodal Smart Agriculture (Digital Rural) Service Platform

5G AI multimodal platform for small and micro-enterprise services

5G AI multimodal traffic top-up platform These 5G AI multimodal digital business applications are designed for various industries in China, incorporating AI-driven payment system applications, big data analytics, and predictive models.

Datasea has completed a revolutionary upgrade of its core 5G multimodal communication business with AI processing technology. This upgrade enables the AI creation and generation of diverse forms of information, including sound, text, images, and videos. Additionally, it supports efficient transmission and AI-powered digital human marketing functions. This capability empowers numerous industries and clients by enhancing brand recognition, acquiring customers, promoting markets, and boosting revenue.

In the field of acoustic high-tech business, Datasea is one of the pioneers in introducing the concept of “acoustic effect” globally. The Company exports cutting-edge acoustic high-tech products and solutions worldwide. Combining basic acoustic theory with artificial intelligence, Datasea applies acoustic technology and the acoustic effect technical system to collect and process acoustic data. The Company utilizes non-audible mechanical wave effects to address various challenges. With world-leading acoustic equipment and algorithm models, Datasea’s acoustic technologies and products are widely used in sectors such as agriculture, industry, healthcare, and IoT technology. Notably, in the field of ultrasonic technology, the Company applies the effects of ultrasonic cavitation, thermal, and mechanical forces to meet diverse needs, including disinfection and sterilization, crop drying, safety monitoring, beauty and skincare, as well as medical health applications.

Datasea’s Acoustics and 5G intelligent products and solutions serve over 52 million businesses and households across China (with more than 99% being SMEs) by providing digital and intelligent services.

Market Promotion Team

The Company has collaborated with three influential Chinese market promotion enterprises, which leverage extensive market resources to recommend new clients for the Company and facilitate the signing of contracts with these new clients.

General and administration expenses decreased $4,257,080, or 47.5% from $8,960,523 during the year ended June 30, 2024, to $4,703,443 during the year ended June 30, 2025. The decrease was mainly due to decreased stock compensation expense by $5,050,544, decreased payroll expense by $203,752, decreased rent expense and property management fee by 121,817, decreased auto expense by $17,156, which was partly offset by increased professional service fee by $820,159, and increased trademark registration fee by $316,229.

We are treating human capital as a key indicator to drive business growth and technical innovation, also pursuing better integrated channels with related industries.

Non-Operating Income (Expenses), net

Non-operating income was $75,185 for the year ended June 30, 2025, consisting mainly of interest income of $5,016 and other income of $70,169. Non-operating expenses were $95,918 for the year ended June 30, 2024, consisting mainly of interest income of $1,975 and other expenses of $97,893.

Net (Income) Loss from Discontinued Operation

We generated net income from discontinued operation of $833,546 (which was the gain on disposal of Zhangxun) for the year ended June 30, 2024.

Net Loss from continuing operation

We generated net loss from continuing operation of $5,085,694 and $12,210,610 for the years ended June 30, 2025, and 2024, respectively, a $7,124,916 or 58.4% decrease by comparing with the same period of 2024. The decrease in net loss was mainly due to increase in gross profit and decrease of operating expenses as explained above.

Accounts receivable

The operating revenue of the year ended June 30, 2025, was $71,616,820, the balance of accounts receivable was $1,374,180 at June 30, 2025. In the same period last year, the operating revenue was $23,975,867, and the accounts receivable balance was $718,546 at June 30, 2024. This quarter, the Company further segmented the market, planned eight regional headquarters, strengthened the collection control, and promoted the fund collection of contracted delivery projects, which led to the benign return of funds and had a far-reaching impact on the future.

Liquidity and Capital Resources

Historically, we have funded our operations primarily through the sale of our common stock and shareholder loans. To strengthen our ability to continue operating as a going concern, we are focusing on generating recurring revenues and sustainable operating cash flows.

We expect to generate revenue through expanding our current 5G AI multimodal digital business and acoustic intelligence business, along with continuous product innovation and development as well as various types of value-added services. To maintain sufficient working capital to support our operations and finance the future growth, we anticipate addressing any cash flow shortfall through financial support from our majority stockholders (who are also our board members or officers) and issuing securities public or private issuance of securities. However, such additional financial resources may not be available to us on favorable terms, or at all, if and when needed.

As of June 30, 2025, we had a working capital deficit of $704,978 or a current ratio of 0.81:1, and current assets in the amount of $2,922,272. As of June 30, 2024, our working capital deficit was $952,090, with a current ratio of 0.74:1, and current assets were $2,647,892.

We expect the Company to continue supporting its ongoing operations and financing through revenue growth and increased financing activities.

On October 3, 2024, Datasea entered into subscription agreements, with three non-U.S. investors, including Zhixin Liu, the Company’s Chairwoman of the Board, Chief Executive Officer, President and Secretary, and Fu Liu, a Director of the Company, pursuant to which the Company sold to investors an aggregate of 1,932,224 shares (of the Company’s Common Stock at the purchase price of approximately $4.0 million. The Company’s used net proceeds from the sale of these shares for investments in acoustic high-tech related products design upgrade, working capital for mass production and on-line sales, acquiring intellectual property, and working capital for the promotion and sales of AI multimodal digital business products.

However, there is no assurance that the Company will be able to secure additional working capital on commercially viable terms, or at all.

The following is a summary of cash provided by or used in each of the indicated types of activities during the years ended June 30, 2025 and 2024, respectively.

Net cash used in operating activities

Net cash used in investing activities

Net cash provided by financing activities

Cash Flow from Operating Activities

Net cash used in operating activities was $2,374,680 during the year ended June 30, 2025, compared to net cash used in operating activities of $6,398,883 during the year ended June 30, 2024, a decrease in cash outflow of $4,024,203.

The decrease in cash outflow was mainly due to (1) decreased cash outflow on prepaid expenses and other current assets by $1.69 million, (2) increased payment received from customers for unearned revenue by $573,635, and (3) decreased net loss by $6.30 million, with non-cash adjustments to net loss including gain on disposal of subsidiary by $833,546, depreciation and amortization by $644,784, loan forgiveness by shareholder by $105,356, and decreased stock compensation expense by $4,856,484, despite we had increased cash outflow on accounts payable by $1.25 million.

Cash Flow from Investing Activities

Net cash used in investing activities totaled $4.09 million for the year ended June 30, 2025, which consisted of cash paid for the acquisition of office furniture and equipment of $8,129 and cash paid for acquisition of intangible assets by $4.08 million. Net cash used in investing activities totaled $167,957 for the year ended June 30, 2024, which consisted of cash paid for the acquisition of office furniture and equipment of $6,868, cash paid for acquisition of intangible assets by $161,054, and cash loss due to disposal of subsidiary of $35.

Cash Flow from Financing Activities

Net cash provided by financing activities was $6,945,370 during the year ended June 30, 2025, which was net proceeds from sale of our common stock through an equity financing of $5,939,133, and proceeds from loan payables of $2,374,350, which was partly offset by repayment of loan payables of $1,164,895, and repayment to related parties of $203,218. Net cash provided by financing activities was $6,839,577 during the year ended June 30, 2024, which was the net proceeds from due to related parties of $360,804 and net proceeds from sale of our common stock through an equity financing of $8,061,286, which was partly offset by repayment of loan payables of $1,582,513.

Loan from banks

On April 10, 2024, Guozhong Times entered a loan agreement with Bank of Beijing for the amount of RMB 500,000 ($70,158) with a term of 12 months with a preferential annual interest rate of 3.45% to be paid every 21 st  of each month. For the years ended June 30, 2025 and 2024, the Company recorded and paid $1,954 and $396 interest expense for this loan. On April 9, 2025, the loan was paid in full.

On April 23, 2024, Guozhong Times entered a loan agreement with Beijing Rural Commercial Bank Economic and Technological Development Zone Branch for the amount of RMB 550,000 ($77,173) with a term of 12 months with the annual interest rate of 4.95% to be paid every 21 st  of each month. For the years ended June 30, 2025 and 2024, the Company recorded and paid $3,808 and $626 interest expense for this loan. On April 23, 2025, the loan was paid in full.

On April 25, 2024, Shuhai Beijing entered a loan agreement with Industrial Bank Co., Ltd for the amount of RMB 2,000,000 ($280,631) with a term of 12 months with a preferential annual interest rate of 3.88% to be paid every 21st of each month. For the years ended June 30, 2025 and 2024, the Company recorded and paid $9,243 and $1,722 interest expense for this loan. On April 24, 2025, the loan was paid in full.

On May 28, 2024, Guozhong Times entered a loan agreement with China Everbright Bank for the amount of RMB 1,000,000 ($140,315) with a term of 12 months with the annual interest rate of 3.4% to be paid every 21 st  of each month. For the years ended June 30, 2025 and 2024, the Company recorded and paid $3,909 and $318 interest expense for this loan. On May 27, 2025, the loan was paid in full.

On June 20, 2024, Shuhai Beijing entered a loan agreement with Bank of China for the amount of RMB 4,000,000 ($561,262) with a term of 12 months with a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. On June 19, 2025, the loan was paid in full. For the year ended June 30, 2025, the Company recorded and paid $9,744 and $nil interest expense for these two credit lines.

On March 31, 2025, Shuhai Beijing entered a credit line agreement with Bank of China for the amount of RMB 6,000,000 ($835,864) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. For the year ended June 30, 2025, the Company recorded and paid $7,558 interest expense for this loan. As of June 30, 2025, $838,155 was recorded as current liabilities. Liu Fu is the guarantor of this loan agreement.

On May 20, 2025, Guozhong Times entered a credit line agreement with Beijing Bank for the amount of RMB 3,000,000 ($419,076) with a term of 12 months, the credit line has a fixed annual interest rate of 3.00% to be paid every 21st of each month. For the year ended June 30, 2025, the Company recorded and paid $803 interest expense for this loan. As of June 30, 2025, $419,076 was recorded as current liabilities.

On May 21, 2025, Guozhong Times entered a loan agreement with Beijing Rural Commercial Bank Economic and Technological Development Zone Branch for the amount of RMB 1,000,000 ($139,692) with a term of 12 months with a fixed annual interest rate of 4.95% to be paid every 21st of each month. For the year ended June 30, 2025, the Company recorded and paid $576 interest expense for this loan. As of June 30, 2025, $139,692 was recorded as current liabilities. Liu Zhixin is the guarantor of this loan agreement.

On June 6, 2025, Shuhai Beijing entered a credit line agreement with Bank of China for the amount of RMB 1,500,000 ($210,500) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. On June 11, 2025, Shuhai Beijing entered another credit line agreement with Bank of China for the amount of RMB 2,500,000 ($350,800) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. As of June 30, 2025, $558,768 was recorded as current liabilities. Liu Fu is the guarantor of these two credit lines.

On June 6, 2025, Shuhai Beijing entered a credit line agreement with Beijing Bank for the amount of RMB 3,000,000 ($419,076) with a term of 12 months, the credit line has a fixed annual interest rate of 2.70% to be paid every 21st of each month. For the year ended June 30, 2025, the Company recorded and paid $314 interest expense for this loan. As of June 30, 2025, $419,076 was recorded as current liabilities. Liu Fu is the guarantor of this loan agreement.

Financial index analysis

Analysis of financial index

For the years ended June 30, 2025, and 2024, revenue was $71,616,820 and $23,975,867, respectively. Operating income increased by $47,640,953 over the same period of last year, an increase of 198.70% over the same period of last year, the main reason for the substantial growth is that the company locates currently in the 5G AI multi-model R&D technology which belongs to the industry leader, after long-term expansion of customer groups, the company has formed a stable customer group. This is closely related to the company’s technological research and development achievements over the years, personnel support, market promotion, the company’s upstream and downstream chain opening up, customer maintenance and technical experience accumulation, and eventually form a huge loyal customer base, but also closely related to the thriving vitality of the 5G AI multi-model business market.The company’s acoustic high-tech business segment has made significant progress and breakthroughs compared to the last fiscal year. Including the sales of acoustic high-tech products and the provision of acoustic high-tech solution services.

For the years ended June 30, 2025 and 2024, the Company’s gross profit was $2,443,948 and $ 474,105, respectively. Gross profit increased by $1,969,843 from the same period last year, an increase of 415.49% from the same period last year, and the current period increased market share and revenue significantly, so the gross margin increased simultaneously. The increase in gross profit margin means that the company’s development and operation has great potential ability. The reasons for the increase in gross profit are analyzed as follows:

The business structure has been optimized, and the proportion of high-margin businesses has increased. For instance, the revenue of high-margin acoustic intelligent products has seen a significant rise compared to the previous year. The execution of 5G AI multimodal technology solution contracts has also provided support for the increase in gross profit margin.

Effective cost control leads to product differentiation. Continuous research and development innovation can launch products with unique functions and advantages, thereby supporting higher pricing and increasing gross profit.

Due to market factors, the market share of 5G AI multimodal traffic business has expanded. The company has gained an advantage in market competition. With an expanded market share, it will have stronger pricing power and thereby increase gross profit.

For the years ending June 30, 2025 and June 30, 2024, the operating expenses were $7,598,663 and $12,599,492 respectively. The operating expenses decreased by $5,000,829, representing a 39.69% reduction compared to the same period last year.

Research and development investment has continued to increase, but overall operating expenses have shown a downward trend. The reduction in operating expenses reflects the overall effect of an enterprise in improving input-output efficiency and streamlining and compressing management expenses. This is not only an optimization of financial data, but also a concentrated manifestation of the enterprise’s outstanding operational level, profound management ability and forward-looking strategic vision. This move will drive enterprises into a new development pattern with stronger risk resistance, higher business agility and more aggressive market competitiveness, thus laying a solid foundation for sustained growth and long-term success.

As of June 30, 2025 and 2024, the Company’s cash balance was $$620,807 and $181,262, respectively, an increase of $ 439,545, or 242.49%, from the beginning of the period. The main reason is that the company successfully obtained financing during this period, absorbed social funds, expanded the scale of the company, enhanced the visibility of the company, enhanced the competitiveness of the company, provided strong financial support for the company’s business expansion and projects, and used for technology research and development, market expansion, corporate brand building, etc., laying a solid foundation for the sustainable development of the company.

The increased demand for products and services brought about by the company’s increased sales revenue and the expansion of financing channels brought about by a number of capital inflows, the company to optimize the asset structure, enhance the corporate capital capacity and liquidity.

For the years ending June 30, 2025 and June 30, 2024, the inventories were $206,610 and $153,583 respectively. The inventory increased by $53,027, representing a 34.53% increase compared to the same period last year.

The two major innovative projects of the company, “Hygiene-Busting Deodorizing Powder for the Bathroom” and “Sleeping Aid”, have successfully completed their research and development and have been officially transformed into mass-produced products - “Sound Wave Deodorizing and Cleaning Guardian SHTR-T01” and “Non-contact Sleep Aid XM-S01”. This increase in inventory is a strategic stock preparation carried out to seize the market opportunity, marking the establishment of a new growth channel for the company and laying a solid foundation for the strong growth of future performance.

For the years ending June 30, 2025 and June 30, 2024, the intangible assets were $3,495,984 and $546,001 respectively. The intangible assets increased by $2,949,983, representing a 540.29% increase compared to the same period last year.

Increasing the proportion of intangible assets indicates that the company is undergoing a strategic transformation towards a “light-asset, high-value” model. Through external acquisition, enterprises can quickly obtain mature technologies and resources, respond promptly to market changes, seize the initiative, and efficiently expand new fields, new markets or new product lines with such assets. While actively laying out external resources, the company still insists on internal research and development, maintaining a continuous and organic innovation capability, which lays a solid foundation for its long-term stable development.

As of June 30, 2025 and 2024, the capital reserve balance was $47,331,510 and $38,957,780, respectively, an increase of $ 8,373,730 from the beginning of the period or 21.49% from the beginning of the period, primarily due to an increase in the Company’s share issuance. The increase of capital reserve means that the enterprise has obtained additional capital, which can improve the overall capital strength of the enterprise, so that the enterprise has more funds at its disposal in the operation process. With the increase of capital reserve, the capital adequacy ratio of enterprises has been improved, thus enhancing the financial stability of enterprises and the ability to resist risks. In the face of market fluctuations and uncertainties, enterprises can be more confident to deal with challenges. An increase in capital reserves also increases net asset value per share and is a positive financial indicator for shareholders. This helps to enhance the investment confidence of shareholders and the market value of enterprises.

For the years ending June 30, 2025 and June 30, 2024, the outstanding bank loans were $2,374,767 and $1,170,298 respectively. The amount increased by $1,204,469.00, representing a 102.92% increase compared to the same period last year. The increase in the bank’s short-term loan directly reflects the company’s excellent credit standing, healthy financial performance, and stable debt repayment capacity. This move not only enhances our financial liquidity, providing a solid guarantee for seizing market opportunities, but also indicates that the bank holds a highly optimistic attitude towards our future development prospects, heralding a more stable bank-enterprise partnership.

For the years ending June 30, 2025 and June 30, 2024, the gross profit margins were 3.41% and 1.98% respectively. The overall gross profit margin of the company has significantly improved. This positive change is mainly attributed to the company’s proactive and successful product structure optimization strategy, which strategically increased the sales proportion of high-margin products. The core driving factors come from two innovative product lines: acoustic intelligent products and 5G-AI multi-modal technology solutions. This financial result not only proves the correctness of the company’s strategic decisions, but also clearly reflects that our product innovation has been recognized by the market, and the enterprise is steadily developing in the direction of high quality and high efficiency.

For the years ending June 30, 2025 and June 30, 2024, the company’s losses were $5,085,694 and $11,377,064 respectively. The company’s losses have significantly decreased, and its business situation has shown a stable and recovering trend. This indicates that the strategic adjustments, cost control, and business optimization measures implemented by the company have begun to yield results, and they have started to achieve substantial revenue generation. This positive change marks that the company’s operations have gradually returned to normal, laying a solid foundation for our anticipation of future profit prospects. The company’s future development is promising.

Management’s Expectations and Strategic Priorities for the Next Fiscal Year

Building on the significant achievements of fiscal year 2025, Datasea is at a pivotal stage of transformation. Going forward, the Company will continue to deepen its presence in acoustic high-tech and AI multimodal digitalization , leveraging ongoing innovation and market expansion to further strengthen its leadership position globally. The strategic priorities for the next fiscal year will focus on the following areas:

Increased R&D Investment and Technological Innovation

Datasea will continue to increase investment in R&D, particularly in the integration of acoustic technologies with AI . Breakthroughs in ultrasound, infrasound, and neuro-regulation technologies will be core drivers of future development. The Company aims to accelerate the deep integration of low-intensity focused ultrasound (tFUS) with AI algorithms, expanding its applications in healthcare, smart industry, and agriculture .

At the same time, the AI multimodal digital platform will further enhance cross-industry capabilities, particularly in data processing, speech recognition, image analysis, and intelligent prediction . Datasea plans to optimize existing algorithms while exploring emerging technologies such as deep learning and big data analytics to improve intelligence levels and provide highly customized solutions across industries.

Accelerated Market Expansion and Internationalization

The Company will continue to strengthen its penetration in the domestic market while accelerating international expansion. In overseas markets, particularly in the U.S. and Europe, Datasea will pursue partnerships with local enterprises and introduce localized products to increase market share. The Company has already achieved initial success in the U.S., where through Datasea Acoustics LLC and local partners.

In China, Datasea will further expand its presence in healthcare, beauty, and environmental protection through a dual approach combining e-commerce platforms and offline stores. Meanwhile, solution-based services will help consolidate its B2B client base.

M&A and Strategic Partnerships to Enhance the Industrial Chain

Datasea will actively pursue international M&A opportunities, particularly in the acoustics sector, to strengthen capabilities in core technology modules, sensor technologies, and patent portfolios. The Company also plans to acquire businesses with advantages in AI and big data processing to reinforce its multimodal platform’s algorithm and industry data resources. Furthermore, acquisitions in smart manufacturing and precision agriculture will support cross-industry integration of acoustic technologies.

To expand its technological and market advantages, the Company will deepen cooperation with global research institutions, accelerate industrialization of new technologies, and pursue strategic investments to secure both technological leadership and market growth.

Product Mix Optimization and Margin Enhancement

Datasea will continue to optimize its product mix by increasing the proportion of high-margin offerings, such as acoustic health devices and customized AI solutions. In fiscal year 2025, the Company achieved a notable improvement in gross margin, and further expansion is expected in fiscal year 2026 as integrated solutions scale and technological barriers strengthen.

At the same time, the Company is transitioning its acoustic high-tech business from stand-alone hardware sales to integrated “hardware + AI platform” solutions, providing end-to-end services from R&D to implementation. This approach is expected to expand market share and enhance profitability through differentiated technologies and value-added services.

Company Outlook and Market Trends

Global and Regional Market Trends

With rapid global advances in technology and the economy, particularly the acceleration of digital transformation and intelligent upgrades, the coming years are expected to see sustained leadership by acoustic and AI technologies. Widespread adoption of digital and intelligent solutions will drive innovation and upgrades across industries. Based on industry research and market feedback, the fusion of acoustics and AI will create opportunities in the following areas:

Healthcare : With rising demand for health management, particularly due to aging populations, minimally invasive and precision healthcare solutions will become mainstream. The non-invasive advantages of acoustic technologies, combined with AI-driven analytics, will drive adoption of acoustic medical devices such as tFUS in neuro-regulation, tumor treatment, and rehabilitation medicine .

Smart Manufacturing : As Industry 4.0 continues to reshape production processes, applications of acoustic devices and AI in equipment monitoring, fault prediction, and process optimization will expand. Datasea plans to further combine acoustics with ultrasonics and nanomaterials to meet demands for high-precision, high-efficiency manufacturing.

Smart Agriculture : With accelerated modernization, precision and green agriculture are becoming global trends. Acoustic technologies applied to pest detection, crop growth stimulation, and product preservation will offer more intelligent and environmentally friendly solutions for agriculture.

Consumer Upgrading : Rising consumer demand for health, environmental protection, and personalization will increase the share of acoustic products such as sleep aids and air purifiers in households. The dual approach of e-commerce and offline retail—especially the growth of live-streaming sales—will accelerate the expansion of consumer markets.

Global Market Integration : With growing global emphasis on digitalization and green technologies, international demand for intelligent products will expand. Datasea will continue to scale its overseas presence, particularly in Europe and Asia-Pacific, to support global market integration.

Industry Development and Technological Evolution

Over the next few years, acoustic and AI technologies will continue to merge, driving breakthrough developments across industries. Key directions include:

Cross-Disciplinary Integration : Deep fusion of acoustics and AI will drive innovation in healthcare, industry, and agriculture. Datasea will focus on R&D in areas such as neuro-regulation, brain-computer interfaces, and ultrasonic precision machining, promoting commercialization of new technologies.

Intelligent Upgrades : With advances in big data and cloud computing, acoustic and AI platforms will evolve toward intelligent management and services. Multimodal data fusion and real-time processing will enable full-process automation and industry-wide applications.

Green and Sustainable Technologies : Global emphasis on sustainability will drive acoustic applications in environmental governance and green agriculture. Datasea will continue to expand in areas such as ultrasonic sterilization, pesticide reduction, and energy savings, offering environmentally friendly solutions.

Key objectives for the coming years include:

Continuous Technological Innovation : Strengthen R&D to deepen integration of acoustics and AI, targeting breakthroughs in minimally invasive healthcare, smart manufacturing, and smart agriculture.

Global Expansion : Scale international markets in the next three to five years, focusing on North America, Europe, and Asia-Pacific. Growth will be supported through acquisitions, channel partnerships, and localized market strategies.

High-Quality Growth : Optimize product mix to increase the proportion of high-margin products, enhance profitability through customized solutions and high-value-added services, and complete the transition from “scale expansion” to high-quality growth.

Social Responsibility and Sustainability : Continue adhering to the principle of “innovation-driven, green development,” actively promoting environmentally friendly technologies and products, and contributing to global sustainability.

Off-Balance Sheet Arrangements

There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues, expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements. These financial statements are prepared in accordance with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of our assets and liabilities and revenue and expenses, to disclose contingent assets and liabilities on the date of the consolidated financial statements, and to disclose the reported amounts of revenue and expenses incurred during the financial reporting period. We continue to evaluate these estimates and assumptions that we believe to be reasonable under the circumstances. We rely on these evaluations as the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. We believe that the critical accounting policies as disclosed in this report reflect the more significant judgments and estimates used in preparation of our consolidated financial statements.

The following critical accounting policies rely upon assumptions and estimates and were used in the preparation of our consolidated financial statements:

Critical Accounting Estimates

The preparation of the Consolidated Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the dates of the consolidated financial statements, as well as the reported amounts of revenues and expenses during the reporting period. These estimates and judgments include, but are not limited to, revenue recognition, sales return allowance, the allowance for bad debt, valuation allowance of deferred tax assets, income taxes, the useful lives of long-lived assets and assumptions used in assessing impairment of long-lived assets. Management bases its estimates on historical experience and on various other assumptions believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities. Although actual amounts may differ from the estimated amounts, such differences are not likely to be material.

Critical Accounting Policies

Accounts Receivable, Net

On May 1, 2023, the Company adopted Accounting Standards Update (“ASU”) 2016-13 Financial Instruments — Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (Accounting Standards Codification (“ASC”) 326). This standard replaced the incurred loss methodology with an expected loss methodology that is referred to as the current expected credit loss (“CECL”) methodology. CECL requires an estimate of credit losses for the remaining estimated life of the financial asset using historical experience, current conditions, and reasonable and supportable forecasts and generally applies to financial assets measured at amortized cost, including loan receivables and held-to-maturity debt securities, and some off-balance sheet credit exposures such as unfunded commitments to extend credit. Financial assets measured at amortized cost will be presented at the net amount expected to be collected by using an allowance for credit losses. In addition, CECL made changes to the accounting for available-for-sale debt securities. One such change is to require credit losses to be presented as an allowance rather than as a write-down on available-for-sale debt securities if management does not intend to sell and does not believe that it is more likely than not they will be required to sell.

The Company adopted ASC 326 and all related subsequent amendments thereto effective July 1, 2023, using the modified retrospective approach for all financial assets measured at amortized cost and off-balance sheet credit exposures. The was no transition adjustment of the adoption of CECL.

Accounts receivable represent the amounts that the Company has an unconditional right to consideration, which are stated at the historical carrying amount net of allowance for doubtful accounts. The Company maintains allowances for doubtful accounts for estimated losses. The Company reviews the accounts receivable on a periodic basis and makes allowances when there is doubt as to the collectability of individual balances. In evaluating the collectability of individual receivable balances, the Company considers many factors, including historical losses, the age of the receivable balance, the customer’s historical payment patterns, its current credit-worthiness and financial condition, and current market conditions and economic trends. Accounts are written off against the allowance after all means of collection have been exhausted and the potential for recovery is considered remote. As of June 30, 2025 and 2024, the Company had a $0 bad debt allowance for credit losses.

Inventories, Net

Inventory is comprised principally of intelligent temperature measurement face recognition terminal and identity information recognition products, and is valued at the lower of cost or net realizable value. The value of inventory is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances. There were $152,907 and $53,650 allowances for slow-moving and obsolete inventory (mainly for Smart-Student Identification cards) as of June 30, 2025 and 2024, respectively.

Revenue Recognition

The Company follows Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606).

The core principle underlying FASB ASC 606 is that the Company will recognize revenue to represent the transfer of goods and services to customers in an amount that reflects the consideration to which the Company expects to be entitled in such exchange. This will require the Company to identify contractual performance obligations and determine whether revenue should be recognized at a point in time or over time, based on when control of goods and services transfers to a customer. The Company’s revenue streams are identified when possession of goods and services is transferred to a customer.

FASB ASC Topic 606 requires the use of a five-step model to recognize revenue from customer contracts. The five-step model requires the Company (i) identify the contract with the customer, (ii) identify the performance obligations in the contract, (iii) determine the transaction price, including variable consideration to the extent that it is probable that a significant future reversal will not occur, (iv) allocate the transaction price to the respective performance obligations in the contract, and (v) recognize revenue when (or as) the Company satisfies each performance obligation.

The Company derives its revenues from product sales, software sales, and 5G messaging service contracts with its customers, with revenues recognized upon delivery of services and products. Persuasive evidence of an arrangement is demonstrated via product sale contracts and professional service contracts, with performance obligations identified. The transaction price, such as product selling price, and the service price to the customer with corresponding performance obligations are fixed upon acceptance of the agreement. The Company recognizes revenue when it satisfies each performance obligation, the customer receives the products and passes the inspection and when professional service is rendered to the customer, collectability of payment is probable. These revenues are recognized at a point in time after each performance obligation is satisfied. Revenue is recognized net of returns and value-added tax charged to customers

Recently Issued Accounting Pronouncements

In October 2023, the FASB issued ASU No. 2023-06, “Disclosure Improvements — Codification Amendments in Response to the SEC’s Disclosure Update and Simplification Initiative.” The ASU amends the disclosure or presentation requirements related to various subtopics in the FASB ASC. The ASU was issued in response to the SEC’s August 2018 final amendments in Release No. 33-10532, Disclosure Update and Simplification that updated and simplified disclosure requirements that the SEC believed were duplicative, overlapping, or outdated. The guidance in ASU 2023-06 is intended to align GAAP requirements with those of the SEC and to facilitate the application of GAAP for all entities. The amendments introduced by ASU 2023-06 are effective if the SEC removes the related disclosure or presentation requirement from its existing regulations by June 30, 2027. If, by June 30, 2027, the SEC has not removed the applicable requirements from its existing regulations, the pending content of the associated amendment will be removed from the ASC and will not become effective for any entities. Early adoption is permitted. The adoption of ASU 2023-06 is not expected to have a material impact on the Company’s consolidated financial statements or related disclosures.

In December 2023, the FASB issued ASU 2023-09, Income Taxes (Topic 740): Improvements to Income Tax Disclosures (ASU 2023-09), which requires disclosure of incremental income tax information within the rate reconciliation and expanded disclosures of income taxes paid, among other disclosure requirements. ASU 2023-09 is effective for fiscal years beginning after December 15, 2024. Early adoption is permitted. The Company’s management does not believe the adoption of ASU 2023-09 will have a material impact on its financial statements and disclosures.

On November 4, 2024, the FASB issued an ASU No. 2024-03, Disaggregation of Income Statement Expenses (“ASU 2024 03”) to improve the disclosures about a public business entity’s expenses and address requests from investors for more detailed information about the types of expenses in commonly presented expense captions (such as cost of sales; selling, general, and administrative expenses; and research and development). The amendments in the ASU require disclosure in the notes to financial statements of specified information about certain costs and expenses. The amendments require that at each interim and annual reporting period an entity: 1.Disclose the amounts of (a) purchases of inventory, (b) employee compensation, (c) depreciation, (d) intangible asset amortization, and (e) depreciation, depletion, and amortization recognized as part of oil- and gas-producing activities (or other amounts of depletion expense) included in each relevant expense caption. A relevant expense caption is an expense caption presented on the face of the income statement within continuing operations that contains any of the expense categories listed in (a)–(e). 2. Include certain amounts that are already required to be disclosed under current generally accepted accounting principles in the same tabular disclosure as the other disaggregation requirements. 3. Disclose a qualitative description of the amounts remaining in relevant expense captions that are not separately disaggregated quantitatively. 4) Disclose the total amount of selling expenses and, in annual reporting periods, an entity’s definition of selling expenses. In January 2025, the FASB issued ASU No. 2025-01, Clarifying the Effective Date (“ASU 2025-01”). The amendments, as clarified by ASU 2025-01, are effective for annual reporting periods beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. Early adoption is permitted. The amendments in this ASU should be applied either (1) prospectively to financial statements issued for reporting periods after the effective date of the ASU or (2) retrospectively to any or all prior periods presented in the financial statements. The Company is evaluating the impact that ASU 2024-03 will have on its consolidated financial statements and related disclosures.

In January 2025, the FASB issued ASU 2025-01 Income Statement-Reporting Comprehensive Income – Expense Disaggregation Disclosures (Subtopic 220-40). The FASB issued ASU 2024-03 on November 4, 2024-03 states that the amendments are effective for public business entities for annual reporting periods beginning after December 15, 2026, and interim reporting periods beginning after December 15, 2027. Following the issuance of ASU 2024-03, the FASB was asked to clarify the initial effective date for entities that do not have an annual reporting period that ends on December 31 (referred to as non-calendar year-end entities). Because of how the effective date guidance was written, a non-calendar year-end entity may have concluded that it would be required to initially adopt the disclosure requirements in ASU 2024-03 in an interim reporting period, rather than in annual reporting period. The FASB’s intent in the basis for conclusions of ASU 2024-03 is clear that all public business entities should initially adopt the disclosure requirements in the first annual reporting period beginning after December 15, 2026, and interim reporting periods within annual reporting periods beginning after December 15, 2027. The Company is currently evaluating the impact that the adoption of ASU 2025-01 will have on its consolidated financial statement presentation or disclosures.

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company’s consolidated financial position, statements of comprehensive income and cash flows.