The Agreement is Expected to Expand DTSS' Footprint in the U.S. and Increase Product Sales BEIJING, Jan. 19, 2024 /PRNewswire/ -- Datasea Inc. (NASDAQ: DTSS) ("Datasea" or the "Company"), which engages in the business segments of U.S.-based intelligent acoustics and China-based 5G messaging technology, today announced that its Delaware operating subsidiary, Datasea Acoustics LLC, has entered into a marketing promotion and sales cooperation agreement (the "Agreement") with Meglio Interiors LLC ("Meglio"), ba ...

BEIJING, Jan. 18, 2024 /PRNewswire/ -- Datasea Inc., a Nevada corporation (NASDAQ: DTSS) ("Datasea" or the "Company"), which engages in the business segments of U.S.-based intelligent acoustics and China-based 5G messaging technology, today announced that the Company's Board of Directors has approved a reverse stock split of its authorized and issued and outstanding shares of common stock, par value $0.001 per share (the "Common Stock"), at a ratio of 1-for-15. The Company is effecting the reverse split to ...

Part I [Financial Statements](index=4&type=section&id=Item%201.%20Financial%20Statements) For Q3 2023, the company reported **$6.88 million** in revenue, significantly reducing its net loss to **$22,056** from **$1.34 million** year-over-year, driven by 5G messaging and improved by a one-time gain, with recent financing improving its balance sheet [Consolidated Balance Sheets](index=4&type=section&id=Consolidated%20Balance%20Sheets) As of September 30, 2023, total assets increased to **$8.82 million** from **$2.75 million**, driven by cash and prepaid expenses from financing, while liabilities decreased to **$4.51 million**, shifting total equity from a **$3.58 million** deficit to a **$4.31 million** surplus Consolidated Balance Sheet Highlights (in USD) | Balance Sheet Item | September 30, 2023 | June 30, 2023 | | :--- | :--- | :--- | | **Assets** | | | | Cash | $1,218,748 | $19,728 | | Prepaid expenses and other current assets | $6,358,043 | $701,423 | | Total Current Assets | $7,911,853 | $1,289,517 | | Total Assets | $8,816,199 | $2,754,448 | | **Liabilities & Equity** | | | | Total Current Liabilities | $4,469,781 | $4,906,575 | | Total Liabilities | $4,508,122 | $6,334,545 | | Total Equity (Deficit) | $4,308,077 | $(3,580,097) | [Consolidated Statements of Operations and Comprehensive Loss](index=6&type=section&id=Consolidated%20Statements%20of%20Operations%20and%20Comprehensive%20Loss) For the three months ended September 30, 2023, the company generated **$6.88 million** in revenue, compared to zero in the prior-year period, with a minimal gross profit of **$74,735**, and a net loss attributable to the company of **$22,056**, a significant improvement from a **$1.34 million** loss in the prior-year quarter, largely due to an **$833,546** gain from a discontinued operation Statement of Operations Summary (in USD) | Metric | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Revenues | $6,880,743 | $0 | | Gross Profit | $74,735 | $0 | | Loss from Operations | $(857,776) | $(1,095,702) | | Net loss to the Company | $(22,056) | $(1,337,323) | | Basic and diluted net loss per share | $(0.00) | $(0.05) | [Consolidated Statements of Cash Flows](index=9&type=section&id=Consolidated%20Statements%20of%20Cash%20Flows) For the three months ended September 30, 2023, net cash used in operating activities was **$6.74 million**, a significant increase from **$0.75 million** in the prior-year period, while net cash provided by financing activities was **$8.08 million**, primarily from common stock issuance, resulting in a net cash increase of **$1.20 million** for the quarter Cash Flow Summary (in USD) | Cash Flow Activity | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Net cash used in operating activities | $(6,744,413) | $(752,697) | | Net cash used in investing activities | $(365) | $(102,845) | | Net cash provided by financing activities | $8,080,455 | $790,302 | | **Net increase (decrease) in cash** | **$1,199,020** | **$(71,143)** | [Notes to Consolidated Financial Statements](index=11&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail the company's essential VIE structure in the PRC, highlight a 'Going Concern' risk due to historical losses and negative operating cash flow mitigated by recent equity financings, and elaborate on key accounting policies, a significant increase in prepaid marketing expenses, recent equity offerings, and a one-time gain from the disposal of the subsidiary Zhangxun - The company operates primarily through a Variable Interest Entity (VIE) structure in the People's Republic of China (PRC), controlling the entity through contractual arrangements rather than direct equity ownership[18](index=18&type=chunk)[37](index=37&type=chunk) - A 'Going Concern' uncertainty exists due to a history of net losses (approx. **$22,056** for the quarter), an accumulated deficit of **$28.09 million**, and negative operating cash flow of **$6.74 million**; management is addressing this through recent equity financings, including raising approximately **$5.71 million**, **$0.71 million**, and **$1.6 million** net proceeds from separate offerings in August and September 2023[29](index=29&type=chunk)[30](index=30&type=chunk)[31](index=31&type=chunk) - Prepaid expenses increased significantly to **$6.06 million**, mainly due to large prepayments for marketing and promotion agreements with third parties to drive sales of 5G messaging and acoustic intelligence products[105](index=105&type=chunk)[106](index=106&type=chunk)[107](index=107&type=chunk) - On July 20, 2023, the company disposed of its subsidiary Zhangxun for a nominal amount, resulting in a recorded gain on disposal of **$0.83 million** due to the derecognition of the subsidiary's negative net assets[157](index=157&type=chunk) Revenue by Source (Three Months Ended Sep 30, 2023) | Revenue Source | Amount (USD) | | :--- | :--- | | 5G Messaging | $6,880,463 | | Acoustic Intelligence Business | $280 | | **Total Revenue** | **$6,880,743** | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=36&type=section&id=Item%202.%20Management's%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses the company's transition into a global technology firm focusing on intelligent acoustics and 5G messaging, with a strategic emphasis on international expansion, attributing the significant revenue increase to **$6.88 million** in Q1 FY2024 to rapid 5G messaging growth in China, and noting improved liquidity from recent equity financings despite a low gross margin of **1.1%** [Overview and Strategy](index=36&type=section&id=Overview%20and%20Strategy) Datasea, a Nevada-based holding company operating through a VIE in China and a US subsidiary, focuses on intelligent acoustics and 5G messaging, with a strategy emphasizing revenue growth, technological innovation, international expansion into the U.S., and pursuing strategic partnerships and M&A opportunities - The company is positioning itself as a global technology company focused on intelligent acoustics and 5G messaging, with a key strategy of international expansion into the U.S. market through its Delaware subsidiary, Datasea Acoustics LLC[168](index=168&type=chunk)[170](index=170&type=chunk) - Key operational goals include driving revenue growth, technological innovation in acoustics, achieving customer satisfaction, international expansion, and generating shareholder returns[175](index=175&type=chunk) - The business strategy emphasizes U.S. patent acquisition, technology collaboration with research institutions like the Chinese Academy of Sciences, and potential Mergers & Acquisitions (M&A) to expand its product portfolio and market presence[173](index=173&type=chunk)[181](index=181&type=chunk)[182](index=182&type=chunk) [Results of Operations](index=46&type=section&id=Results%20of%20Operations) For the three months ended September 30, 2023, revenue surged to **$6.88 million** from zero, driven by the new 5G messaging business, resulting in a slim gross profit of **$74,735** and a gross margin of **1.1%**, while operating expenses decreased by **15%** to **$0.93 million**, contributing to a reduced net loss from continuing operations of **$0.86 million** Comparison of Operations (Three Months Ended Sep 30) | Metric | 2023 | 2022 | Change (%) | | :--- | :--- | :--- | :--- | | Revenues | $6,880,743 | $0 | N/A | | Gross Profit | $74,735 | $0 | N/A | | Gross Margin | 1.1% | N/A | N/A | | Total Operating Expenses | $932,511 | $1,095,702 | (15.0)% | | Loss from Operations | $(857,776) | $(1,095,702) | (21.7)% | - The increase in revenue was mainly due to the rapid growth of the 5G messaging business in China, specifically from service fees for 5G SMS service[228](index=228&type=chunk) - General and administrative expenses decreased by **21.7%** to **$693,060**, primarily due to lower rent expense and reduced consulting and director compensation[240](index=240&type=chunk) [Liquidity and Capital Resources](index=49&type=section&id=Liquidity%20and%20Capital%20Resources) The company's liquidity dramatically improved, shifting from a working capital deficit of **$3.62 million** to a surplus of **$3.44 million** at September 30, 2023, driven by **$8.08 million** in net cash from financing activities, which offset a high cash burn from operations of **$6.74 million**, resulting in a net cash increase of **$1.2 million** for the quarter - The company's working capital improved from a deficit of **$3.6 million** as of June 30, 2023, to a surplus of **$3.4 million** as of September 30, 2023[247](index=247&type=chunk) - Net cash used in operating activities increased to **$6.74 million** for the quarter, compared to **$0.75 million** in the prior-year period, mainly due to a large increase in prepaid expenses[249](index=249&type=chunk) - Net cash provided by financing activities was **$8.08 million**, primarily from the net proceeds of common stock issuance, a significant increase from **$0.79 million** in the same period last year[251](index=251&type=chunk) [Quantitative and Qualitative Disclosures about Market Risk](index=52&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20about%20Market%20Risk) This section is not applicable as the company qualifies as a smaller reporting company - The company is not required to provide this disclosure as it is a smaller reporting company[261](index=261&type=chunk) [Controls and Procedures](index=53&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that the company's disclosure controls and procedures were not effective as of September 30, 2023, due to identified material weaknesses including inadequate segregation of duties, lack of U.S. GAAP trained personnel, and insufficient written accounting policies, for which remediation strategies are outlined - The CEO and CFO concluded that the company's disclosure controls and procedures were not effective as of the end of the reporting period[263](index=263&type=chunk) - Identified material weaknesses include: (i) inadequate segregation of duties and risk assessment, (ii) lack of personnel adequately trained in U.S. GAAP, and (iii) insufficient written policies and procedures for accounting and financial reporting[263](index=263&type=chunk) - Management has implemented and is continuing to enhance its internal control framework, including refining procedures, establishing a collaborative oversight mechanism with the legal department, and providing personnel training[264](index=264&type=chunk)[265](index=265&type=chunk)[267](index=267&type=chunk) Part II [Legal Proceedings, Risk Factors, and Other Disclosures](index=56&type=section&id=Items%201-5) The company reports no pending legal proceedings, is not required to disclose risk factors as a smaller reporting company, and had no unregistered sales of equity securities, defaults upon senior securities, or mine safety disclosures during the period - The company is not a party to any pending legal proceedings[275](index=275&type=chunk) - Disclosure of Risk Factors is not required as the company is a smaller reporting company[275](index=275&type=chunk) - There were no unregistered sales of equity securities, defaults on senior securities, or mine safety issues to report[275](index=275&type=chunk) [Exhibits](index=56&type=section&id=Item%206.%20Exhibits) This section lists the exhibits filed with the Form 10-Q, including officer certifications pursuant to the Sarbanes-Oxley Act and XBRL data files - The report includes a list of filed exhibits, such as CEO/CFO certifications (31.1, 31.2, 32.1, 32.2) and Inline XBRL documents[276](index=276&type=chunk)

PART I [Description of Business](index=9&type=section&id=Item%201.%20Description%20of%20Business) Datasea Inc. operates in China through a VIE structure, focusing on intelligent acoustics and 5G messaging, with a strategic push for international expansion [Company Structure and Overview](index=9&type=section&id=Company%20Structure%20and%20Overview) Datasea Inc., a Nevada holding company, controls its Chinese operations via a VIE, focusing on intelligent acoustics and 5G messaging, and recently established a U.S. subsidiary for global market expansion - Datasea Inc. is a Nevada-based holding company controlling Chinese operating entities through a **Variable Interest Entity (VIE) structure**, not direct equity ownership[26](index=26&type=chunk)[27](index=27&type=chunk) - The company's primary business segments are **intelligent acoustics** (ultrasound, infrasound, directional sound) and **5G messaging services**[26](index=26&type=chunk)[29](index=29&type=chunk) - A key strategic focus is internationalization, highlighted by the establishment of a wholly-owned U.S. subsidiary, **Datasea Acoustics LLC**, in Delaware on July 31, 2023, to target the global market[28](index=28&type=chunk)[34](index=34&type=chunk) - As of the report date, the company, through its VIE and subsidiaries, holds **27 patents** and **106 software copyrights** in the PRC, with 10 pending patent applications[30](index=30&type=chunk) [VIE Agreements](index=12&type=section&id=VIE%20AGREEMENTS) Datasea controls its Chinese operating entity, Shuhai Beijing, through contractual VIE agreements, which allow management and economic benefits but carry significant enforceability risks under PRC law - Datasea controls its Chinese operating entity, Shuhai Beijing (the VIE), through four key contractual agreements: **Operation and IP Service, Stockholders' Voting Rights Entrustment, Equity Option, and Equity Pledge**[42](index=42&type=chunk)[43](index=43&type=chunk)[45](index=45&type=chunk) - The agreements grant Datasea's WFOE the right to manage Shuhai Beijing, collect its pre-tax income as an operating fee, control voting rights, and hold an irrevocable option to acquire all equity interests in the VIE[43](index=43&type=chunk)[45](index=45&type=chunk)[46](index=46&type=chunk) - The company acknowledges substantial uncertainties regarding the interpretation and enforcement of these VIE agreements under PRC law, noting they have not been tested in a Chinese court, potentially jeopardizing control over the VIE[49](index=49&type=chunk)[51](index=51&type=chunk)[52](index=52&type=chunk) [Summary Consolidated Financial Data](index=13&type=section&id=SUMMARY%20CONSOLIDATED%20FINANCIAL%20DATA) For fiscal year 2023, Datasea reported revenues of **$7.05 million**, a significant decrease from **$17.08 million** in 2022, with net loss widening to **$9.48 million** and total liabilities increasing to **$6.33 million** Condensed Consolidated Statements of Operations | | YEARS ENDED JUNE 30, | | :--- | :--- | :--- | | | **2023** | **2022** | | **Revenues** | $7,045,311 | $17,080,911 | | **Gross profit** | $340,931 | $955,673 | | **Loss from operations** | ($9,685,220) | ($7,237,254) | | **Net loss to the Company** | ($9,479,692) | ($6,521,708) | | **Basic and diluted net loss per share** | ($0.38) | ($0.27) | Condensed Consolidated Balance Sheets | | **JUNE 30, 2023** | **JUNE 30, 2022** | | :--- | :--- | :--- | | **Total current assets** | $1,289,517 | $1,256,801 | | **Total Assets** | $2,754,448 | $3,755,677 | | **Total current liabilities** | $4,906,575 | $2,124,575 | | **Total Liabilities** | $6,334,545 | $2,156,045 | | **Total Equity (Deficit)** | ($3,580,097) | $1,599,632 | Condensed Consolidated Statements of Cash Flows | | **YEARS ENDED JUNE 30,** | | :--- | :--- | :--- | | | **2023** | **2022** | | **Net cash used in operating activities** | ($3,136,081) | ($5,139,712) | | **Net cash used in investing activities** | ($113,131) | ($1,133,424) | | **Net cash provided by financing activities** | $3,109,207 | $6,379,304 | | **Net (decrease) increase in cash** | ($144,489) | $114,541 | | **Cash, end of year** | $19,728 | $164,217 | - As of the report date, neither the VIE nor any subsidiaries have ever paid dividends or transferred assets to Datasea Inc., with the company intending to reinvest future earnings for business expansion[69](index=69&type=chunk) [Intelligent Acoustics Business](index=21&type=section&id=Intelligent%20Acoustics%20Business) The Intelligent Acoustics segment focuses on ultrasonic antivirus and skin repair products, with the "Hailijia" series demonstrating **99.83% efficacy against Covid-19**, and generated **$136,884** in net revenue for the fiscal year - The company is developing a range of ultrasonic disinfection products, including the **"Hailijia" series**, which has been tested by the Wuhan Institute of Virology and shown to have **99.83% efficacy against Covid-19** in nine seconds[72](index=72&type=chunk)[87](index=87&type=chunk) - The global ultrasound technology market is projected to grow from **$1.8 billion in 2022 to $3.3 billion in 2027**, representing a significant market opportunity for the company's acoustic products[82](index=82&type=chunk) - New products in the pipeline include a contactless ultrasonic **Skin Repair Robot** with AI diagnosis and a **Sleep Monitor** based on Schumann resonance technology[102](index=102&type=chunk)[103](index=103&type=chunk)[111](index=111&type=chunk) - For the fiscal year, the intelligent acoustics business generated net revenue of **$136,884**, representing **1.94% of total net revenue**, with direct sales accounting for **49.48%** and distributor sales for **50.52%** of this segment's revenue[110](index=110&type=chunk) [5G Messaging Business](index=28&type=section&id=5G%20Messaging%20Business) The 5G Messaging business, leveraging Rich Communication Suite (RCS) technology, provides enterprise communication and marketing platforms, generating **$6.69 million** in net income and accounting for **94.91%** of total net income for the fiscal year - The 5G messaging business leverages **Rich Communication Suite (RCS)** to offer enterprises advanced marketing and communication tools, including the **5G Integrated Messaging Marketing Cloud Platform (5G IMMCP)** and Smart Push solutions[75](index=75&type=chunk)[119](index=119&type=chunk)[120](index=120&type=chunk) - This segment was the main revenue source for the fiscal year, with a net income of **$6,686,691**, accounting for **94.91% of the company's total net income**[125](index=125&type=chunk) - Within the 5G messaging business, the **5G Top-up services** were a significant contributor, generating **$4,481,442** in net revenue[125](index=125&type=chunk) [Intellectual Property](index=36&type=section&id=Intellectual%20Property) As of September 2023, the company holds **106 software copyrights** and **27 patents** in the PRC, with plans to significantly expand its IP portfolio, aiming for **20 new domestic patents** and **10 international patents** in acoustics over the next three years - As of September 2023, the company and its subsidiaries own **14 granted patents** and have **13 patent applications** under substantive examination in the PRC[147](index=147&type=chunk)[149](index=149&type=chunk)[150](index=150&type=chunk) - The company holds a total of **106 software copyright registrations** in China across its various entities, including Shuhai Beijing (35), Xunrui (27), and Tianjin Information (23)[152](index=152&type=chunk) - The company has a strategic plan to expand its patent portfolio over the next three years, aiming for **20 new domestic patents** and **10 international patents** from its China operations, and **5 U.S. patents** and **5 international patents** from its overseas subsidiary[162](index=162&type=chunk) [Risk Factors](index=47&type=section&id=Item%201A.%20Risk%20Factors) The company faces significant risks including a limited operating history, substantial doubt about its going concern ability, reliance on VIE agreements, and challenges associated with operating in China [Risks Relating to Our Business and Industry](index=47&type=section&id=Risks%20Relating%20to%20Our%20Business%20and%20Industry) The company faces substantial business risks including a limited operating history, auditor-expressed doubt about its going concern ability, reliance on third-party manufacturers, and challenges adapting to rapid technological changes - The company has a **limited operating history** in developing intelligent acoustics and 5G messaging products, making future prospects difficult to judge[185](index=185&type=chunk)[186](index=186&type=chunk) - The independent auditor's report includes an explanatory paragraph expressing **substantial doubt about the company's ability to continue as a going concern**, citing a deficit of approximately **$28.1 million** and negative cash flow[187](index=187&type=chunk) - The business relies on **third-party contractors for manufacturing**, exposing it to supply chain risks such as interruptions, cost increases, and quality control issues[191](index=191&type=chunk)[192](index=192&type=chunk)[204](index=204&type=chunk) - The company is subject to complex data privacy laws, such as China's Cybersecurity Law (CSL) and the EU's GDPR, and non-compliance could result in significant penalties and operational disruptions[215](index=215&type=chunk)[216](index=216&type=chunk)[217](index=217&type=chunk) [Risks Relating to Our Corporate Structure](index=55&type=section&id=Risks%20Relating%20to%20Our%20Corporate%20Structure) The company's reliance on a Variable Interest Entity (VIE) structure in China presents significant risks, as the enforceability of contractual arrangements is uncertain and could lead to loss of control or severe penalties - The VIE agreements may be deemed non-compliant with PRC regulations, which could lead to **severe penalties, forced relinquishment of operations**, and a material reduction in the value of the company's shares[220](index=220&type=chunk)[221](index=221&type=chunk)[223](index=223&type=chunk) - The contractual arrangements are governed by PRC law and have not been tested in court, creating uncertainty about the company's ability to enforce its control over the VIE's assets and operations[226](index=226&type=chunk)[227](index=227&type=chunk) - Shareholders of the VIE, who are also the company's CEO and a director, may have potential **conflicts of interest** that could adversely affect the business[233](index=233&type=chunk)[234](index=234&type=chunk) - The company is a **"controlled company"** under NASDAQ rules because the CEO and her father hold over **50% of the voting power**, allowing it to rely on exemptions from certain corporate governance requirements[237](index=237&type=chunk) [Risks Associated With Doing Business in China](index=58&type=section&id=Risks%20Associated%20With%20Doing%20Business%20in%20China) Operating in China exposes the company to significant political, economic, and legal risks, including potential adverse policy changes, currency exchange controls, and stringent cybersecurity and data laws - Changes in PRC government policies could significantly impact business, including new laws, confiscatory taxation, or restrictions on currency conversion[238](index=238&type=chunk)[239](index=239&type=chunk) - The company may require approval from the CSRC for overseas securities issuance under regulations like the M&A Rules and the new filing-based regime effective March 31, 2023, and failure to comply could result in sanctions[242](index=242&type=chunk)[243](index=243&type=chunk)[245](index=245&type=chunk) - Fluctuations in the **Renminbi exchange rate** could adversely affect financial results and the value of investments in U.S. dollars[251](index=251&type=chunk) - The company faces risks related to China's evolving data security and cybersecurity laws, including the Cybersecurity Review Measures, which could require review for foreign listings and impose significant compliance costs[278](index=278&type=chunk)[282](index=282&type=chunk)[283](index=283&type=chunk) [Risks Relating to An Investment in Our Common Stock](index=71&type=section&id=Risks%20Relating%20to%20An%20Investment%20in%20Our%20Common%20Stock) An investment in Datasea's common stock carries high risk, including potential Nasdaq delisting due to non-compliance with listing requirements, thin trading, and control by majority stockholders - The company has received deficiency letters from Nasdaq for failing to meet the minimum **Market Value of Listed Securities ($35 million)** and the **minimum bid price ($1.00)** requirements, posing a risk of delisting[296](index=296&type=chunk)[297](index=297&type=chunk)[299](index=299&type=chunk) - Officers and directors collectively hold approximately **50.4% beneficial ownership**, allowing them to control shareholder votes and corporate actions[305](index=305&type=chunk)[306](index=306&type=chunk) - The common stock is **thinly traded** and may be considered a **"penny stock,"** which could make it more difficult for investors to sell shares[311](index=311&type=chunk)[313](index=313&type=chunk)[314](index=314&type=chunk) - The company is not likely to pay cash dividends in the foreseeable future, as it intends to retain earnings for business expansion[319](index=319&type=chunk) [Description of Property](index=75&type=section&id=Item%202.%20Description%20of%20Property) The company does not own any real estate, operating solely from leased office spaces, including its 2,007 square meter headquarters in Beijing and smaller offices for subsidiaries - The company does not own any real estate; all its properties are leased[321](index=321&type=chunk) - The main headquarters is a leased office space of approximately **2,007 square meters** in Beijing, with additional smaller offices leased in Harbin, Shenzhen, and Hangzhou for its subsidiaries[321](index=321&type=chunk)[322](index=322&type=chunk)[325](index=325&type=chunk) [Legal Proceedings](index=77&type=section&id=Item%203.%20Legal%20Proceedings) As of the report date, neither Datasea Inc. nor its subsidiaries are party to any material pending legal proceedings - The company and its subsidiaries are not currently a party to any material pending legal proceedings[330](index=330&type=chunk) PART II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=78&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Datasea's common stock trades on NASDAQ under "DTSS", with **32,784,133 shares outstanding** held by **102 record holders** as of September 20, 2023, and the company does not anticipate paying dividends - The company's common stock trades on the **NASDAQ Capital Market** under the symbol **"DTSS"**[333](index=333&type=chunk) - As of September 20, 2023, there were **32,784,133 shares of common stock** issued and outstanding, with **102 holders of record**[333](index=333&type=chunk)[334](index=334&type=chunk) - The company does not anticipate paying dividends in the foreseeable future and plans to retain earnings for business expansion, with PRC regulations also restricting dividend distributions from its Chinese subsidiaries[335](index=335&type=chunk)[336](index=336&type=chunk) - The company's 2018 Equity Incentive Plan was amended to increase the number of shares reserved for issuance from **14,000,000 to 24,000,000**[337](index=337&type=chunk)[338](index=338&type=chunk) [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=80&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) In fiscal year 2023, Datasea's revenue decreased by **59% to $7.05 million**, and net loss widened to **$9.48 million**, driven by reduced 5G SMS demand and increased G&A expenses, despite post-period-end financing alleviating going concern doubts [Results of Operations](index=93&type=section&id=Results%20of%20Operations) For fiscal year 2023, revenues decreased **59% to $7.05 million**, gross profit fell **64% to $340,931**, and net loss increased **45% to $9.48 million**, primarily due to reduced 5G messaging demand and higher stock compensation expenses Fiscal Year 2023 vs 2022 Performance | Metric | FY 2023 | FY 2022 | Change (%) | | :--- | :--- | :--- | :--- | | **Revenues** | $7,045,311 | $17,080,911 | -59% | | **Cost of Revenues** | $6,704,380 | $16,125,238 | -58% | | **Gross Profit** | $340,931 | $955,673 | -64% | | **Total Operating Expenses** | $10,026,151 | $8,192,927 | +22% | | **Net Loss to the Company** | ($9,479,692) | ($6,521,708) | +45% | - The decrease in revenue was mainly attributed to **reduced demand for the 5G SMS business** during the COVID-19 pandemic[419](index=419&type=chunk) - General and administration expenses increased by **51% to $8.41 million**, primarily due to a **$3.74 million increase in stock compensation expense**[430](index=430&type=chunk) - Research and development expenses decreased by **27% to $921,020** as the company focuses on expanding its leading technologies[426](index=426&type=chunk) [Liquidity and Capital Resources](index=96&type=section&id=Liquidity%20and%20Capital%20Resources) As of June 30, 2023, the company had a working capital deficit of **$3.62 million** and cash of **$19,728**, with auditors expressing substantial doubt about its going concern ability, though recent financing activities are expected to support operations - The company had a **working capital deficit of $3,617,058** and a cash balance of **$19,728** as of June 30, 2023[435](index=435&type=chunk)[413](index=413&type=chunk) Cash Flow Summary (FY 2023 vs FY 2022) | Cash Flow Activity | FY 2023 | FY 2022 | | :--- | :--- | :--- | | **Operating Activities** | ($3,136,081) | ($5,139,712) | | **Investing Activities** | ($113,131) | ($1,133,424) | | **Financing Activities** | $3,109,207 | $6,379,304 | - The company's ability to continue as a going concern is in doubt due to recurring losses and negative cash flow, although management believes recent financing activities will support operations for the next twelve months[413](index=413&type=chunk)[414](index=414&type=chunk) - Total liabilities increased by **193.8% to $6.33 million** as of June 30, 2023, driven by increases in loans payable, amounts due to related parties, and accounts payable[441](index=441&type=chunk) [Financial Statements and Supplementary Data](index=99&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) This section presents the company's audited consolidated financial statements for fiscal years 2023 and 2022, including the Independent Auditor's Report which highlights a critical audit matter regarding going concern [Report of Independent Registered Public Accounting Firm](index=121&type=section&id=Report%20of%20Independent%20Registered%20Public%20Accounting%20Firm) The auditor, Kreit & Chiu CPA LLP, issued an unqualified opinion but identified a Critical Audit Matter regarding the company's going concern ability due to an accumulated deficit of **$28.06 million** and a net loss of **$9.48 million**, which was alleviated by **$7.83 million** in post-year-end financing - The auditor, Kreit & Chiu CPA LLP, issued an **unqualified opinion** on the financial statements[529](index=529&type=chunk) - A **Critical Audit Matter** was identified regarding the company's ability to continue as a going concern, due to an accumulated deficit of **$28.06 million** and a net loss of **$9.48 million** for FY 2023[533](index=533&type=chunk) - The going concern uncertainty was considered alleviated for at least twelve months following the report date due to the company receiving **$7.83 million in cash** from financing subsequent to June 30, 2023[534](index=534&type=chunk) [Notes to Consolidated Financial Statements](index=129&type=section&id=Notes%20to%20Consolidated%20Financial%20Statements) The notes detail accounting policies, the VIE structure, going concern assessment, related party transactions, and significant stock and warrant issuances, with a major subsequent event being the sale of a subsidiary and recent equity financing - The company's operations are conducted through a **VIE structure**, with control exercised via contractual agreements rather than equity ownership (Note 1)[547](index=547&type=chunk)[569](index=569&type=chunk) - The financial statements were prepared on a going concern basis, but recurring losses and an accumulated deficit of **$28.06 million** raise substantial doubt, mitigated by significant financing obtained after the balance sheet date (Note 2)[563](index=563&type=chunk)[564](index=564&type=chunk)[565](index=565&type=chunk) - During FY 2023, the company issued **3,459,500 shares** as stock compensation to employees and consultants, valued at **$3,976,362** (Note 10)[668](index=668&type=chunk) - Subsequent to the fiscal year-end, the company secured significant equity financing, including raising **RMB 40 million ($5.48 million)** and closing a public offering for gross proceeds of approximately **$2 million** (Note 13)[700](index=700&type=chunk)[701](index=701&type=chunk)[702](index=702&type=chunk) [Controls and Procedures](index=99&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that as of June 30, 2023, the company's disclosure controls and procedures were ineffective due to material weaknesses, including inadequate segregation of duties and insufficient internal control testing - Management concluded that as of June 30, 2023, the company's **disclosure controls and procedures were not effective**[451](index=451&type=chunk) - Material weaknesses in internal control over financial reporting were identified, including: (i) **inadequate segregation of duties**, (ii) **insufficient frequency of internal control testing**, and (iii) **lack of accounting personnel trained in U.S. GAAP**[453](index=453&type=chunk) - Management has implemented and is continuing to enhance its internal controls, including refining procedures, establishing a collaborative oversight mechanism with the legal department, and providing personnel training[454](index=454&type=chunk)[455](index=455&type=chunk)[456](index=456&type=chunk) PART III [Directors, Executive Officers and Corporate Governance](index=102&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) The company's leadership includes Zhixin Liu (CEO), Mingzhou Sun (CFO), and Chunqi Jiao (CTO), with a five-member board including three independent directors, and a family relationship between the CEO and a director - The executive team is led by **Zhixin Liu (Chairman & CEO), Mingzhou Sun (CFO), and Chunqi Jiao (CTO)**[465](index=465&type=chunk) - The Board of Directors has **three independent members**: Michael James Antonoplos, Stephen (Chun Kwok) Wong, and Yan Yang, forming a majority of the five-person board[479](index=479&type=chunk) - A family relationship exists within the company's leadership: Director **Fu Liu is the father of Chairman and CEO Zhixin Liu**[474](index=474&type=chunk) - The company reported that several officers and directors, including Zhixin Liu and Fu Liu, failed to timely file one or more Form 4 reports for transactions during the fiscal year ended June 30, 2023[483](index=483&type=chunk) [Executive Compensation](index=106&type=section&id=Item%2011.%20Executive%20Compensation) For fiscal year 2023, executive compensation was primarily salary-based, with CEO Zhixin Liu earning **$43,219**, and separate agreements grant the CEO **15,000 shares** per month and Director Fu Liu **10,000 shares** per month FY 2023 Executive Compensation | Name and Principal Position | Salary ($) | | :--- | :--- | | **Ms. Zhixin Liu** (Chairman, CEO) | $43,219 | | **Mingzhou Sun** (CFO) | $34,564 | | **Chunqi Jiao** (CTO) | $28,396 | - CEO Zhixin Liu is entitled to receive **15,000 shares of common stock per month**, and Director Fu Liu is entitled to **10,000 shares per month**, as part of their compensation, starting from July 1, 2021[487](index=487&type=chunk)[500](index=500&type=chunk) - No options were granted to executive officers in the fiscal year ended June 30, 2023[488](index=488&type=chunk) [Security Ownership of Certain Beneficial Owners and Management](index=110&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) As of September 20, 2023, ownership is highly concentrated, with CEO Zhixin Liu beneficially owning **31.40%** and Director Fu Liu **18.60%**, resulting in **50.40%** control by all officers and directors as a group Beneficial Ownership as of September 20, 2023 | Name of Beneficial Owner | Number of Shares | Percent of Class | | :--- | :--- | :--- | | **Zhixin Liu** (CEO) | 10,294,295 | 31.40% | | **Fu Liu** (Director) | 6,097,820 | 18.60% | | **All officers and directors as a group (seven persons)** | 16,522,115 | 50.40% | - Ownership is based on **32,784,133 shares of common stock outstanding** as of September 20, 2023[504](index=504&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=112&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) The company engaged in several related party transactions, primarily with CEO Zhixin Liu, including lease agreements for office space and car rentals, resulting in **$147,838** due to related parties as of June 30, 2023 - The company has multiple lease agreements with its CEO, Zhixin Liu, for office space and vehicles[506](index=506&type=chunk)[507](index=507&type=chunk)[510](index=510&type=chunk) - In May 2023, a subsidiary signed a one-year office lease with the CEO for an annual rent of **RMB 282,852 (approx. $40,756)**[510](index=510&type=chunk) - In July 2023, a subsidiary entered into two car rental agreements with the CEO for a combined annual rent of **RMB 456,000 (approx. $65,705)**[511](index=511&type=chunk) [Principal Accountant Fees and Services](index=112&type=section&id=Item%2014.%20Principal%20Accountant%20Fees%20and%20Services) For fiscal years 2023 and 2022, Kreit & Chiu CPA LLP billed **$137,500** and **$128,850** respectively for audit services, with no fees for audit-related, tax, or other services Accountant Fees | Fee Category | FY 2023 | FY 2022 | | :--- | :--- | :--- | | **Audit Fees** | $137,500 | $128,850 | | **Audit-Related Fees** | $0 | $0 | | **Tax Fees** | $0 | $0 | | **All Other Fees** | $0 | $0 | | **TOTAL** | **$137,500** | **$128,850** | PART IV [Exhibits, Financial Statement Schedules](index=114&type=section&id=Item%2015.%20Exhibits%2C%20Financial%20Statement%20Schedules) This section lists all financial statements, schedules, and exhibits filed with the Form 10-K report, including corporate documents, VIE agreements, equity incentive plans, and Sarbanes-Oxley certifications - This section provides a comprehensive list of all exhibits filed with the 10-K, including Articles of Incorporation, Bylaws, VIE Agreements, the 2018 Equity Incentive Plan, and various financing and service agreements[518](index=518&type=chunk) - Certifications by the Chief Executive Officer and Chief Financial Officer pursuant to Sarbanes-Oxley Sections 302 and 906 are included as exhibits[520](index=520&type=chunk)

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2023 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-38767 DATASEA INC. (Exact name of registrant as specified in its charter) | --- | --- | |-------------------------------------------------------------------------|------------- ...

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2022 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 001-38767 DATASEA INC. (Exact name of registrant as specified in its charter) | --- | --- | |------------------------------------------------------------------------------------ ...

Financial Performance - Revenues for the three months ended September 30, 2022, were $1,164,305, representing a 73.4% increase from $671,130 in the same period of 2021[9] - Gross profit for the same period was $150,197, compared to $63,595 in the prior year, indicating a significant improvement in profitability[9] - The net loss attributable to the Company for the three months ended September 30, 2022, was $1,337,323, a slight improvement from a net loss of $1,441,234 in the same period of 2021[9] - For the three months ended September 30, 2022, the company reported a net loss of approximately $1.34 million, compared to a net loss of $1.44 million for the same period in 2021[27] - The Company had a comprehensive loss attributable to the Company of $1,324,985 for the three months ended September 30, 2022, compared to $1,445,931 in the prior year[9] - The net loss for the three months ended September 30, 2022, was $(757,146), a reduction from a net loss of $(870,189) in the same period of 2021, showing a narrowing of losses[41] - For the period ending September 30, 2022, the net loss was $19,920,889, compared to a net loss of $12,061,858 for the same period in 2021, representing a 65% increase in losses year-over-year[11] Assets and Liabilities - Total current assets decreased to $979,033 from $1,256,801, a decline of approximately 22.1%[6] - Total liabilities increased to $2,801,523 from $2,156,045, representing a rise of about 30%[6] - Total current liabilities increased to $2,394,898 as of September 30, 2022, compared to $1,711,439 as of June 30, 2022, reflecting a rise of approximately 39.9%[41] - As of September 30, 2022, total assets amounted to $1,919,865, a decrease from $2,290,541 as of June 30, 2022, representing a decline of approximately 16.2%[41] - Total stockholders' equity decreased to $1,245,170 from $2,453,905, a decline of approximately 49.3%[6] Cash Flow - Cash and cash equivalents decreased to $93,074 from $164,217, indicating a decline of approximately 43.3%[6] - Negative cash flow from operating activities was approximately $752,697 for the three months ended September 30, 2022, compared to $1,399,969 for the same period in 2021[27] - Cash provided by financing activities amounted to $790,302, a decrease from $7,172,459 in the prior year[13] - The company ended the period with cash of $93,074, a significant decrease from $5,805,362 at the end of the previous period[13] Operational Insights - The company is exploring options to raise additional funds through private or public offerings to support R&D and operations[28] - The company has recurring losses from operations, raising substantial doubt about its ability to continue as a going concern[27] - Management believes that the company will be able to continue operations for at least the next 12 months[28] - The Company anticipates that its financial resources will be sufficient to handle challenges associated with COVID-19[25] Revenue Recognition and Business Segments - The Company follows ASC 606 for revenue recognition, which requires identifying performance obligations and recognizing revenue when those obligations are satisfied[62] - The company’s only business segment is high technology and advanced information systems, focusing on smart city solutions and 5G messaging services[67] - The company recognized revenue of $1.04 million during the three months ended September 30, 2022, primarily from 5G messaging services[65] - The Company recognized an additional revenue of $124,544 from the Smart Public Broadcasting project during the same period[65] Subsidiaries and Market Expansion - The company has expanded its operations through the establishment of new subsidiaries and joint ventures, including Shuhai Jingwei and Shuhai Nanjing, to enhance its market presence and access funding for technology development[19][22] - The company incorporated two new subsidiaries during the year ended June 30, 2022, indicating ongoing market expansion efforts[30] Expenses and Cost Management - Total operating expenses decreased to $1,606,841 from $1,637,486 year-over-year, reflecting a reduction of approximately 1.9%[9] - The company incurred a stock compensation expense of $116,250 for the nine months ended September 30, 2022, down from $164,250 in the same period of 2021, suggesting cost control measures[13] - Operating lease expense for the three months ended September 30, 2022, was $203,111, down from $218,829 in the same period of 2021[137] Tax and Valuation - The Company has established a full valuation allowance for deferred tax assets as of September 30, 2022, due to uncertainty regarding future realization[126] - The effective tax rate for the Company was impacted by a valuation allowance of 21.3% for the three months ended September 30, 2022[129] Miscellaneous - The Company had no impairment loss recognized on long-lived assets for the three months ended September 30, 2022[55] - The exchange rate for USD to RMB at the end of September 30, 2022, was 7.0998, compared to 6.7114 at June 30, 2022[83] - The average USD to RMB exchange rate for the reporting period ended September 30, 2022, was 6.8287[83]

Financial Data and Key Metrics Changes - Datasea reported revenues of $17.08 million for the fiscal year ended June 30, 2022, a significant increase of $16.9 million or 9,653% compared to $0.17 million in the previous year [6][7] - The gross margin for the 12 months ended June 30, 2022, was 5.6%, with expectations for improvement due to economies of scale and increased brand recognition [10] - R&D expenses increased by $0.41 million or 48% year-on-year, totaling $1.26 million for the year ended June 30, 2022 [11] Business Line Data and Key Metrics Changes - The revenue from the 5G messaging business was $17.02 million, which included $11.93 million from 5G SMS and $3.26 million from value-added services [7][8] - The Smart City project generated $56,000 in revenue during the reporting period [7] Market Data and Key Metrics Changes - Datasea's customer base expanded across various provinces in China, including Beijing, Liaoning, and Guangdong, with agreements signed with over 11 industry customers [9] - The company aims to expand its global market exposure, particularly in North America, through the establishment of U.S. business subsidiaries [20] Company Strategy and Development Direction - Datasea's primary operational goals include providing best-in-class products in 5G messaging and acoustic intelligence, maximizing sustainable growth, and generating cash flows for shareholders [23] - The company is focusing on four key initiatives: enhancing digital communication, assisting companies in meeting marketing needs, investing in long-term growth areas, and leveraging innovation to provide unique solutions [24][26][29] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's development for the new fiscal year, citing a $41.72 million procurement agreement for 5G messaging services [15] - The management noted that while the current economic environment poses challenges, the fundamentals of China's economy are improving, and the company is well-positioned for future growth [19][33] Other Important Information - Datasea plans to invest approximately $10 million in technological development over the next three years [13] - The company has developed ultrasonic sound sterilization equipment with a 99.83% efficacy against COVID-19, with significant orders already placed [12][16] Q&A Session Summary Question: How will you describe the company's competitiveness in the 5G messaging and acoustic intelligence? - Management highlighted the large market potential in China, authorization by major operators, a comprehensive product portfolio, and strong industry relationships as key competitive advantages [37][39][40] Question: If the Smart City solutions are not generating significant revenue, why does the company decide to keep it? - Management emphasized the promising market position and the strong synergies between Smart City solutions and the 5G messaging and acoustic intelligence businesses [44][45]