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 September 30, 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)

Nevada |  | 45-2019013
(State or other jurisdiction of |  | (I.R.S. Employer
incorporation or organization) |  | Identification No.)

20th Floor, Tower B, Guorui Plaza 1 Ronghua South Road, Technological Development Zone Beijing, People’s Republic of China |  | 100176
(Address of principal executive offices) |  | (Zip Code)

+86 10-56145240
(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class |  | Trading Symbol |  | Name of each exchange on which registered
Common Stock, $0.001 par value |  | DTSS |  | NASDAQ Capital Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

☐ | Large accelerated filer | ☐ | Accelerated filer
☒ | Non-accelerated filer | ☒ | Smaller reporting company
|  | ☐ | Emerging growth company

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of November 12, 2023, 38,073,234 shares of common stock, $0.001 par value per share, were outstanding.

DATASEA INC.

TABLE OF CONTENTS

|  | Page No.
| Part I - Financial Information |
Item 1 | Financial Statements | 1
Item 2 | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 28
Item 3 | Quantitative and Qualitative Disclosures about Market Risk | 44
Item 4 | Controls and Procedures | 45
| Part II - Other Information |
Item 1 | Legal Proceedings |
Item 1A | Risk Factors | 47
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 47
Item 3 | Defaults Upon Senior Securities | 47
Item 4 | Mine Safety Disclosures | 47
Item 5 | Other Information | 47
Item 6 | Exhibits | 47

i

PART I - FINANCIAL INFORMATION

DATASEA INC.

CONSOLIDATED BALANCE SHEETS

|  | SEPTEMBER 30, 2023 (UNAUDITED) |  |  | JUNE 30, 2023 |
ASSETS |  |  |  |  |  |
CURRENT ASSETS |  |  |  |  |  |
Cash |  | $ | 1,218,748 |  |  | $ | 19,728 |
Accounts receivable |  |  | 22,158 |  |  |  | 255,725 |
Inventory, net |  |  | 242,789 |  |  |  | 241,380 |
Value-added tax prepayment |  |  | 70,115 |  |  |  | 71,261 |
Prepaid expenses and other current assets |  |  | 6,358,043 |  |  |  | 701,423 |
Total current assets |  |  | 7,911,853 |  |  |  | 1,289,517 |
NONCURRENT ASSETS |  |  |  |  |  |  |  |
Long-term investment |  |  | 55,713 |  |  |  | 55,358 |
Property and equipment, net |  |  | 67,700 |  |  |  | 85,930 |
Intangible assets, net |  |  | 715,079 |  |  |  | 1,185,787 |
Right-of-use assets, net |  |  | 65,854 |  |  |  | 137,856 |
Total noncurrent assets |  |  | 904,346 |  |  |  | 1,464,931 |
TOTAL ASSETS |  | $ | 8,816,199 |  |  | $ | 2,754,448 |
LIABILITIES AND STOCKHOLDERS’ EQUITY |  |  |  |  |  |  |  |
CURRENT LIABILITIES |  |  |  |  |  |  |  |
Accounts payable |  | $ | 296,177 |  |  | $ | 1,005,059 |
Short term loan |  |  | 496,035 |  |  |  | 594,906 |
Unearned revenue |  |  | 473,061 |  |  |  | 609,175 |
Accrued expenses and other payables |  |  | 642,294 |  |  |  | 1,409,939 |
Due to related parties |  |  | 494,927 |  |  |  | 1,162,856 |
Operating lease liabilities |  |  | 34,367 |  |  |  | 124,640 |
Loan payables - current |  |  | 2,032,920 |  |  |  | - |
Total current liabilities |  |  | 4,469,781 |  |  |  | 4,906,575 |
NONCURRENT LIABILITIES |  |  |  |  |  |  |  |
Operating lease liabilities |  |  | 17,781 |  |  |  | 26,449 |
Loan payables - non-current |  |  | 20,560 |  |  |  | 1,401,521 |
Total noncurrent liabilities |  |  | 38,341 |  |  |  | 1,427,970 |
TOTAL LIABILITIES |  |  | 4,508,122 |  |  |  | 6,334,545 |
COMMITMENTS AND CONTINGENCIES |  |  |  |  |  |  |  |
STOCKHOLDERS’ EQUITY (DEFICIT) |  |  |  |  |  |  |  |
Common stock, $0.001 par value, 375,000,000 shares authorized, 38,073,234 and 27,784,133 shares issued and outstanding as of September 30, 2023 and June 30, 2023, respectively |  |  | 38,073 |  |  |  | 27,784 |
Additional paid-in capital |  |  | 32,194,070 |  |  |  | 24,122,973 |
Accumulated comprehensive income |  |  | 232,036 |  |  |  | 393,252 |
Accumulated deficit |  |  | (28,085,314 | ) |  |  | (28,063,258 | )
TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIT) |  |  | 4,378,865 |  |  |  | (3,519,249 | )
Noncontrolling interest |  |  | (70,788 | ) |  |  | (60,848 | )
TOTAL EQUITY (DEFICIT) |  |  | 4,308,077 |  |  |  | (3,580,097 | )
TOTAL LIABILITIES AND EQUITY (DEFICIT) |  | $ | 8,816,199 |  |  | $ | 2,754,448 |

The accompanying notes are an integral part of these consolidated financial statements.

1

DATASEA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

|  | THREE MONTHS ENDED SEPTEMBER 30, |
|  | 2023 |  |  | 2022 |
Revenues |  | $ | 6,880,743 |  |  | $ | - |
Cost of goods sold |  |  | 6,806,008 |  |  |  | - |
Gross profit |  |  | 74,735 |  |  |  | - |
Operating expenses |  |  |  |  |  |  |  |
Selling |  |  | 84,447 |  |  |  | 104,114 |
General and administrative |  |  | 693,060 |  |  |  | 884,960 |
Research and development |  |  | 155,004 |  |  |  | 106,628 |
Total operating expenses |  |  | 932,511 |  |  |  | 1,095,702 |
Loss from operations |  |  | (857,776 | ) |  |  | (1,095,702 | )
Non-operating income (expenses) |  |  |  |  |  |  |  |
Other expenses |  |  | (7,864 | ) |  |  | (1,239 | )
Interest income |  |  | 106 |  |  |  | 64 |
Total non-operating expenses, net |  |  | (7,758 | ) |  |  | (1,175 | )
Loss before income tax |  |  | (865,534 | ) |  |  | (1,096,877 | )
Income tax |  |  | - |  |  |  | 8 |
Loss before noncontrolling interest from continuing operation |  |  | (865,534 | ) |  |  | (1,096,885 | )
Loss before noncontrolling interest from discontinued operation |  |  | 833,546 |  |  |  | (337,062 | )
Less: loss attributable to noncontrolling interest from continuing operation |  |  | (9,932 | ) |  |  | 5,135 |
Less: loss attributable to noncontrolling interest from discontinued operation |  |  | - |  |  |  | (101,759 | )
Net loss attribute to noncontrolling interest |  |  | (9,932 | ) |  |  | (96,624 | )
Net loss to the Company from continuing operation |  |  | (855,602 | ) |  |  | (1,102,020 | )
Net loss to the Company from discontinued operation |  |  | 833,546 |  |  |  | (235,303 | )
Net loss to the Company |  |  | (22,056 | ) |  |  | (1,337,323 | )
Other comprehensive item |  |  |  |  |  |  |  |
Foreign currency translation gain (loss) attributable to the Company |  |  | (161,216 | ) |  |  | 12,338 |
Foreign currency translation gain (loss) attributable to noncontrolling interest |  |  | 29,734 |  |  |  | (3,690 | )
Comprehensive loss attributable to the Company |  | $ | (183,272 | ) |  | $ | (1,324,985 | )
Comprehensive income (loss) attributable to noncontrolling interest |  | $ | 19,802 |  |  | $ | (100,314 | )
Basic and diluted net loss per share |  | $ | (0.00 | ) |  | $ | (0.05 | )
Weighted average shares used for computing basic and diluted loss per share |  |  | 29,445,992 |  |  |  | 24,324,633 |

The accompanying notes are an integral part of these consolidated financial statements.

2

DATASEA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE MONTHS ENDED SEPTEMBER 30, 2023 AND 2022

(UNAUDITED)

|  | Common Stock |  |  | Additional paid-in |  |  | Accumulated |  |  | Accumulated other comprehensive |  |  |  |  |  | Noncontrolling |
|  | Shares |  |  | Amount |  |  | capital |  |  | deficit |  |  | income |  |  | Total |  |  | interest |
Balance at July 1, 2023 |  |  | 27,784,133 |  |  | $ | 27,784 |  |  | $ | 24,122,973 |  |  | $ | (28,063,258 | ) |  | $ | 393,252 |  |  | $ | (3,519,249 | ) |  | $ | (60,848 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (22,056 | ) |  |  | - |  |  |  | (22,056 | ) |  |  | (9,932 | )
Issuance of common stock for equity financing |  |  | 10,289,101 |  |  |  | 10,289 |  |  |  | 8,050,997 |  |  |  | - |  |  |  | - |  |  |  | 8,061,286 |  |  |  | - |
Shares issued for stock compensation expense |  |  | - |  |  |  | - |  |  |  | 20,100 |  |  |  | - |  |  |  | - |  |  |  | 20,100 |  |  |  | - |
Foreign currency translation loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (161,216 | ) |  |  | (161,216 | ) |  |  | (8 | )
Balance at September 30, 2023 |  |  | 38,073,234 |  |  | $ | 38,073 |  |  | $ | 32,194,070 |  |  | $ | (28,085,314 | ) |  | $ | 232,036 |  |  | $ | 4,378,865 |  |  | $ | (70,788 | )
Balance at July 1, 2022 |  |  | 24,324,633 |  |  | $ | 24,325 |  |  | $ | 20,729,559 |  |  | $ | (18,583,566 | ) |  | $ | 283,587 |  |  | $ | 2,453,905 |  |  | $ | (854,273 | )
Net loss |  |  | - |  |  |  | - |  |  |  | - |  |  |  | (1,337,323 | ) |  |  | - |  |  |  | (1,337,323 | ) |  |  | (96,624 | )
Shares issued for stock compensation expense |  |  | - |  |  |  | - |  |  |  | 116,250 |  |  |  | - |  |  |  | - |  |  |  | 116,250 |  |  |  | - |
Foreign currency translation gain (loss) |  |  | - |  |  |  | - |  |  |  | - |  |  |  | - |  |  |  | 12,338 |  |  |  | 12,338 |  |  |  | (3,690 | )
Balance at September 30, 2022 |  |  | 24,324,633 |  |  | $ | 24,325 |  |  | $ | 20,845,809 |  |  | $ | (19,920,889 | ) |  | $ | 295,925 |  |  | $ | 1,245,170 |  |  | $ | (954,587 | )

The accompanying notes are an integral part of these consolidated financial statements.

3

DATASEA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

|  | THREE MONTHS ENDED SEPTEMBER 30 |
|  | 2023 |  |  | 2022 |
Cash flows from operating activities: |  |  |  |  |  |
Loss including noncontrolling interest |  | $ | (31,988 | ) |  | $ | (1,433,947 | )
Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities: |  |  |  |  |  |  |  |
Gain on disposal of subsidiary |  |  | (833,546 | ) |  |  | - |
Depreciation and amortization |  |  | 137,873 |  |  |  | 189,764 |
Operating lease expense |  |  | 74,181 |  |  |  | 203,111 |
Stock compensation expense |  |  | 20,100 |  |  |  | 116,250 |
Changes in assets and liabilities: |  |  |  |  |  |  |  |
Accounts receivable |  |  | (21,436 | ) |  |  | 93,511 |
Inventory |  |  | 137 |  |  |  | 5,100 |
Value-added tax prepayment |  |  | (14,121 | ) |  |  | (8,165 | )
Prepaid expenses and other current assets |  |  | (5,692,660 | ) |  |  | 79,124 |
Accounts payable |  |  | (179,875 | ) |  |  | 107,162 |
Unearned revenue |  |  | (45,332 | ) |  |  | (142,623 | )
Accrued expenses and other payables |  |  | (56,515 | ) |  |  | 192,535 |
Payment on operating lease liabilities |  |  | (101,231 | ) |  |  | (154,519 | )
Net cash used in operating activities |  |  | (6,744,413 | ) |  |  | (752,697 | )
Cash flows from investing activities: |  |  |  |  |  |  |  |
Acquisition of property and equipment |  |  | (330 | ) |  |  | (403 | )
Acquisition of intangible assets |  |  | - |  |  |  | (73,154 | )
Cash disposed due to disposal of subsidiary |  |  | (35 | ) |  |  | - |
Long-term investment |  |  | - |  |  |  | (29,288 | )
Net cash used in investing activities |  |  | (365 | ) |  |  | (102,845 | )
Cash flows from financing activities: |  |  |  |  |  |  |  |
Due to related parties |  |  | (675,828 | ) |  |  | (30,206 | )
Proceeds from loan payables |  |  | 879,422 |  |  |  | 820,508 |
Repayment of loan payables |  |  | (184,425 | ) |  |  | - |
Net proceeds from issuance of common stock |  |  | 8,061,286 |  |  |  | - |
Net cash provided by financing activities |  |  | 8,080,455 |  |  |  | 790,302 |
Effect of exchange rate changes on cash |  |  | (136,657 | ) |  |  | (5,903 | )
Net increase (decrease) in cash |  |  | 1,199,020 |  |  |  | (71,143 | )
Cash, beginning of period |  |  | 19,728 |  |  |  | 164,217 |
Cash, end of period |  | $ | 1,218,748 |  |  | $ | 93,074 |
Supplemental disclosures of cash flow information: |  |  |  |  |  |  |  |
Cash paid for interest |  | $ | 5,551 |  |  | $ | - |
Cash paid for income tax |  | $ | - |  |  | $ | - |

The accompanying notes are an integral part of these consolidated financial statements.

4

DATASEA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2023 (UNAUDITED) AND JUNE 30, 2023

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Datasea Inc. (the “Company”, or “we”, “us”, “our”) was incorporated in the State of Nevada on September 26, 2014 under the name Rose Rock Inc. and changed its name to Datasea Inc. on May 27, 2015. On May 26, 2015, the Company’s founder, Xingzhong Sun, sold 6,666,667 shares of common stock, par value $0.001 per share, of the Company (the “Common Stock”) to Zhixin Liu (“Ms. Liu”), an owner of Shuhai Skill (HK) as defined below. On October 27, 2016, Mr. Sun sold his remaining 1,666,667 shares of Common Stock of the Company to Ms. Liu. As a holding company with no material operations, the Company conducts a majority of its business activities through organizations established in the People’s Republic of China (“PRC), primarily by variable interest entity (the “VIE”). The Company does not have any equity ownership of its VIE, instead it controls and receives economic benefits of the VIE’s business operations through certain contractual arrangements.

On October 29, 2015, the Company entered into a share exchange agreement (the “Exchange Agreement”) with the shareholders (the “Shareholders”) of Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), a limited liability company (“LLC”) incorporated on May 15, 2015 under the laws of the Hong Kong Special Administrative Region of the People’s Republic of China (the “PRC”). Pursuant to the terms of the Exchange Agreement, the Shareholders, who own 100% of Shuhai Skill (HK), transferred all of the issued and outstanding ordinary shares of Shuhai Skill (HK) to the Company for 6,666,667 shares of Common Stock, causing Shuhai Skill (HK) and its wholly owned subsidiaries, Tianjin Information Sea Information Technology Co., Ltd. (“Tianjin Information” or “WOFE”), an LLC incorporated under the laws of the PRC, and Harbin Information Sea Information Technology Co., Ltd., an LLC incorporated under the laws of the PRC, to become wholly-owned subsidiaries of the Company; and Shuhai Information Technology Co., Ltd., also an LLC incorporated under the laws of the PRC (“Shuhai Beijing”), to become a VIE of the Company through a series of contractual agreements between Shuhai Beijing and Tianjin Information. The transaction was accounted for as a reverse merger, with Shuhai Skill (HK) and its subsidiaries being the accounting survivor. Accordingly, the historical financial statements presented are those of Shuhai Skill (HK) and its consolidated subsidiaries and VIE.

Following the Share Exchange, the Shareholders, Zhixin Liu and her father, Fu Liu, owned approximately 82% of the Company’s outstanding shares of Common Stock. As of October 29, 2015, there were 18,333,333 shares of Common Stock issued and outstanding, 15,000,000 of which were beneficially owned by Zhixin Liu and Fu Liu.

After the Share Exchange, the Company, through its consolidated subsidiaries and VIE provide smart security solutions primarily to schools, tourist or scenic attractions and public communities in China.

On October 16, 2019, Shuhai Beijing incorporated a wholly owned subsidiary, Heilongjiang Xunrui Technology Co. Ltd. (“Xunrui”), which develops and markets the Company’s smart security system products.

On December 3, 2019, Shuhai Beijing formed Nanjing Shuhai Equity Investment Fund Management Co. Ltd. (“Shuhai Nanjing”), a joint venture in PRC, in which Shuhai Beijing holds a 99% ownership interest with the remaining 1% held by Nanjing Fanhan Zhineng Technology Institute Co. Ltd, an unrelated party that was supported by both Nanjing Municipal Government and Beijing University of Posts and Telecommunications. Shuhai Nanjing was formed for gaining the easy access to government funding and private financing for the Company’s new technology development and new project initiation.

In January 2020, the Company acquired ownership in three entities for no consideration from the Company’s management, which set up such entities on the Company’s behalf (described below).

On January 3, 2020, Shuhai Beijing entered into two equity transfer agreements (the “Transfer Agreements”) with the President, and a Director of the Company. Pursuant to the Transfer Agreements, the Director and the President, each agreed, for no consideration, to (i) transfer his 51% and 49% respective ownership interests, in Guozhong Times (Beijing) Technology Ltd. (“Guozhong Times”) to Shuhai Beijing; and (ii) transfer his 51% and 49% respective ownership interests, in Guohao Century (Beijing) Technology Ltd. (“Guohao Century”) to Shuhai Beijing. Guozhong Times and Guohao Century were established to develop technology for electronic products, intelligence equipment and accessories, and provide software and information system consulting, installation and maintenance services.

5

On January 7, 2020, Shuhai Beijing entered into another equity transfer agreement with the President, the Director described above and an unrelated individual. Pursuant to this equity transfer agreement, the Director, the President and the unrelated individual each agreed to transfer his 51%, 16%, 33% ownership interests, in Guozhong Haoze (Beijing) Technology Ltd. (“Guozhong Haoze”) to Shuhai Beijing for no consideration. Guozhong Haoze was formed to develop and market the smart security system products.

On August 17, 2020, Beijing Shuhai formed a new wholly-owned subsidiary Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd (“Jingwei”), to expand the security oriented systems developing, consulting and marketing business overseas.

On November 16, 2020, Guohao Century formed Hangzhou Zhangqi Business Management Limited Partnership (“Zhangqi”) with ownership of 99% as an ordinary partner.

On November 19, 2020, Guohao Century formed a 51% owned subsidiary Hangzhou Shuhai Zhangxun Information Technology Co., Ltd (“Zhangxun”) for research and development of 5G message technology. Zhangqi owns 19% of Zhangxun; accordingly, Guohao Century ultimately owns 69.81% of Zhangxun. On December 20, 2022, Guohao Century acquired a 30% ownership interests of Zhangxun from Zhengmao Zhang at the price of $0.15 (RMB 1.00). After the transaction, Guohao Century owns 81% of Zhangxun, and Zhangqi owns 19% of Hangzhou Zhangxun; On February 15, 2023, Guohao Century acquired a 9% ownership interests of Zhangxun from the Zhangqi at the price of $130,434 (RMB 900,000). After the transaction, Guohao Century owns 90% of Zhangxun, and Zhangqi owns 10% of Hangzhou Zhangxun; as a result, Guohao Century ultimately owns 99.9 % of Zhangxun. On July 20, 2023, the Company sold Zhangxun to a third party for RMB 2 ($0.28).

On February 16, 2022, Shuhai Jingwei formed Shenzhen Acoustic Effect Management Limited Partnership (“Shenzhen Acoustic MP”) with 99% ownership interest, the remaining 1% ownership interest is held by a third party.

On February 16, 2022, Shuhai Jingwei formed Shuhai (Shenzhen) Acoustic Effect Technology Co., Ltd (“Shuhai Shenzhen Acoustic Effect”), a PRC Company, in which Shuhai Jingwei holds 60% ownership interest, 10% ownership interest is held by Shenzhen Acoustic MP, and remaining 30% ownership interest is held by a third party. On October 18, 2022, Shuhai Jingwei acquired 30% ownership interest of Shuhai Acoustic Effect, a PRC Company from the third party at the price of approximately $0.15 (RMB 1.00). After the transaction, Shuhai Jingwei owns 90% of Shuhai Shenzhen Effect, and Shenzhen Acoustic MP still owns 10% of Shuhai Shenzhen Effect; accordingly, Shuhai Jingwei ultimately owns 100% of Shuhai Acoustic Effect. The book value of 30% interest acquired from the third party was $(26,993) due to its accumulated deficit.

On March 4, 2022, Shuhai Beijing formed Beijing Yirui Business Management Development Center (“Yirui”) with 99% ownership interest as an ordinary partner, the remaining 1% ownership interest is held by Zhixin Liu.

On March 4, 2022, Shuhai Beijing formed Beijing Yiying Business Management Development Center (“Yiying”) with 99% ownership interest as an ordinary partner, the remaining 1% ownership interest is held by Zhixin Liu.

On July 31, 2023, Datasea establish a wholly owned subsidiary Datasea Acoustic, LLC (“Datasea Acoustic”) in the state of Delaware for expanding the products to the market in North America.

6

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

GOING CONCERN

The accompanying consolidated financial statements (“CFS”) 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 three months ended September 30, 2023 and 2022, the Company had a net loss of approximately $22,056 and $1.34 million, respectively. The Company had an accumulated deficit of approximately $28.09 million as of September 30, 2023, and negative cash flow from operating activities of approximately $6.74 million and $0.75 million for the three months ended September 30, 2023 and 2022, respectively. The historical operating results including recurring losses from operations raise doubt about the Company’s ability to continue as a going concern.

On August 1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company sold an aggregate of 4,760,000 shares of common stock at a $1.2 per share purchase price to the investor. On September 21, 2023, the Company received full payment of RMB 40,000,000 ($5.71 million) from the investor.

On August 15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell and the investor agreed to purchase an aggregate of 2,962,963 shares of common stock at a $1.35 per share purchase price, with a total subscription price of $4,000,000. The investor paid the amount of $714,286 to the Company and the Company issued 529,101 shares as of the date of this report, and has promised to pay the remaining balance in full by March 2024.

On September 13, 2023, the Company closed an underwritten public offering of 5,000,000 shares of common stock at a public offering price of $0.40 per share. The gross proceeds to the Company from this offering are approximately $2 million, before deducting any fees or expenses. In September 2023, the Company received $1.6 million net proceeds from this offering.

If deemed necessary, management could seek to raise additional funds by way of admitting strategic investors or. Private or public offerings, or by seeking to obtain loans from banks or others, to support the Company’s research and development (“R&D”), procurement, marketing and daily operation. While management of the Company believes in the viability of its strategy to generate sufficient revenues and its ability to raise additional funds on reasonable terms and conditions, there can be no assurances to that effect. The ability of the Company to continue as a going concern depends upon the Company’s ability to further implement its business plan and generate sufficient revenue and its ability to raise additional funds by way of a public or private offering. There is no assurance that the Company will be able to obtain funds on commercially acceptable terms, if at all. There is also no assurance that the amount of funds the Company might raise will enable the Company to complete its initiatives or attain profitable operations. If the Company is unable to raise additional funding to meet its working capital needs in the future, it may be forced to delay, reduce or cease its operations.

BASIS OF PRESENTATION AND CONSOLIDATION

The CFS were prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and applicable rules and regulations of the SEC regarding CFS. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three months ended September 30, 2023 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period. The interim consolidated financial information should be read in conjunction with the Financial Statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2023, previously filed with the Securities Exchange Commission (“SEC”) on September 27, 2023.

The accompanying CFS include the financial statements of the Company and its 100% owned subsidiaries Shuhai Information Skill (HK) Limited (“Shuhai Skill (HK)”), and Shuhai Information Technology Co., Ltd. (“Tianjin Information”), and its VIE, Shuhai Beijing, and Shuhai Beijing’s 100% owned subsidiaries – Heilongjiang Xunrui Technology Co. Ltd. (“Xunrui”), Guozhong Times (Beijing) Technology Ltd. (“Guozhong Times”), Guohao Century (Beijing) Technology Ltd. (“Guohao Century”), Guozhong Haoze, and Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. (“Jingwei”), and Guohao Century’s 99% owned subsidiary – Hangzhou Zhangqi Business Management Partnership (“Zhangqi”, a limited partnership) and 99.81% owned subsidiary – Hangzhou Shuhai Zhangxun Information Technology Co., Ltd. (“Zhangxun”) which consisted of 90% ownership from Guohao Century and 10% ownership from Zhangqi, and Shuhai Beijing’s 99% owned subsidiary–- Nanjing Shuhai Equity Investment Fund Management Co. Ltd. (“Shuhai Nanjing”). During the year ended June 30, 2022, the Company incorporated two new subsidiaries Shuhai (Shenzhen) Acoustic Effect Technology Co., Ltd (“Shuhai Acoustic”) and Shenzhen Acoustic Effect Management Partnership (“Shenzhen Acoustic MP”). All significant inter-company transactions and balances were eliminated in consolidation. The chart below depicts the corporate structure of the Company as of September 30, 2023.

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VARIABLE INTEREST ENTITY

Pursuant to Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Section 810, “Consolidation” (“ASC 810”), the Company is required to include in its CFS, the financial statements of Shuhai Beijing, its VIE. ASC 810 requires a VIE to be consolidated if the Company is subject to a majority of the risk of loss for the VIE or is entitled to receive a majority of the VIE’s residual returns. A VIE is an entity in which a company, through contractual arrangements, bears the risk of, and enjoys the rewards of such entity, and therefore the Company is the primary beneficiary of such entity.

Under ASC 810, a reporting entity has a controlling financial interest in a VIE, and must consolidate that VIE, if the reporting entity has both of the following characteristics: (a) the power to direct the activities of the VIE that most significantly affect the VIE’s economic performance; and (b) the obligation to absorb losses, or the right to receive benefits, that could potentially be significant to the VIE. The reporting entity’s determination of whether it has this power is not affected by the existence of kick-out rights or participating rights, unless a single enterprise, including its related parties and de - facto agents, have the unilateral ability to exercise those rights. Shuhai Beijing’s actual stockholders do not hold any kick-out rights that affect the consolidation determination.

Through the VIE agreements, Tianjin Information, an indirect subsidiary of Datasea is deemed the primary beneficiary of Shuhai Beijing and its subsidiaries. Accordingly, the results of Shuhai Beijing and its subsidiaries were included in the accompanying CFS. Shuhai Beijing has no assets that are collateral for or restricted solely to settle their obligations. The creditors of Shuhai Beijing do not have recourse to the Company’s general credit.

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VIE Agreements

Operation and Intellectual Property Service Agreement – The Operation and Intellectual Property Service Agreement allows Tianjin Information Sea Information Technology Co., Ltd (“WFOE”) to manage and operate Shuhai Beijing and collect an operating fee equal to Shuhai Beijing’s pre-tax income, per month. If Shuhai Beijing suffers a loss and as a result does not have pre-tax income, such loss shall be carried forward to the following month to offset the operating fee to be paid to WFOE if there is pre-tax income of Shuhai Beijing the following month. Furthermore, if Shuhai Beijing cannot pay off its debts, WFOE shall pay off the debt on Shuhai Beijing’s behalf. If Shuhai Beijing’s net assets fall lower than its registered capital balance, WFOE shall provide capital for Shuhai Beijing to make up for the deficit.

Under the terms of the Operation and Intellectual Property Service Agreement, Shuhai Beijing entrusts Tianjin Information to manage its operations, manage and control its assets and financial matters, and provide intellectual property services, purchasing management services, marketing management services and inventory management services to Shuhai Beijing. Shuhai Beijing and its stockholders shall not make any decisions nor direct the activities of Shuhai Beijing without Tianjin Information’s consent.

Stockholders’ Voting Rights Entrustment Agreement – Tianjin Information has entered into a stockholders’ voting rights entrustment agreement (the “Entrustment Agreement”) under which Zhixin Liu and Fu Liu (collectively the “Shuhai Beijing Stockholders”) have vested their voting power in Shuhai Beijing to Tianjin Information or its designee(s). The Entrustment Agreement does not have an expiration date, but the parties can agree in writing to terminate the Entrustment Agreement. Zhixin Liu, is the Chairman of the Board, President, CEO of DataSea and Corporate Secretary, and Fu Liu, a Director of the DataSea (Fu Liu is the father of Zhixin Liu).

Equity Option Agreement – the Shuhai Beijing Stockholders and Tianjin Information entered into an equity option agreement (the “Option Agreement”), pursuant to which the Shuhai Beijing Stockholders have granted Tianjin Information or its designee(s) the irrevocable right and option to acquire all or a portion of Shuhai Beijing Stockholders’ equity interests in Shuhai Beijing for an option price of RMB0.001 for each capital contribution of RMB1.00. Pursuant to the terms of the Option Agreement, Tianjin Information and the Shuhai Beijing Stockholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information under the Option Agreement. Tianjin Information agreed to pay RMB1.00 annually to Shuhai Beijing Stockholders to maintain the option rights. Tianjin Information may terminate the Option Agreement upon prior written notice. The Option Agreement is valid for a period of 10 years from the effective date and renewable at Tianjin Information’s option.

Equity Pledge Agreement – Tianjin Information and the Shuhai Beijing Stockholders entered into an equity pledge agreement on October 27, 2015 (the “Equity Pledge Agreement”). The Equity Pledge Agreement serves to guarantee the performance by Shuhai Beijing of its obligations under the Operation and Intellectual Property Service Agreement and the Option Agreement. Pursuant to the Equity Pledge Agreement, Shuhai Beijing Stockholders have agreed to pledge all of their equity interests in Shuhai Beijing to Tianjin Information. Tianjin Information has the right to collect any and all dividends, bonuses and other forms of investment returns paid on the pledged equity interests during the pledge period. Pursuant to the terms of the Equity Pledge Agreement, the Shuhai Beijing Stockholders have agreed to certain restrictive covenants to safeguard the rights of Tianjin Information. Upon an event of default or certain other agreed events under the Operation and Intellectual Property Service Agreement, the Option Agreement and the Equity Pledge Agreement, Tianjin Information may exercise the right to enforce the pledge.

As of this report date, there were no dividends paid from the VIE to the U.S. parent company or the shareholders of the Company. There has been no change in facts and circumstances to consolidate the VIE. The following financial statement amounts and balances of the VIE were included in the accompanying CFS as of September 30, 2023 and June 30, 2023, and for the three months ended September 30, 2023 and 2022, respectively.

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|  | September 30, 2023 |  |  | June 30, 2023 |
Cash |  | $ | 198,224 |  |  | $ | 13,717 |
Accounts receivable |  |  | 388,101 |  |  |  | 255,725 |
Inventory |  |  | 250,711 |  |  |  | 241,380 |
Other current assets |  |  | 590,607 |  |  |  | 649,433 |
Total current assets |  |  | 1,427,643 |  |  |  | 1,160,255 |
Property and equipment, net |  |  | 32,620 |  |  |  | 42,886 |
Intangible asset, net |  |  | 379,793 |  |  |  | 757,700 |
Right-of-use asset, net |  |  | 52,864 |  |  |  | 60,348 |
Other non-current assets |  |  | 55,712 |  |  |  | 55,358 |
Total non-current assets |  |  | 520,989 |  |  |  | 916,292 |
Total assets |  | $ | 1,948,632 |  |  | $ | 2,076,547 |
Accounts payable |  | $ | 512,451 |  |  | $ | 650,406 |
Accrued liabilities and other payables |  |  | 650,978 |  |  |  | 1,480,947 |
Lease liability |  |  | 30,798 |  |  |  | 39,223 |
Loans payable |  |  | 2,375,747 |  |  |  | 594,906 |
Other current liabilities |  |  | 830,579 |  |  |  | 1,639,410 |
Total current liabilities |  |  | 4,400,553 |  |  |  | 4,404,892 |
Lease liability - noncurrent |  |  | 15,557 |  |  |  | 26,449 |
Long term long payable |  |  | 20,560 |  |  |  | 1,401,521 |
Total non-current liabilities |  |  | 36,117 |  |  |  | 1,427,970 |
Total liabilities |  | $ | 4,436,670 |  |  | $ | 5,832,862 |

|  | For the Three Months Ended September 30, 2023 |  |  | For the Three Months Ended September 30, 2022 |
Revenues |  | $ | 6,880,743 |  |  | $ | 1,164,305 |
Gross profit |  | $ | 74,735 |  |  | $ | 150,198 |
Net loss |  | $ | (419,473 | )* |  | $ | (757,146 | )**

| * | exclude the gain from disposal of Zhangxun of $0.83 million.

| ** | include the operation of Zhangxun

USE OF ESTIMATES

The preparation of CFS in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. The significant areas requiring the use of management estimates include, but are not limited to, the estimated useful life and residual value of property, plant and equipment, provision for staff benefits, recognition and measurement of deferred income taxes and the valuation allowance for deferred tax assets. Although these estimates are based on management’s knowledge of current events and actions management may undertake in the future, actual results may ultimately differ from those estimates and such differences may be material to the CFS.

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CONTINGENCIES

Certain conditions may exist as of the date the CFS are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company’s management and legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company’s legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought. If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, the estimated liability would be accrued in the Company’s CFS.

If the assessment indicates that a potential material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, the nature of the contingent liability, together with an estimate of the range of possible loss if determinable and material, would be disclosed. As of September 30, 2023 and June 30, 2023, the Company has no such contingencies.

CASH

Cash includes cash on hand and demand deposits that are highly liquid in nature and have original maturities when purchased of three months or less.

ACCOUNTS RECEIVABLE

The Company’s policy is to maintain an allowance for potential credit losses on accounts receivable. The Company adopted Accounting Standards Update (“ASU”) 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit losses on financial instruments later codified as Accounting Standard codification (“ASC”) 326 (“ASC 326”), on July 1, 2023. The guidance introduces a revised approach to the recognition and measurement of credit losses, emphasizing an updated model based on expected losses rather than incurred losses. There was no significant impact on the date of adoption of ASC 326.

Under ASC 326, Accounts receivable are recorded at the invoiced amount, net of allowance for expected credit losses. The Company’s primary allowance for credit losses is the allowance for doubtful accounts. The allowance for doubtful accounts reduces the Accounts receivable balance to the estimated net realizable value. The Company regularly reviews the adequacy of the allowance for credit losses based on a combination of factors. In establishing any required allowance, management considers historical losses adjusted for current market conditions, the Company’s customers’ financial condition, the amount of any receivables in dispute, the current receivables aging, current payment terms and expectations of forward-looking loss estimates.

All provisions for the allowance for doubtful accounts are included as a component of general and administrative expenses on the accompanying consolidated statements of operations and comprehensive loss. Accounts receivable deemed uncollectible are charged against the allowance for credit losses when identified. Subsequent recoveries of amounts previously written off are credited to earnings in the period recovered. As of September 30, 2023 and June 30, 2023, the Company had a $0 bad debt allowance for accounts receivable.

INVENTORY

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 $53,254 and $52,915 allowances for slow-moving and obsolete inventory (mainly for Smart-Student Identification cards) as of September 30, 2023 and June 30, 2023, respectively.

PROPERTY AND EQUIPMENT

Property and equipment are stated at cost, less accumulated depreciation. Major repairs and improvements that significantly extend original useful lives or improve productivity are capitalized and depreciated over the period benefited. Maintenance and repairs are expensed as incurred. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Depreciation of property and equipment is provided using the straight-line method over estimated useful lives as follows:

Furniture and fixtures |  | 3-5 years
Office equipment |  | 3-5 years
Vehicles |  | 5 years
Leasehold improvement |  | 3 years

Leasehold improvements are depreciated utilizing the straight-line method over the shorter of their estimated useful lives or remaining lease term.

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INTANGIBLE ASSETS

Intangible assets with finite lives are amortized using the straight-line method over their estimated period of benefit. Evaluation of the recoverability of intangible assets is made to take into account events or circumstances that warrant revised estimates of useful lives or that indicate that impairment exists. All of the Company’s intangible assets are subject to amortization. No impairment of intangible assets has been identified as of the balance sheet date.

Intangible assets include licenses, certificates, patents and other technology and are amortized over their useful life of three years.

FAIR VALUE (“FV”) OF FINANCIAL INSTRUMENTS

The carrying value of the Company’s short-term financial instruments, such as cash, accounts receivable, prepaid expenses, accounts payable, unearned revenue, accrued expenses and other payables approximates their FV due to their short maturities. FASB ASC Topic 825, “Financial Instruments,” requires disclosure of the FV of financial instruments held by the Company. The carrying amounts reported in the balance sheets for current liabilities qualify as financial instruments and are a reasonable estimate of their FV because of the short period of time between the origination of such instruments and their expected realization and the current market rate of interest.

FAIR VALUE MEASUREMENTS AND DISCLOSURES

FASB ASC Topic 820, “Fair Value Measurements,” defines FV, and establishes a three-level valuation hierarchy for disclosures that enhances disclosure requirements for FV measures. The three levels are defined as follows:

| ● | Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

| ● | Level 2 inputs to the valuation methodology include other than those in level 1 quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

| ● | Level 3 inputs to the valuation methodology are unobservable and significant to the FV measurement.

As of September 30, 2023 and June 30, 2023, the Company did not identify any assets or liabilities required to be presented on the balance sheet at FV on a recurring basis.

IMPAIRMENT OF LONG-LIVED ASSETS

In accordance with FASB ASC 360-10, “Accounting for the Impairment or Disposal of Long-Lived Assets”, long-lived assets such as property and equipment are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable, or it is reasonably possible that these assets could become impaired as a result of technological or other changes. The determination of recoverability of assets to be held and used is made by comparing the carrying amount of an asset to future undiscounted cash flows expected to be generated by the asset.

If such assets are considered impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the asset exceeds its FV. FV generally is determined using the asset’s expected future undiscounted cash flows or market value, if readily determinable. Assets to be disposed of are reported at the lower of the carrying amount or FV less cost to sell. For the three months ended September 30, 2023 and 2022, there was no impairment loss recognized on long-lived assets.

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UNEARNED REVENUE

The Company records payments received in advance from its customers or sales agents for the Company’s products as unearned revenue, mainly consisting of deposits or prepayment for 5G products from the Company’s sales agencies. These orders normally are delivered based upon contract terms and customer demand, and the Company will recognize it as revenue when the products are delivered to the end customers.

LEASES

The Company determines if an arrangement is a lease at inception under FASB ASC Topic 842. Right of Use Assets (“ROU”) and lease liabilities are recognized at commencement date based on the present value of remaining lease payments over the lease term. For this purpose, the Company considers only payments that are fixed and determinable at the time of commencement. As most of its leases do not provide an implicit rate, it uses its incremental borrowing rate based on the information available at commencement date in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The ROU assets include adjustments for prepayments and accrued lease payments. The ROU asset also includes any lease payments made prior to commencement and is recorded net of any lease incentives received. The Company’s lease terms may include options to extend or terminate the lease when it is reasonably certain that it will exercise such options.

ROU assets are reviewed for impairment when indicators of impairment are present. ROU assets from operating and finance leases are subject to the impairment guidance in ASC 360, Property, Plant, and Equipment, as ROU assets are long-lived nonfinancial assets.

ROU assets are tested for impairment individually or as part of an asset group if the cash flows related to the ROU asset are not independent from the cash flows of other assets and liabilities. An asset group is the unit of accounting for long-lived assets to be held and used, which represents the lowest level for which identifiable cash flows are largely independent of the cash flows of other groups of assets and liabilities. The Company recognized no impairment of ROU assets as of September 30, 2023 and June 30, 2023.

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 new 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 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 obligations is satisfied. Revenue is recognized net of returns and value-added tax charged to customers.

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The following table shows the Company’s revenue by revenue sources:

|  | For the Three Months Ended September 30, 2023 |  |  | For the Three Months Ended September 30, 2022 |
5G Messaging |  | $ | 6,880,463 |  |  | $ | - |
5G messaging |  |  | 6,880,463 |  |  |  | - |
Cloud platform construction cooperation project |  |  | - |  |  |  | - |
Acoustic Intelligence Business |  |  | 280 |  |  |  | - |
Ultrasonic Sound Air Disinfection Equipment |  |  | 280 |  |  |  | - |
Smart City business |  |  | - |  |  |  | - |
Smart community |  |  | - |  |  |  | - |
Total revenue |  | $ | 6,880,743 |  |  | $ | - |

SEGMENT INFORMATION

FASB ASC Topic 280, “Segment Reporting,” requires use of the “management approach” model for segment reporting. The management approach model is based on the method a company’s management organizes segments within the company for making operating decisions and assessing performance. Reportable segments are based on products and services, geography, legal structure, management structure, or any other manner in which management disaggregates a company. Management determined the Company’s current operations constitutes a single reportable segment in accordance with ASC 280. The Company’s only business and industry segment is high technology and advanced information systems (“TAIS”). TAIS include smart city solutions that meet the security needs of residential communities, schools and commercial enterprises, and 5G messaging services including 5G SMS, 5G MMCP and 5G multi-media video messaging.

All of the Company’s customers are in the PRC and all revenues for the three months ended September 30, 2023 and 2022 were generated from the PRC. All identifiable assets of the Company are located in the PRC. Accordingly, no geographical segments are presented.

INCOME TAXES

The Company uses the asset and liability method of accounting for income taxes in accordance with FASB ASC Topic 740, “Income Taxes.” Under this method, income tax expense is recognized for the amount of: (i) taxes payable or refundable for the current period and (ii) deferred tax consequences of temporary differences resulting from matters that have been recognized in an entity’s financial statements or tax returns. Deferred tax assets also include the prior years’ net operating losses carried forward. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is provided to reduce the deferred tax assets reported if based on the weight of the available positive and negative evidence, it is more likely than not some portion or all of the deferred tax assets will not be realized.

The Company follows FASB ASC Topic 740, which prescribes a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FASB ASC Topic 740 also provides guidance on recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods, and income tax disclosures.

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Under the provisions of FASB ASC Topic 740, when tax returns are filed, it is likely some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. The benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above is reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. Interest associated with unrecognized tax benefits is classified as interest expense and penalties are classified in selling, general and administrative expenses in the statement of income. As of September 30, 2023, the Company had no unrecognized tax positions and no charges during the three months ended September 30, 2023, and accordingly, the Company did not recognize any interest or penalties related to unrecognized tax benefits. The Company files a U.S. and PRC income tax return. With few exceptions, the Company’s U.S. income tax returns filed for the years ending on June 30, 2018 and thereafter are subject to examination by the relevant taxing authorities; the Company uses calendar year-end for its PRC income tax return filing, PRC income tax returns filed for the years ending on December 31, 2017 and thereafter are subject to examination by the relevant taxing authorities.

RESEARCH AND DEVELOPMENT EXPENSES

Research and development expenses are expensed in the period when incurred. These costs primarily consist of cost of materials used, salaries paid for the Company’s development department, and fees paid to third parties.

NONCONTROLLING INTERESTS

The Company follows FASB ASC Topic 810, “Consolidation,” governing the accounting for and reporting of noncontrolling interests (“NCIs”) in partially owned consolidated subsidiaries and the loss of control of subsidiaries. Certain provisions of this standard indicate, among other things, that NCI (previously referred to as minority interests) be treated as a separate component of equity, not as a liability, that increases and decreases in the parent’s ownership interest that leave control intact be treated as equity transactions rather than as step acquisitions or dilution gains or losses, and that losses of a partially-owned consolidated subsidiary be allocated to non-controlling interests even when such allocation might result in a deficit balance.

The net income (loss) attributed to NCI was separately designated in the accompanying statements of operations and comprehensive income (loss). Losses attributable to NCI in a subsidiary may exceed a non-controlling interest’s interests in the subsidiary’s equity. The excess attributable to NCIs is attributed to those interests. NCIs shall continue to be attributed their share of losses even if that attribution results in a deficit NCI balance. On December 20, 2022, Guohao Century acquired a 30% ownership noncontrolling interests of Zhangxun from Zhengmao Zhang at the price of $0.15 (RMB 1.00). The Company recognized a paid in capital deficit of $982,014 from this purchase due to continued loss of Zhangxun. Subsequent to this purchase, the Company ultimately holds a 99.9% ownership of Zhangxun. On July 20, 2023, the Company sold Zhangxun to a third party for RMB 2 ($0.28).

As of September 30, 2023, Zhangqi was 1% owned by noncontrolling interest, Shuhai Nanjing was 1% owned by noncontrolling interest, Shenzhen Acoustic MP was 1% owned by noncontrolling interest, Shuhai Shenzhen Acoustic was 0.1% owned by noncontrolling interest, Guozhong Times was 0.091% owned by noncontrolling interest, and Guozhong Haoze was 0.091% owned by noncontrolling interest. During the three months ended September 30, 2023 and 2022, the Company had loss of $9,932 and $96,624 attributable to the noncontrolling interest, respectively.

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CONCENTRATION OF CREDIT RISK

The Company maintains cash in accounts with state-owned banks within the PRC. Cash in state-owned banks less than RMB500,000 ($76,000) is covered by insurance. Should any institution holding the Company’s cash become insolvent, or if the Company is unable to withdraw funds for any reason, the Company could lose the cash on deposit with that institution. The Company has not experienced any losses in such accounts and believes it is not exposed to any risks on its cash in these bank accounts. Cash denominated in RMB with a U.S. dollar equivalent of $1,161,277 and $17,432 as of September 30, 2023 and June 30, 2023, respectively, was held in accounts at financial institutions located in the PRC‚ which is not freely convertible into foreign currencies.

Cash held in accounts at U.S. financial institutions is insured by the Federal Deposit Insurance Corporation or other programs subject to certain limitations up to $250,000 per depositor. As of September 30, 2023 and June 30, 2023, cash of $56,227 and $1,487 was maintained at U.S. financial institutions. Cash was maintained at financial institutions in Hong Kong, and was insured by the Hong Kong Deposit Protection Board up to a limit of HK $500,000 ($64,000). As of September 30, 2023 and June 30, 2023, the cash balance of $1,245 and $809 was maintained at financial institutions in Hong Kong. The Company, its subsidiaries and VIE have not experienced any losses in such accounts and do not believe the cash is exposed to any significant risk.

FOREIGN CURRENCY TRANSLATION AND COMPREHENSIVE INCOME (LOSS)

The accounts of the Company’s Chinese entities are maintained in RMB and the accounts of the U.S. parent company are maintained in United States dollar (“USD”). The financial statements of the Chinese entities were translated into USD in accordance with FASB ASC Topic 830 “Foreign Currency Matters.” All assets and liabilities were translated at the exchange rate on the balance sheet date; stockholders’ equity is translated at historical rates and the statements of operations and cash flows are translated at the weighted average exchange rate for the period. The resulting translation adjustments are reported under other comprehensive income (loss) in accordance with FASB ASC Topic 220, “Comprehensive Income.” Gains and losses resulting from foreign currency transactions are reflected in the statements of operations.

The Company follows FASB ASC Topic”220-10, “Comprehensive Income (loss).” Comprehensive income (loss) comprises net income (loss) and all changes to the statements of changes in stockholders’ equity, except those due to investments by stockholders, changes in additional paid-in capital and distributions to stockholders.

The exchange rates used to translate amounts in RMB to USD for the purposes of preparing the CFS were as follows:

|  | September 30, |  |  | September 30, |  |  | June 30, |
|  | 2023 |  |  | 2022 |  |  | 2023 |
Period-end date USD: RMB exchange rate |  |  | 7.1798 |  |  |  | 7.0998 |  |  |  | 7.2258 |
Average USD for the reporting period: RMB exchange rate |  |  | 7.1729 |  |  |  | 6.8287 |  |  |  | 6.9415 |

BASIC AND DILUTED EARNINGS (LOSS) PER SHARE (EPS)

Basic EPS is computed by dividing income available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted EPS is computed similarly, except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Diluted EPS is based on the assumption that all dilutive convertible shares and stock options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to have been exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. For the three months ended September 30, 2023 and 2022, the Company’s basic and diluted loss per share are the same as a result of the Company’s net loss. 1,319,953 warrants were anti-dilutive and was therefore excluded from EPS for the three months ended September 30, 2023 and 2022, respectively.

STATEMENT OF CASH FLOWS

In accordance with FASB ASC Topic 230, “Statement of Cash Flows,” cash flows from the Company’s operations are calculated based upon the local currencies. As a result, amounts shown on the statement of cash flows may not necessarily agree with changes in the corresponding asset and liability on the balance sheet.

16

RECENT ACCOUNTING PRONOUNCEMENTS

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments-Credit Losses (Topic 326), which requires entities to measure all expected credit losses for financial assets held at the reporting date based on historical experience, current conditions, and reasonable and supportable forecasts. This replaces the existing incurred loss model and is applicable to the measurement of credit losses on financial assets measured at amortized cost. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. Early application will be permitted for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted this guidance on July 1, 2023, there was no significant impact on the date of adoption of ASC 326.

The Company’s management does not believe that any other recently issued, but not yet effective, authoritative guidance, if currently adopted, would have a material impact on the Company’s financial statement presentation or disclosures.

NOTE 3 – PROPERTY AND EQUIPMENT

Property and equipment are summarized as follows:

|  | September 30, 2023 |  |  | June 30, 2023 |
Furniture and fixtures |  | $ | 85,267 |  |  | $ | 84,014 |
Vehicle |  |  | 487 |  |  |  | 484 |
Leasehold improvement |  |  | 218,322 |  |  |  | 216,932 |
Office equipment |  |  | 235,232 |  |  |  | 261,658 |
Subtotal |  |  | 539,308 |  |  |  | 563,088 |
Less: accumulated depreciation |  |  | 471,608 |  |  |  | 477,158 |
Total |  | $ | 67,700 |  |  | $ | 85,930 |

Depreciation for the three months ended September 30, 2023 and 2022 was $10,662 and $40,861, respectively.

The Company disposed $29,148 property and equipment with related accumulated depreciation of $19,136 resulting from the disposal of Zhangxun (see Note 13).

NOTE 4 – INTANGIBLE ASSETS

Intangible assets are summarized as follows:

|  | September 30, 2023 |  |  | June 30, 2023 |
Software registration or using right |  | $ | 1,636,801 |  |  | $ | 1,635,307 |
Patent |  |  | 14,620 |  |  |  | 14,527 |
Software and technology development costs |  |  | 11,684 |  |  |  | 631,250 |
Value-added telecommunications business license |  |  | 15,472 |  |  |  | 15,374 |
Subtotal |  |  | 1,678,577 |  |  |  | 2,299,458 |
Less: Accumulated amortization |  |  | 963,498 |  |  |  | 1,110,671 |
Total |  | $ | 715,079 |  |  | $ | 1,185,787 |

Software registration or using right represented the purchase cost of customized software with its source code from third party software developer.

Software and technology development cost represented development costs incurred internally after the technological feasibility was established and a working model was produced and was recorded as intangible asset.

Amortization for the three months ended September 30, 2023 and 2022 was $127,211 and $148,903, respectively. The amortization expense for the next five years as of September 30, 2023 will be $508,844, $206,235, $0, $0 and $0.

The Company disposed $0.62 million intangible assets with related accumulated amortization of $0.28 million resulting from the disposal of Zhangxun (see Note 13).

17

NOTE 5 – PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets consisted of the following:

|  | September 30, 2023 |  |  | June 30, 2023 |
Security deposit |  | $ | 46,217 |  |  | $ | 15,615 |
Prepaid expenses |  |  | 6,064,208 |  |  |  | 563,203 |
Other receivables – Heqin |  |  | 463,801 |  |  |  | 460,850 |
Advance to third party individuals, no interest, payable upon demand |  |  | 4,527 |  |  |  | 11,764 |
Others |  |  | 243,091 |  |  |  | 110,841 |
Total |  |  | 6,821,844 |  |  |  | 1,162,273 |
Less: allowance for other receivables – Heqin |  |  | 463,801 |  |  |  | 460,850 |
Total |  | $ | 6,358,043 |  |  | $ | 701,423 |

As of September 30, 2023, prepaid expenses mainly consisted of prepaid marketing expense of $5,570,573, prepaid 5G Messaging service fee recharge of $446,228, prepaid rent and property management fee of $12,872 and other prepayments of $34,535. As of June 30, 2023, prepaid expenses mainly consisted of prepayment of 5G Messaging service fee recharge of $500,395, prepaid rent and property management fee of $48,200 and other prepayments of $14,608.

Prepaid marketing expense

On September 14, 2023, Tianjin Information entered into a service agreement with Beijing Guorui Innovation Enterprise Management Consulting Co., Ltd (“Guorui Innovation”) for a duration of three years from September 15, 2023 to September 14, 2026. Under this agreement, Guorui Innovation is responsible for generating annual revenue of at least RMB 200 million during the service period through various activities, including but not limited to, the sale of 5G message phone recharge, 5G message gas card recharge, 5G message digital products, and other related products. The total market developing fee is 2% of the revenue generated by Guorui Innovation. As of September 30, 2023, the Company made a prepayment of RMB 13,000,600 ($1,810,719) to Guorui Innovation, which is 32.5% of market developing fee of target annual revenue for the first year. However, on October 9, 2023, both parties mutually agreed to terminate this service agreement. As a result of this termination, parties enter into a debt transfer agreement, in which Guorui will return the prepayment to Mr. Wanli Kuai on Company’s behalf for settling the debt that the Company owed to Mr. Kuai (See Note 8).

On September 16, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jincheng Haoda Construction Engineering Co., Ltd (“Jincheng Haoda”), for marketing and promoting the sale of acoustic intelligence series products in oversea market. The cooperation term is from September 16, 2023 through September 15, 2026. Jincheng Haoda is committed to complete RMB 200 million sales performance in the first year, RMB 300 million sales performance in the second year, and RMB 400 million sales performance in the third year. The Company will pay 25% of the sales amount to Jincheng Haoda as marketing fee upon receipt of the sales amount, on monthly basis. As of September 30, 2023, the Company made a prepayment of RMB 14,997,000 ($2,088,777) to Jincheng Haoda for facilitating the quick occupying the Company’s products to the market, the prepayment was the 30% of marketing service fee of first year’s target sales to be completed by Jincheng Haoda. During the service term, the Company will perform the annual assessment, if Jincheng Haoda was not able to achieve the target annual sales, and did not reach 30% of target annual sales amount, Jincheng Haoda shall return the Company’s prepayment after deducting the marketing service fee of the actual sales. In addition, under the circumstance Jincheng Haoda did not complete the 30% of the annual target sales, Jincheng Haoda will indemnify the Company 20% of marketing service fee of unachieved sales amount from the 30% of the annual target sales.

18

On September 18, 2023, Tianjin Information entered an Operation Cooperation Agreement with an unrelated company, Beijing Jiajia Shengshi Trading Co., Ltd (‘Jiajia Shengshi”), for marketing and promoting the sale of acoustic intelligence series products in domestic market. The cooperation term is from September 18, 2023 through September 17, 2026. Jiajia Shengshi is committed to complete RMB 200 million sales performance in the first year, RMB 300 million sales performance in the second year, and RMB 500 million sales performance in the third year. The Company will pay 20% of the sales amount to Jiajia Shengshi as marketing fee upon receipt of the sales amount, on monthly basis. As of September 30, 2023, the Company made a prepayment of RMB 11,998,000 ($1,671,077) to Jiajia Shengshi for facilitating the quick occupying the Company’s products to the market, the prepayment was the 30% of marketing service fee of first year’s target sales to be completed by Jiajia Shengshi. During the service term, the Company will perform the annual assessment, if Jiajia Shengshi was not able to achieve the target annual sales, and did not reach 30% of target annual sales amount, Jiajia Shengshi shall return the Company’s prepayment after deducting the marketing service fee of the actual sales. In addition, under the circumstance Jiajia Shengshi did not complete the 30% of the annual target sales, Jiajia Shengshi will indemnify the Company 20% of marketing service fee of unachieved sales amount from the 30% of the annual target sales.

Other receivables – Heqin

On February 20, 2020, Guozhong Times entered an Operation Cooperation Agreement with an unrelated company, Heqin (Beijing) Technology Co, Ltd. (“Heqin”), for marketing and promoting the sale of Face Recognition Payment Processing equipment and related technical support, and other products of the Company including Epidemic Prevention and Control Systems. Heqin has a sales team which used to work with Fortune 500 companies and specializes in business marketing and sales channel establishment and expansion, especially in education industry and public area.

The cooperation term is from February 20, 2020 through March 1, 2023; however, Heqin is the exclusive distributor of the Company’s face Recognition Payment Processing products for the period to July 30, 2020. During March and April 2020, Guozhong Times provided operating funds to Heqin, together with a credit line provided by Guozhong Times to Heqin from May 2020 through August 2020, for a total borrowing of RMB 10 million ($1.41 million) for Heqin’s operating needs. As of March 31, 2023, Guozhong Times had an outstanding receivable of RMB 3.53 million ($513,701) from Heqin and was recorded as other receivables. The Company would not charge Heqin any interest, except for two loans with RMB 200,000 ($28,250) each, due on June 30, 2020 and August 15, 2020, respectively, for which the Company charges 15% interest if Heqin did not repay by the due date.

No profits will be allocated and distributed before full repayment of the borrowing. After Heqin pays in full the borrowing, Guozhong Times and Heqin will distribute profits of sale of Face Recognition Payment Processing equipment and related technical support at 30% and 70% of the net income, respectively. The profit allocation for the sale of other products of the Company are to be negotiated. Heqin will receive certain stock reward when it reaches the preset sales target under the performance compensation mechanism.

In November 2022, Hangzhou Yuetianyun Data Technology Company Ltd (“Yuetianyun”) agreed and acknowledged a Debt Transfer Agreement, wherein Heqin transferred its debt from Yuetianyun to Guozhong Times in the amount of RMB 1,543,400 ($213,596). As of September 30, 2023 and June 30, 2023, Heqin made $48,438 (through Yuetianyun) and $48,438 repayment to the Company, and the Company made a bad debt allowance of $463,801 and $460,850 as of September 30, 2023 and June 30, 2023, respectively.

NOTE 6 – LONG TERM INVESTMENT

In November 2021, Shuhai Nanjing invested RMB 200,000 ($29,800) for 6.21% stock ownership of a high-tech company Nanjing Dutao Intelligence Technology Co., Ltd in Nanjing City specializing on internet security equipment.

In August 2022, Shuhai Nanjing invested RMB 200,000 ($28,717) for 1% stock ownership of a high-tech company Nanjing Jinjizhihui Technology Co. Ltd in Nanjing City specializing on software and system development.

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NOTE 7 – ACCRUED EXPENSES AND OTHER PAYABLES

Accrued expenses and other payables consisted of the following:

|  | September 30, 2023 |  |  | June 30, 2023 |
Other payables |  | $ | 183,910 |  |  | $ | 308,841 |
Due to third parties |  |  | 163,796 |  |  |  | 175,354 |
Social security payable |  |  | 216,525 |  |  |  | 537,964 |
Salary payable–- employees |  |  | 78,063 |  |  |  | 387,780 |
Total |  | $ | 642,294 |  |  | $ | 1,409,939 |

Due to third parties were the short-term advance from third party individual or companies, bear no interest and payable upon demand.

NOTE 8 – LOANS PAYABLE

Loan from banks

On December 12, 2022, Beijing Shuhai entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB 900,000 ($129,225) with a term of 24 months, the interest rate was 10.728% to be paid every 20th of each month. For the three months ended September 30, 2023, the Company made a repayment of $17,925 to this loan. For the three months ended September 30, 2023, the Company recorded and paid $2,783 interest expense for this loan. As of September 30, 2023, $71,630 was recorded as current liabilities and $17,907 was recorded as non-current liabilities.

On January 13, 2023, Shenzhen Jingwei entered a loan agreement with Shenzhen Qianhai WeBank Co., Ltd for the amount of RMB 100,000 ($14,552) with a term of 24 months, the interest rate was 8.6832%. For the three months ended September 30, 2023, the Company made a repayment of $1,992 to this loan. For the three months ended September 30, 2023, the Company recorded and paid $265 interest expense for this loan. As of September 30, 2023, $7,959 was recorded as current liabilities and $2,653 was recorded as non-current liabilities.

On April 25, 2023, Shuhai information entered a loan agreement with China Bank Co., Ltd for the amount of RMB 2,990,000 ($435,118) with a term of 12 months with a preferential annual interest rate of 2.35% to be paid every 21st of each month. For the three months ended September 30, 2023, the Company recorded and paid $2,503 interest expense for this loan. As of September 30, 2023, $416,446 was recorded as current liabilities.

The following table summarizes the loan balance as of September 30, 2023:

|  | Loan |  |  | Borrowing |  | Loan term |  |  | Interest |  |  | Balance due |
Lender |  | amount |  |  | date |  | in month |  |  | rate |  |  | Current |  |  | Non-current |
Shenzhen Qianhai WeBank Co., Ltd |  |  | 13,928 |  |  | 1/13/2023 |  |  | 24 |  |  |  | 8.68 | % |  |  | 7,959 |  |  |  | 2,653 |
Shenzhen Qianhai WeBank Co., Ltd |  |  | 125,352 |  |  | 12/20/2022 |  |  | 24 |  |  |  | 10.73 | % |  |  | 71,630 |  |  |  | 17,907 |
China Bank Co., Ltd |  |  | 416,446 |  |  | 4/25/2023 |  |  | 12 |  |  |  | 2.35 | % |  |  | 416,446 |  |  |  | - |
Total |  |  | 555,726 |  |  |  |  |  |  |  |  |  |  |  |  |  | 496,035 |  |  |  | 20,560 |

20

Loan from the unrelated parties

On April 24, 2022, the Company entered a loan agreement with an unrelated party Mr. Wanli Kuai for $596,001, the loan had no interest, and was required to be repaid any time before December 31, 2022. The Company repaid $447,001 to the unrelated party by June 30, 2022. On July 1, 2022, the Company entered into a new loan agreement with the same unrelated party for RMB 5,603,000 ($789,177), the loan had no interest, and was required to be repaid any time before December 31, 2022, the Company didn’t make any payment as of December 31, 2022 and signed an extension agreement to extend the maturity date to June 30, 2023. On October 1, 2022, the Company entered into a new loan agreement with the same unrelated party for RMB 3,970,000 ($642,779), the loan had no interest, and was required to be repaid any time before June 30, 2023. On May 24, 2023, the Company entered into a loan extension agreement with the lender, wherein both parties agreed to settle the loan in full by December 31, 2024. During the three months ended September 30, 2023, the Company repaid $0.16 million to this unrelated party. As of September 30, 2023 and June 30, 2023, the outstanding loan balance to the unrelated party was $1,879,713 and $1,310,306, respectively as a result of the Company did not repay the loan in full at maturity. On October 9, 2023, the Company entered into a Debt Transfer and Offset Agreement with Mr. Wanli Kuai and Guorui Innovation. This agreement was resulted from the termination of a Marketing and Promotion agreement among the Company and Guorui Innovation, which Guorui Innovation needs to repay the Company in full for RMB 13,000,600 ($1,810,719) due to cancellation of the agreement. Following the negotiations, the Company, Mr. Wanli Kuai and Guorui Innovation agreed and entered a Debt Transfer and Offset Agreement, wherein Guorui Innovation will repay the prepayment of RMB 13,000,600 ($1,810,719) to Mr. Wanli Kuai for settling the debt that the Company owed to Mr. Kuai (See Note 5).

On September 21, 2023, the Company entered a loan agreement with another unrelated party for $153,208, the loan had no interest, and was required to be repaid any time before December 31, 2024.

NOTE 9 – RELATED PARTY TRANSACTIONS

On October 1, 2020, the Company’s CEO (also the president) entered into an office rental agreement with Xunrui. Pursuant to the agreement, the Company rents an office in Harbin city with a total payment of RMB 163,800 ($24,050) from October 1, 2020 through September 30, 2021. On October 1, 2021, Xunrui entered a new seven-month lease for this location with the Company’s CEO for total rent of RMB 94,500 ($14,690). The lease was expired on April 30, 2022. On May 1, 2022, Xunrui entered a new one-year lease agreement for this office with the Company’s CEO for an annual rent of RMB 235,710 ($35,120), the Company was required to pay the rent before April 30, 2023 but the Company did not pay it yet as of this report date. On May 1, 2023, Xunrui entered a new one-year lease agreement for this office location with the Company’s CEO for an annual rent of RMB 282,852 ($39,144), the Company is required to pay the rent before April 30, 2024. The rental expense for this office location was $9,963 and $8,629, respectively, for the three months ended September 30, 2023 and 2022.

On July 1, 2021, the Company’s CEO entered into a car rental agreement with the Company for one year. Pursuant to the agreement, the Company rents a car from the Company’s CEO for a monthly rent of RMB 18,000 ($2,800), or total payment of $33,400, was paid in full at once. On July 1, 2022, the Company entered a new one-year lease for two cars with the Company’s CEO for each car’s monthly rent of RMB 18,000 ($2,636) and RMB 20,000 ($2,876), respectively. On July 1, 2023, the Company entered a new one-year lease for two cars with the Company’s CEO for each car’s monthly rent of RMB 18,000 ($2,491) and RMB 20,000 ($2,768), respectively. The rental expense for those agreements was $15,893 and $30,752, respectively, for the three months ended September 30, 2023 and 2022.

On September 1, 2021, the Company renewed a one-year lease for senior officers’ dormitory in Beijing, the monthly rent is RMB 15,200 ($2,439), payable every six months in advance. On September 1, 2022, the Company entered a new six-month lease for a total rent of RMB 91,200 ($13,355), payable every three months in advance. On March 1, 2023, the Company entered a new six-month lease for a total rent of RMB 91,200 ($12,621), payable every three months in advance. On September 1, 2023, the Company entered a new one-year lease for a monthly rent of RMB 12,500 ($1,743), payable every three months in advance. The rental expense for this lease was $5,981 and $6,678 for the years ended September 30, 2023 and 2022, respectively.

Due to related parties

As of September 30, 2023 and June 30, 2023, the Company had due to related parties of $494,927 and $1,162,856, respectively, mainly was for the payable of an office lease from the Company’s CEO, accrued salary payable and certain expenses of the Company that were paid by the CEO and her father (one of the Company’s directors), due to related parties bore no interest and payable upon demand.

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NOTE 10 – COMMON STOCK AND WARRANTS

Registered Direct Offering and Concurrent Private Placement in July 2021

On July 20, 2021, the Company entered into a securities purchase agreement with certain institutional investors, pursuant to which the Company agreed to sell to such investors an aggregate of 2,436,904 shares of the common stock of the Company at a purchase price of $3.48 per share. The offering of the common stock is pursuant to a shelf registration statement on Form S-3 (File No. 333-239183), which was declared effective by the SEC on June 25, 2020.

Concurrently with the sale of the shares of the common stock, the Company also sold warrants to purchase 1,096,608 shares of common stock to such investors. The Company sold the shares of the common stock and the warrants for aggregate gross proceeds of approximately $8,480,426, before commissions and expenses. Subject to certain beneficial ownership limitations, the warrants were immediately exercisable at an exercise price equal to $4.48 per share, and will terminate on the two- and one-half-year anniversary following the initial exercise date of the warrants. The warrants issued in this financing was classified as equity instruments. The Company accounted for the warrants issued in this financing based on the FV method under FASB ASC Topic 505, and the FV of the warrants was calculated using the Black-Scholes model under the following assumptions: life of 2.5 years, volatility of 150%, risk-free interest rate of 0.37% and dividend yield of 0%. The FV of the warrants issued at grant date was $1,986,880.

In addition, the Company has also agreed to issue to its placement agent for offering above warrants to purchase a number of shares of the common stock equal to 5.0% of the aggregate number of shares of the common stock sold in this offering (121,845 warrants), the warrants have an exercise price of $4.48 per share and will terminate on the two and one-half-year anniversary of the closing of the offering. The Company accounted for the warrants issued based on the FV method under FASB ASC Topic 505, and the FV of the warrants was calculated using the Black-Scholes model under the following assumptions: life of 2.5 years, volatility of 150%, risk-free interest rate of 0.37% and dividend yield of 0%. The FV of the warrants issued at grant date was $225,964. The warrants issued in this financing was classified as equity instruments.

The closing of the sales of these securities under the securities purchase agreement took place on July 22, 2021. The net proceeds from the transactions were approximately $7,640,000, after deducting certain fees due to the placement agent and the Company’s estimated transaction expenses, and has been used for working capital and general corporate purposes, and for the repayment of debt.

Registered Direct Offering in August and September 2023

On August 1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company sold aggregate of 4,760,000 shares of common stock at a $1.2 per share purchase price. On September 21, 2023, the Company received full payment of RMB 40,000,000 ($5.71 million) from the investor.

On August 15, 2023, the Company entered into a subscription agreement with another non-U.S. investor, pursuant to which the Company agreed to sell and the investor agreed to purchase an aggregate of 2,962,963 shares of common stock at a $1.35 per share purchase price, with a total subscription price of $4,000,000. The investor paid the amount of $714,286 to the Company and the Company issued 529,101 shares as of the date of this report, and promised to pay the remaining balance in full by March 2024.

On September 13, 2023, the Company closed an underwritten public offering of 5,000,000 shares of common stock at a public offering price of $0.40 per share. The gross proceeds to the Company from this offering are approximately $2 million, before deducting any fees or expenses. The Company received $1.6 million net proceeds from this offering.

22

Following is a summary of the activities of warrants for the period ended September 30, 2023:

|  | Number of Warrants |  |  | Average Exercise Price |  |  | Weighted Average Remaining Contractual Term in Years |
Outstanding as of June 30, 2023 |  |  | 1,319,953 |  |  | $ | 4.60 |  |  |  | 0.63 |
Exercisable as of June 30, 2023 |  |  | 1,319,953 |  |  | $ | 4.60 |  |  |  | 0.63 |
Granted |  |  | - |  |  |  | - |  |  |  | - |
Exercised |  |  | - |  |  |  | - |  |  |  | - |
Forfeited |  |  | - |  |  |  | - |  |  |  | - |
Expired |  |  | - |  |  |  | - |  |  |  | - |
Outstanding as of September 30, 2023 |  |  | 1,319,953 |  |  | $ | 4.60 |  |  |  | 0.38 |
Exercisable as of September 30, 2023 |  |  | 1,319,953 |  |  | $ | 4.60 |  |  |  | 0.38 |

Shares to Independent Directors as Compensation

During the three months ended September 30, 2023 and 2022, the Company recorded $4,500 and $4,500 stock compensation expense to independent directors through the issuance of shares of the Company’s common stock at the market price of the stock issuance date, pursuant to the 2018 Equity Incentive Plan.

Shares to Officers as Compensation

On September 24, 2021, under the 2018 Equity Inventive plan, the Company’s Board of Directors granted 15,000 shares of the Company’s common stock to its CEO each month and 10,000 shares to one of the board members each month starting from July 1, 2021, payable quarterly with the aggregate number of shares for each quarter being issued on the first day of the next quarter at a per share price of the closing price of the day prior to the issuance. During the three months ended September 30, 2023 and 2022, the Company recorded $15,600 and $111,750 stock compensation expense to the Company’s CEO and one of the board members for the quarter.

Shares to Employee and consultants under the 2018 Equity Incentive Plan

During the year ended June 30, 2023, the Company issued 3,459,500 shares of the Company’s common stock to the Company’s employees and consultants for the services that were provided, the share issuance was fully vested and approved by Compensation Committee (the “Committee”) of the Board of Directors under the 2018 Equity Incentive Plan. The fair value of 3,459,500 shares at issuance date was $3,976,362 and was recorded as the Company’s stock compensation expense during the year ended June 30, 2023.

NOTE 11 – INCOME TAXES

The Company is subject to income taxes by entity on income arising in or derived from the tax jurisdiction in which each entity is domiciled. The Company’s PRC subsidiaries file their income tax returns online with PRC tax authorities. The Company conducts all of its businesses through its subsidiaries and affiliated entities, principally in the PRC.

The Company’s U.S. parent company is subject to U.S. income tax rate of 21% and files U.S. federal income tax return. As of September 30, 2023 and June 30, 2023, the U.S. entity had net operating loss (“NOL”) carry forwards for income tax purposes of $6.72 million and $6.51 million. The NOL arising in tax years beginning after 2017 may reduce 80% of a taxpayer’s taxable income, and be carried forward indefinitely. However, the Coronavirus Aid, Relief and Economic Security Act (“the CARES Act”) passed in March 2020, provides tax relief to both corporate and noncorporate taxpayers by adding a five-year carryback period and temporarily repealing the 80% limitation for NOLs arising in 2018, 2019 and 2020. Management believes the realization of benefits from these losses remains uncertain due to the parent Company’s limited operating history and continuing losses. Accordingly, a 100% deferred tax asset valuation allowance was provided.

23

The Company’s offshore subsidiary, Shuhai Skill (HK), a HK holding company is subject to 16.5% corporate income tax in HK. Shuhai Beijing received a tax holiday with a 15% corporate income tax rate since it qualified as a high-tech company. Tianjin Information, Xunrui, Guozhong Times, Guozhong Haoze, Guohao Century, Jingwei, Shuhai Nanjing, Zhangxun are subject to the regular 25% PRC income tax rate.

As of September 30, 2023 and June 30, 2023, the Company has approximately $16.05 million and $17.10 million of NOL from its HK holding company, PRC subsidiaries and VIEs that expire in calendar years 2021 through 2025. In assessing the realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets depends upon the Company’s future generation of taxable income during the periods in which temporary differences representing net future deductible amounts become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this assessment. After consideration of all the information available, management believes that significant uncertainty exists with respect to future realization of the deferred tax assets and has therefore established a full valuation allowance as of September 30, 2023 and June 30, 2023.

The following table reconciles the U.S. statutory rates to the Company’s effective tax rate for the three months ended September 30, 2023 and 2022:

|  | 2023 |  |  | 2022 |
US federal statutory rates |  |  | (21.0 | )% |  |  | (21.0 | )%
Tax rate difference – current provision |  |  | (2.1 | )% |  |  | (3.5 | )%
Effect of PRC tax holiday |  |  | 2.7 | % |  |  | 3.2 | %
Valuation allowance |  |  | 20.4 | % |  |  | 21.3 | %
Effective tax rate |  |  | - | % |  |  | - | %

The Company’s net deferred tax assets as of September 30, 2023 and June 30, 2023 is as follows:

|  | September 30, 2023 |  |  | June 30, 2023 |
Deferred tax asset |  |  |  |  |  |
Net operating loss |  | $ | 3,722,696 |  |  | $ | 3,986,827 |
R&D expense |  |  | 123,750 |  |  |  | 123,750 |
Depreciation and amortization |  |  | 76,754 |  |  |  | 180,522 |
Bad debt expense |  |  | 116,063 |  |  |  | 119,932 |
Social security and insurance accrual |  |  | 47,472 |  |  |  | 149,196 |
Inventory impairment |  |  | 13,326 |  |  |  | 13,771 |
ROU, net of lease liabilities |  |  | 3,430 |  |  |  | 20,171 |
Total |  |  | 4,103,491 |  |  |  | 4,594,168 |
Less: valuation allowance |  |  | (4,103,491 | ) |  |  | (4,594,168 | )
Net deferred tax asset |  | $ | - |  |  | $ | - |

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NOTE 12 – COMMITMENTS

Leases

On July 30, 2019, the Company entered into an operating lease for its office in Beijing. Pursuant to the lease, the delivery date of the property was August 8, 2019 but the lease term started on October 8, 2019 and expires on October 7, 2022, and has a monthly rent of RMB 207,269 without value added tax (“VAT”) (or $29,250). The lease required a security deposit of three months’ rent of RMB 677,769 (or $96,000). The Company received a six-month rent abatement, which was considered in calculating the present value of the lease payments to determine the ROU asset which is being amortized over the term of the lease. On October 8, 2022, the Company renewed this lease for another year but for half space of the previous lease, with a monthly rent of RMB 107,714 ($15,787). The Company received a one-month rent abatement.

On July 30, 2019, the Company entered into a property service agreement for its office in Beijing (described above). Pursuant to the property service agreement, the agreement commenced on August 9, 2019 and will expire on October 8, 2022, and has a quarterly fee of RMB 202,352 (or $29,000). The deposit was RMB 202,352 (or $29,000). On October 8, 2022, the Company renewed this service agreement for its office in Beijing for another year, with a quarterly fee of RMB 96,476 ($14,128). The new deposit was RMB 96,476 (or $14,128).

On August 28, 2019, the Company entered an operating lease for senior officers’ dormitory in Beijing. The lease has a term of two years with expiration on August 31, 2021, the monthly rent was RMB 14,500 ($2,045), payable every six months in advance. The lease was renewed for another year from September 1, 2021 to August 31, 2022 at a monthly rent of RMB 15,200 ($2,350), payable every six months in advance. On September 1, 2022, the Company entered a new six-month lease for a total rent of RMB 91,200 ($13,355), payable every three months in advance. On March 1, 2023, the Company renewed this lease for six-month for a total rent of RMB 91,200 ($13,272), payable every three months in advance. In August 2020, the Company entered into a lease for an office in Shenzhen City, China for three years from August 8, 2020 through August 7, 2023, with a monthly rent of RMB 209,911 ($29,651) for the first year. The rent will increase by 3% each year starting from the second year.

On August 26, 2020, Tianjin Information entered into a lease for the office in Hangzhou City, China from September 11, 2020 to October 5, 2022. The first year rent is RMB 1,383,970 ($207,000). The second-year rent is RMB 1,425,909 ($202,800). The security deposit is RMB 115,311 ($16,400). The total rent for the lease period is to be paid in four installments. On October 6, 2022, Hangzhou took over and renewed this lease for one year, the total rent is RMB 1,178,463 ($172,575), payable every six months in advance. In May 2023, the lease was terminated. The total rent expense was RMB 848,620 ($122,253) for the year ended June 30, 2023.

On May 10, 2023, Guo Hao Century entered into a lease for the office in Hangzhou City, China from May 10, 2023 to May 9, 2025. The security deposit is RMB 115,311 ($7,670). The quarterly rent is as follows:

Start Date |  | End Date |  | Rent expense |
|  |  |  | RMB |  |  | USD |
5/10/2023 |  | 8/9/2023 |  |  | 43,786 |  |  | $ | 6,060 |
8/10/2023 |  | 11/9/2023 |  |  | 66,038 |  |  |  | 9,139 |
11/10/2023 |  | 2/9/2024 |  |  | 66,038 |  |  |  | 9,139 |
2/10/2024 |  | 5/9/2024 |  |  | 64,602 |  |  |  | 8,940 |
5/10/2024 |  | 8/9/2024 |  |  | 66,038 |  |  |  | 9,139 |
8/10/2024 |  | 11/9/2024 |  |  | 66,038 |  |  |  | 9,139 |
11/10/2024 |  | 2/9/2025 |  |  | 66,038 |  |  |  | 9,139 |
2/10/2025 |  | 5/9/2025 |  |  | 63,884 |  |  | $ | 8,841 |

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The Company adopted FASB ASC Topic 842 on July 1, 2019. The components of lease costs, lease term and discount rate with respect of the Company’s office lease and the senior officers’ dormitory lease with an initial term of more than 12 months are as follows:

|  | Three Months Ended September 30, 2023 |  |  | Three Months Ended September 30, 2022 |
Operating lease expense |  | $ | 74,181 |  |  | $ | 203,111 |
|  | September 30, 2023 |  |  | June 30, 2023 |
Right-of-use assets |  | $ | 65,854 |  |  | $ | 137,856 |
Lease liabilities - current |  |  | 34,367 |  |  |  | 126,640 |
Lease liabilities - noncurrent |  |  | 17,781 |  |  |  | 26,449 |
Weighted average remaining lease term |  |  | 0.36 years |  |  |  | 0.67 years |
Weighted average discount rate |  |  | 6.25 | % |  |  | 6.25 | %

The following is a schedule, by years, of maturities of the operating lease liabilities as of September 30, 2023:

12 Months Ending September 30, |  | Minimum Lease Payment |
2023 |  | $ | 36,591 |
2024 |  |  | 18,096 |
Total undiscounted cash flows |  |  | 54,687 |
Less: imputed interest |  |  | (2,539 | )
Present value of lease liabilities |  | $ | 52,148 |

NOTE 13 – DISPOSAL OF SUBSIDIARY

On July 20, 2023, the Company’s shareholders decided to sell Zhangxun to a third party at a price of RMB 2 (US $0.28). There was no material transactions for Zhangxun for the period from July 1, 2023 through July 20, 2023, and for the purpose of complying with the Company’s monthly accounting cut-off date, the Company used Zhangxun’s financial statements as of June 30, 2023 as the date of disposal. The Company recorded $0.83 million gain on disposal of the subsidiary, which was the difference between the selling price of US$0.28 and the carrying value of the negative net assets of $2.35 million of the disposal entity, which includes $1.52 million of inter-company payables. The gain is calculated after netting off these inter-company receivables from Zhangxun of $1.52 million, due to uncertainty of the repayment from Zhangxun. The following table summarizes the carrying value of the assets and liabilities of Zhangxun at June 30, 2023.

Cash |  | $ | 34 |
Accounts receivable |  |  | 254,988 |
Other current assets |  |  | 50,406 |
Fixed assets, net |  |  | 10,012 |
Intangible assets, net |  |  | 344,629 |
Total assets |  |  | 660,069 |
Accounts payable |  |  | 530,260 |
Advance from customers |  |  | 94,126 |
Accrued liability and other payables |  |  | 749,156 |
Loan payables |  |  | 153,045 |
Total liabilities |  |  | 1,526,587 |

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The following tables shows the results of operations relating to discontinued operations Zhangxun for the three months ended September 30, 2023 and 2022, respectively.

|  | THREE MONTHS ENDED SEPTEMBER 30, |
|  | 2023 |  |  | 2022 |
Revenues |  | $ | - |  |  | $ | 1,164,305 |
Cost of goods sold |  |  | - |  |  |  | 1,014,108 |
Gross profit |  |  | - |  |  |  | 150,197 |
Operating expenses |  |  |  |  |  |  |  |
Selling |  |  | - |  |  |  | 188,950 |
General and administrative |  |  | - |  |  |  | 165,485 |
Research and development |  |  | - |  |  |  | 156,704 |
Total operating expenses |  |  | - |  |  |  | 511,139 |
Loss from operations |  |  | - |  |  |  | (360,942 | )
Gain on disposal |  |  | 833,546 |  |  |  | 0 |
Other income, net |  |  | - |  |  |  | 23,880 |
Gain (loss) before income tax |  |  | 833,546 |  |  |  | (337,062 | )
Income tax |  |  | - |  |  |  | - |
Gain (loss) before noncontrolling interest |  |  | 833,546 |  |  |  | (337,062 | )
Less: loss attributable to noncontrolling interest |  |  | - |  |  |  | (101,759 | )
Net gain (loss) to the Company |  | $ | 833,546 |  |  | $ | (235,303 | )

NOTE 14 – SUBSEQUENT EVENTS

The Company follows the guidance in FASB ASC 855-10 for the disclosure of subsequent events. The Company evaluated subsequent events through the date the financial statements were issued and determined the Company had no material subsequent events to be disclosed.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Cautionary Note Regarding Forward-Looking Statements

This 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 services;

| ● | 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

Company Structure

Datasea Inc. (“Datasea,” the VIE, as defined below, and our subsidiaries, collectively, the “Company” or “we” or “us” or “our”) is a global technology company incorporated in Nevada USA on September 26, 2014, with subsidiaries and operating entities located in Delaware and China, that provides intelligent acoustics (including ultrasound, infrasound, directional sound, and Schumann resonance), 5G messaging and other products and services to various corporate and individual customers. The acoustic business offers a wide range of cutting-edge products including high-quality sound air disinfection solutions, sound sleep-aid devices, as well as skin repair and beauty solutions. Our products find extensive applications across various industries and sectors, including acoustic antivirus, acoustic beauty, acoustic medical treatments, acoustic agriculture and acoustic industrial. Our common stocks currently listed on the Nasdaq Capital Market are shares of our Nevada holding company that maintains service agreements with the associated operating companies which instead enable us to consolidate the financial results of the VIE and its subsidiaries with Datasea’s corporate group under U.S. GAAP, making Datasea the primary beneficiary of the VIE for accounting purposes. For a description of our corporate structure and contractual arrangements, see “Corporate Structure” on page 8 and “VIE Agreements” on page 9.

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Datasea is not a Chinese operating company, but a Nevada-based holding company. Its subsidiary, Datasea Acoustics LLC, located in Delaware, serves as the global hub for our acoustic business operations, catering to the U.S. and international markets by providing acoustic technologies and application products, and there is no sales outside of PRC yet as of the report date. Additionally, the Company conducts business activities in China through its subsidiary, Tianjin Information Sea Information Technology Co., Ltd. (“Shuhai Tianjin”), and its VIE entity, Shuhai Information Technology Co., Ltd. (“Shuhai Beijing”), along with their subsidiary entities. Shuhai Beijing offers cutting-edge products and solutions in intelligent acoustics and 5G messaging applications, catering to a wide spectrum of commercial enterprises, households, and individuals in China.

Internationalization has always been a crucial strategy for the Company. Datasea established its wholly-owned subsidiary, Datasea Acoustics LLC, in Delaware, USA in July 2023. Since then, the company has embarked on a journey of providing the leading and high-quality ultrasonic air sterilizers, bathroom and cloakroom sterilizers and odor removal products, as well as continuous new products including ultrasonic Skin Repair Robots and Schumann frequency sleep monitors to the global market, mainly the U.S. market, catering to a broad and growing global consumer base. During the reporting period, the Company collaborated with the globally renowned testing organization, Intertek Inc., to conduct ETL safety and functional certifications for the air disinfection products intended for sale in the United States. This included certifications related to ozone and Aspergillus flavus. We anticipate completing these certifications in the next quarter and commencing the sales of these products in the U.S. market on a larger scale. Furthermore, we entered into cooperation agreements with several well-known American local distributors of smart products. We successfully registered and established an online sales store on the Amazon platform. Additionally, in partnership with the renowned U.S. intellectual property firm, Paul & Paul, we actively pursued various U.S. patents and international patents. We aim to build a strong intellectual property portfolio in the United States and even internationally through patent applications and the acquisition of high-quality patents. With a focus on the primary track of acoustic intelligence, we are seeking potential merger and acquisition targets in areas such as acoustic disinfection, acoustic medical aesthetics, acoustic health, acoustic agriculture, and acoustic industrial applications. This is part of our strategy for international expansion through mergers and acquisitions.

Technology and Innovation

Datasea is the global initiator, promoter and practitioner of the concept of acoustic intelligence. Our commitment to technological advancement and global reach positions us at the forefront of delivering cutting-edge intelligent acoustics solutions, especially focusing on ultrasound, infrasound, directional sound and Schumann resonance technology, to meet the evolving needs of our customers and communities worldwide. The research and development of intelligent acoustics technology plays a vital role for the Company and is what makes us different. The Company has non-visual intelligent algorithms and techniques, intelligent acoustics technologies such as ultrasound and directional sound, and 5G messaging related technology, etc.. Combined with artificial intelligence (AI), machine learning and data analytics, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises of all types (over 99% are small and medium enterprises (“SMEs”)) and households in China. Acoustic technology and products will also create a healthy living environment for approximately 30.7 million businesses of various types and over 130 million households in the United States.

As of the date of this report, Shuhai Beijing and its subsidiaries own 27 patents and 106 software copyrights in the PRC, which include 13 pending patent applications in core technologies, to empower and grow the business. In addition, the U.S. subsidiary, Datasea Acoustics, is actively acquiring U.S. patents, as well as international patents, and collaborating with U.S. universities and world-renowned research institutions.

The Company holds an outstanding position in the field of acoustics, particularly in the areas such as ultrasound, infrasound, and directional sound. To promote research and innovation in these areas, the Company actively collaborates with several prominent research institutions and universities to enhance the integration and collaboration of research resources. These collaborations and the establishment of these laboratories further solidify the Company’s leading position in the field of acoustics, providing a strong foundation for future innovations and development. In particular, our collaboration with the Chinese Academy of Sciences is worth highlighting. Since signing a cooperation agreement with the Institute of Acoustics at the Chinese Academy of Sciences in 2022, we have been jointly advancing research projects and establishing collaborative laboratories. Two new projects have been initiated: 1) Medical Ultrasound Project: This project, namely the ultrasound CT, focuses on using ultrasound waves to enhance diagnostic imaging and screening. It is particularly effective for the early detection of breast cancer, offering high resolution and high-quality imaging. It is well-suited for the characteristics of Asian women, and it has the potential to significantly improve screening efficiency. The initial tests on experimental machines have been successfully completed, and following human testing and data collection, we anticipate completing the first-generation product by 2024; 2) Ultrasound Cognitive Enhancement Project: This project has already completed the preliminary research and algorithm development phases. It will now progress to data collection and the development of a product model.

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The Company, in collaboration with the Ministry of Industry and Information Technology (MIIT), the Key Laboratory of Artificial Intelligence Key Technology and Application Evaluation, and the China Academy of Information and Communications Technology (CAICT) Cloud Computing & Big Data Research Institute, has jointly unveiled China’s inaugural “White Paper on the Acoustic Intelligence Industry.” This groundbreaking document presents compelling analyses and factual insights into the realm of intelligent acoustics technology, its commercialization, and the industry’s future prospects. The white paper extensively explores the applications of acoustic intelligence at an industry level and underscores the expectation that Datasea will take the lead in driving initiatives within the Chinese acoustic applications field. It also emphasizes the Company’s prominent position within the broader acoustic industry landscape.

Operational goals

The primary operational objectives of the Company, its subsidiaries, and VIE are as follows: (i) Continuing Revenue Growth: Drive revenue expansion through strategic initiatives, including expanding the sales team and distribution networks, exploring new markets in both domestic and U.S. regions, and delivering value-added services; (ii) Technological Innovation: Continuously enhance the technological capabilities of the ultrasonic antivirus product line and services. Additionally, proactively introduce sound sleep monitors, and other acoustic technologies in various health-related fields to meet global market demands and build an International Patent Matrix; (iii) Customer Satisfaction: Provide customers with high-quality acoustic products and exceptional services to foster customer loyalty and maintain a positive reputation; (iv) International Expansion: Pursue international growth, with a particular focus on the U.S. market, leveraging the operations of U.S. subsidiaries, engaging in mergers and acquisitions activities, ensuring compliance, adapting to market dynamics, and practicing effective cross-cultural management; (v) Partnerships and Collaborations: Cultivate strategic partnerships, encompassing collaborations with suppliers, partners, and research institutions; (vi) Risk Management: Diligently identify, evaluate, and manage various risks, including those related to the market, legal compliance, and the supply chain; and (vii) Shareholder Returns: Generate robust cash flow and provide satisfactory returns to shareholders.

Business Strategy

The Company’s business strategy includes striving to provide high-quality products to end-users through online sales, distributor channels, and major customers. Our efforts include expanding our presence in new markets, including the United States, as well as strengthening our position in existing markets. We aim to enhance our image and market demand through continuous innovation and enhance the competitiveness and overall strength of our segmented fields through an international patent matrix and mergers and acquisitions.

International Business Expansion: As of the reporting period, through its Delaware subsidiary, Datasea Acoustics LLC, has been expanding its presence in the United States and international markets. This expansion includes obtaining ETL safety certification and functionality certification for its air disinfection products through globally recognized testing agencies. Datasea has also been actively pursuing the acquisition of U.S. patents and seeking advantageous merger and acquisition opportunities in the primary sectors of acoustic intelligence, including sound disinfection, acoustic medical aesthetics, acoustic health, acoustic agriculture, and acoustic industry. Additionally, the Company has established partnerships with several well-known U.S. distributors of smart products and set up its Amazon platform store. The focus of this strategy can be to leverage the geographical location and resources of the United States as a global business center to further expand its international market share.

Technological Innovation: Datasea continues to invest in research and development (R&D) to maintain a leading position in the field of intelligent acoustics. This includes continuously improving existing acoustic sterilization and deodorization products, developing new applications, products and solutions regarding ultrasound, directional sound, and Schumann resonance, and staying responsive to the growing needs of global customers and the market.

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Technology Collaboration: Collaboration with renowned research institutions both domestically and internationally, such as the medical ultrasound project (ultrasound CT) in partnership with the Chinese Academy of Sciences and the ultrasound-based products for mental alertness and attention enhancement. Datasea can foster collaborations with renowned U.S. universities and research institutions through its U.S. subsidiary. By partnering with these institutions, the Company can engage in joint research and development initiatives to create and adopt cutting-edge intelligent acoustics technologies. This collaborative approach helps Datasea maintain its technological leadership and obtain technical capabilities and reserves in relevant fields.

U.S. Patent Acquisition and Technology Protection: Datasea prioritizes the acquisition of U.S. patents to protect its innovations and intellectual property. Rapidly securing U.S. patents for its technologies is essential to maintain its competitive advantage and defend against potential infringement. This proactive approach in patent acquisition will ensure that Datasea’s intellectual property remains protected in the U.S. market and provide opportunities for licensing and monetization. Currently, the Company is actively engaged in obtaining U.S. patents through collaboration with the renowned intellectual property firm, Paul & Paul, based in Philadelphia. We aim to build an intellectual property matrix in the United States and even on an international scale through U.S. patent applications and the acquisition of high-quality patents.

These strategies will further strengthen Datasea’s position in the global market, consolidate its innovation capacity and protect its intellectual property assets.

Mergers and Acquisitions (M&A) and Joint Ventures: Datasea can expand its products and services portfolio by engaging in mergers and acquisitions or forming joint ventures to meet the growing market demands. Especially in the U.S. market, in the primary areas of acoustic intelligence, including sound disinfection, acoustic medical aesthetics, acoustic health, acoustic agriculture, and acoustic industry, we are actively seeking acquisition targets with technological, team, and market advantages or complementarity. This will advance our international merger and acquisition strategy, helping the Company strengthen its foundation, market depth, and rapid expansion of business and market scale in the U.S. market. It will also contribute to the localization of our brand in the United States.

Contracts and Collaborations: Datasea can actively seek long-term contracts and collaborations with domestic and international customers, partners, and major corporate clients, including potential major clients in educational institutions, hospitality, and other establishments in the New York and Philadelphia regions. These collaborations can encompass product sales, technical cooperation, and joint research and development, helping to stabilize revenue and expand market share.

Compensation and Incentives: In recognition of the contributions made to the Company’s growth by its directors, executives, employees, consultants, and other external partners, the Company has established a multi-layered compensation and incentive system. This includes incentives such as stock options for a publicly traded company (S-8) and equity holdings in core business subsidiaries. As of now, the Company has initiated another round of registration for 5 million shares of incentive shares under the S-8 for the 2018 Equity Incentive plan Amendment. We will continue to issue these shares to directors, executives, employees, and external consultants, thereby implementing our stock incentive plan. Looking ahead, the Company plans to extend stock incentive initiatives to even more individuals who contribute significantly to the Company, further encouraging and ensuring active contributions from talents within the organization.

Sustainable Growth: The Company has the capacity to embrace a sustainable approach for ensuring long-term prosperity. This approach entails a focus on Environmental, Social, and Governance (ESG) aspects, ensuring that the Company’s operations are in alignment with global best practices, and offering sustainable solutions to meet the demands of its customers. The Company has explored and developed an ESG evaluation framework tailored to its own characteristics, regularly publishes quarterly ESG reports, and continuously enhances ESG factors to ensure long-term sustainability.

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Market diversification: In the domestic market, Datasea can continue to provide intelligent acoustics and 5G messaging products to various end users, such as corporate customers and household users, to ensure market diversification. In the international market, Datasea precisely targets U.S. households and large corporate customers including hospitals, educational institutions and Elderly Care and Healthcare Institutions with leading and high-quality ultrasonic air sterilization, sleeping monitor, bathroom and cloakroom sterilization and odor removal products, contributing to expanding broader growth opportunities and performance improvement.

Regulatory Compliance: In addition to adhering to Chinese laws and regulations, the company must also comply with U.S. laws and the regulatory oversight of the Securities and Exchange Commission (SEC). This entails ensuring timely and accurate disclosure of financial statements and significant events and continually enhancing corporate governance, shareholder rights, information disclosure, and internal controls in accordance with the rules of the NASDAQ stock exchange. Maintaining effective communication with investors is crucial.

In summary, Datasea can pursue its business strategy through international business expansion, technological innovation, contracts and collaborations, and a sustainable growth approach. This will help ensure that the Company gains a competitive advantage in global markets and creates sustainable value for its shareholders.

Our Business Summary

We deeply understand that the market needs new application areas, new technologies, and new requirements. Therefore, through the tireless efforts of our team, we have continued to research and upgrade from visual algorithms to acoustic-based non-visual algorithms. After achieving significant breakthroughs in the field of acoustics, we have further expanded product applications and market development into areas such as ultrasound, subsonic, and directional sound.

Acoustic intelligence is a new field that integrates fundamental acoustic theory with artificial intelligence to gather and process acoustic data and solve problems. Datasea leverages cutting-edge technologies in the realm of intelligent acoustics, especially harnessing the power of ultrasonic sterilization to combat viruses and prevent human infections. This technology capitalizes on the mechanical, thermal, and cavitation effects of ultrasound. When stimulated by ultrasound, microorganisms, including the coronavirus, undergo significant vibration strains, disrupting the virus’s outer shell and internal RNA. The rapid movement of protons in the ultrasound eventually devastates microbial structures, annihilating harmful pathogens.

Leveraging Datasea’s cutting-edge intelligent acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia” series air sterilizer products. This lineup includes solutions tailored for in-door (Desktop and Floor), in-vehicle, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public places, including hospitals, educational institutions and Elderly Care and Healthcare Institutions. We started to launch those new products in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic shift and process are aimed at offering people more effective solutions for purifying their environments and healthier lifestyles for people not only in China, but also the United States and globally, particularly in the post-pandemic era when people have raised higher demands for protection and quality of life.

Besides, the Company makes innovations in Schumann frequency, directional sound and others, launching ultrasonic Skin Repair with AI diagnosis and Schumann frequency sleep monitors and further creating a higher quality living environment for customers in application fields such as acoustic beauty, acoustic agriculture and acoustic industry. Also, with a diverse product lineup, we strive to achieve a global leading position in this field within three years.

To showcase the Company’s technology and products on the global stage, Datasea, through its wholly-owned subsidiary, Datasea Acoustics LLC, based in Delaware, U.S., operates as the primary entity to offer advanced intelligent acoustic products and solutions, including acoustic antivirus, acoustic beauty, acoustic medical, acoustic agriculture, and more. This strategy aims to tap into the continuously growing consumer audience worldwide. Additionally, the establishment of production assembly and sales channels, collaboration with local U.S. channels, emphasis on technological advancements, partnerships with international technology laboratories, and the pursuit of multiple channels for obtaining US patents and potential acquisitions are conducive to the sustainable development of Datasea Acoustics LLC.

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5G Messaging:

5G Messaging business increases and improves how people and businesses communicate, while providing enterprises and brands a platform to engage, convert and efficiently cultivate buying relationships by leveraging 5G messaging service.

The 5G messaging service is known as RCS (“Rich Communication Suite”) and integrates phones, messages, and contacts. Specifically, this communication suite enables users to enjoy various effective interfaces with integrated messages, including texts, pictures, audio, video and emojis, as well as status, location and other communication functions. It has the characteristics of high contact rate, rich media, strong interactivity, convenient service, and high security.

5G messaging technology can create a new message ecosystem in which customers and enterprises can directly and efficiently connect via short messages on mobile phone terminals. When businesses apply 5G messaging to marketing initiatives, higher speed, better transmission quality, and lower latency can create brand new and improved customer experience.

As one of the leading service providers in China’s 5G communication field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated Messaging Marketing Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G messaging Top Up business related applications applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data analytic capability, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and businesses of all types (over 99% are SMEs) and households in China with digital and intelligent services.

Recent Developments

Our Products and Future Plans of Intelligent Acoustics

General Information

As of September 30, 2023, in the first quarter of the 2024 fiscal year, we continued to enhance our range of acoustic products, including a series of ultrasonic air disinfection machine products: 1) In-door models (floor and desktop models) suitable for different areas and functions, 2) In-vehicle models; and 3) Restroom and Cloakroom purification and deodorization. Comprehensive air disinfection, and specialized sterilization suitable for environments such as hospitals, airports, educational institutions and residential areas. As well as sound sleep aids suitable for the general population based on Schumann resonance, among other products.

Air purification and deodorization products:

| ● | For restroom:

Key Feature: Gentle Sound Ambiance, Air Purification, Warm Light and Colors, Odor Elimination, Powerful Sterilization

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| ● | For cloakroom:

Key Features: Powerful Dehumidification, Odor Elimination, Voice Control, Mite Purification, Strong Sterilization

New Products Planned

| ● | The upgraded version of Sound Wave Smart Sleep Monitor (Coming soon)

Sound Wave Smart Sleep Monitor adopts ultra-low frequency, weak intensity, and magnetic induction of brain rhythm (MIBR), which is a magnetic induction of brain rhythm technology. Through the selective optimization and adjustment of the function of neurons through the magnetic induction of brain rhythm (MIBR), the monitor creates a natural frequency magnetic field similar to the Schumann frequency.

Key Features：

1) Reduce the impact of high-frequency radio waves on the human body, relieve anxiety and stress, and gradually relax the body and brain;

2) Resonate between the frequency of Device and the human body’s own frequency, induce brain waves to enter a deep sleep state, prolong the time of deep sleep, and improve the quality of deep sleep, thereby improving sleep and keeping users away from insomnia.

As the core component of smart health furniture products, the Company’s Delaware subsidiary has entered into a strategic cooperation agreement with Shandong Mingqi, a company engaged in furniture design, manufacturing, and sales with a long track record in the industry, including operations in the U.S. market. The cooperation involves leveraging technologies and products related to sound wave sleep improvement, alertness enhancement, sound wave disinfection, and more to empower and upgrade furniture products, thereby transforming traditional furniture into smart health furniture. Such collaboration is expected to effectively drive the export of Datasea’s technology and products, achieving a rapid increase in overseas sales to B2B customers and the overseas revenue ratio.

Sales and Distribution

Domestic channels and sales

As of the date of this report, our acoustic products are mainly developed and produced in China, and the products we sell in China are mainly through:

1) The sales department of Shuhai Beijing and its subsidiaries directly sign sales contracts with customers.

During the reporting period, Shuhai Beijing and its subsidiaries have formed a complete marketing system, promotion strategies and models, including the Company’s own sales team and innovative partner models. The sales team of Shuhai Beijing and its subsidiaries cover the core economic zones of China in Beijing, Northeast China, the Yangtze River Delta, and the Guangdong Hong Kong Macao Greater Bay Area, promoting various products and services.

2) Online Distributors and Living Stream

The Company expands its coverage and increases market penetration by collaborating with multiple online distributors, living stream platform and selling innovative products on major e-commerce platforms, such as signing a sales partnership with the well-known Chinese e-commerce platform Hunan Jimei, to launch customized e-commerce products to expand its coverage and increase market penetration.

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3）Sales Channels

Shuhai Beijing and its subsidiaries have established cooperative relationships with multiple domestic sales and channel merchants and established a nationwide marketing channel network through a partnership system.

In December 2022, the Company unveiled national Hailijia air sterilization product event with an online event and offline product launches in various cities in China, including Beijing, Shenzhen, Tianjin, Hangzhou and Harbin. More than 50 institutions specializing in trade and distribution from China, Southeast Asia, and the Middle East participated in the event, highlighting the market interest in the products. During the product launches, Datasea has entered into eight marketing and distribution agreements in order to expand the business and reach to customers and sell certain Hailijia air sterilizers and purifiers in China.

International Business Expansion

As of the date of this report, Datasea has established a subsidiary, Datasea Acoustics LLC, in the United States, actively recruiting a sales team, and promoting cooperation with various local offline and online sales channels to support the sales of acoustic products in the U.S. and international markets.

| 1) | In October 2023, a Delaware subsidiary applied to register an Amazon online store in the United States, and it is expected to be officially sold after obtaining the existing product safety certification (about 2 months);

| 2) | Signed a sales cooperation agreement with Meligo, a well-known sales channel in the United States; and

| 3) | Communicate and connect with potential major clients such as New York real estate developers and Philadelphia educational institutions.

Key Customers and Agreements

In September 2023, Shuhai Jingwei (Shenzhen) Information Technology Co, Ltd signed a procurement and sales agreement with Hunan Jimei Biotechnology Development Co., Ltd. (hereinafter referred to as “Jimei”), aiming to expand the online sales of Shuhai’s “Hailijia” brand’sacoustic Air Disinfection Machine, Disinfectant and Odor Eliminator series products in China through Jimei’s innovative e-commerce platform and user base. Hunan Jimei is a high-tech product research and development, production, and sales enterprise. At the same time, it also has a direct sales license issued by the Ministry of Commerce of China. Its Yunchuang Space APP is a comprehensive e-commerce product intelligent shopping platform that combines private domain traffic and public domain traffic, with a million level user base, providing a rich e-commerce sales channel and options.

October 16, 2023, its Delaware operating entity, Datasea Acoustics LLC, has entered into a marketing promotion and sales cooperation agreement with Meglio Interiors LLC (“Meglio”), based in Chamblee, Georgia develop, promote and distribute the Company’s intelligent acoustics products in the US and internationally. Datasea plans to establish an assembly line in the nearly future for its intelligent acoustics products in Delaware while Meglio will as one of the primary distributor of such products. Meglio has sales channels that includes Atlanta, Dallas and New Jersey and extensive experience in increasing sales for its clients in the US. Meglio has expertise in business development, marketing, sales, branding and channel development in the U.S. furniture market, which the Company believes is an ideal fit for the Company’s home health products that include air disinfection machines, bathroom and wardrobe deodorization devices, as well as sleep-enhancing products.

5G Messaging

Key Customers and Agreements

As of September 30, 2023, Datasea's Chinese operating entities, Shuhai Information Technology Co., Ltd. ("Shuhai Beijing"), and Heilongjiang Xurui Technology Co., Ltd. ("Xurui Technology") Shuhai Jingwei (Shenzhen) Information Technology Co., Ltd. ("Shuhai Jingwei") and Guozhong Times (Beijing) Technology Co., Ltd. ("Guozhong Times") have reached agreements with two important new clients: Hainuo Xintong (Qingdao) Network Technology Co., Ltd. (hereinafter referred to as "Hainuo") and Xiamen Duoqiao Mai Network Technology Co., Ltd. (hereinafter referred to as "Xiamen Duoqiao"). These agreements allow Hainuo Xintong and Xiamen Duoqiao to purchase various denominations of 5G message top up cards within 12 months of the agreement, ranging from RMB10 to RMB500 ($1.38 to $69.4). In just a few months after signing agreements with Hainuo Xintong and Xiamen Duoqiao, Shuhai Beijing and its subsidiaries provided a 5G message top up service worth approximately $8.08 million (equivalent to RMB57.99 million). From May 2023 to September 2023,the revenue from Maiduoqiao is $6.21million (equivalent to RMB 44.51million). From August 2023 to September 2023,the revenue from Hainuo Xintong is $1.88million(equivalent to RMB 13.48 RMB).

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As of September 30, 2023, Datasea's Chinese operating entity, Guozhong Times (Beijing) Technology Co., Ltd. (hereinafter referred to as the "subsidiary"), has reached an agreement with an important new client, Qingdao Ruicheng Lida Network Technology Co., Ltd. According to the agreement, Ruicheng Lida will purchase 5G message top up cards ranging from RMB10 to RMB500 ($1.38 to $69.4) during the 12-month agreement period. As of September 30, 2023, Shuhai Beijing and its subsidiaries have provided 5G message top up services worth approximately $0.78 million (equivalent to RMB 5.64 million).

Market Results

In terms of customer acquisition and marketing, the Company has taken a series of strong measures to promote sales, which has truly achieved explosive growth in sales.

First, we optimize our products and services. We deliberately start from the needs of customers, and constantly optimize and improve products and services to make them more in line with customer needs. We independently developed internal systems such as the 5G phone charge top-up platform, making the phone charge business more accurate and convenient, and the process more scientific and smoother.

Secondly, through its own sales team, the Company vigorously promotes and publicizes the Company’s 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 obtained a stable customer flow.

Thirdly, the Company also hired a professional 5G news business promotion team, and signed 5G communication marketing service agreements with some marketing companies that have many years of advantages in Internet of Things market development, operation and promotion services, have effective integration with mobile Internet enterprises, Internet of Things industry chain and other resources, and have strong channel expansion and sales and operation capabilities, to carry out in-depth cooperation. Quickly and effectively recruit high-quality partners for the Company to achieve rapid economic value transformation. Third party marketing companies bring us a large number of customers, which is our total sales growth engine.

Finally, we have also carried out some preferential activities and implemented different discount policies for customers. Through preferential activities to attract customers to participate in cooperation, increase customer participation and loyalty, thereby increasing sales artery.

ESG Management

ESG Management Update

Datasea is committed to aligning with global ESG (Environmental, Social, and Governance) standards and best practices, given their growing significance in the business landscape. We understand the importance of this approach in managing risks effectively, identifying opportunities for growth, and fortifying our long-term resilience. Moreover, it enables us to foster positive relations with stakeholders and gain a competitive edge in the ever-evolving high-tech sector, specifically within the field of acoustic intelligence.

As part of our unwavering dedication to ESG, Datasea has adopted a comprehensive SASB framework designed to ensure that our operations remain consistent with our core values and priorities. This framework serves as a guide for our decision-making processes, emphasizing the importance of sustainable growth and enduring success.

Transparency and accountability lie at the heart of our ESG strategy. Starting in 2023, Datasea is committed to providing meaningful and accurate information regarding our ESG practices and performance to our stakeholders. This information will be disclosed through quarterly and annual ESG reports and accompanying sustainability statements.

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Our recent ESG initiatives and progress are in line with prevailing ESG evaluation methods in the United States and the unique characteristics of the high-tech sector, particularly within the realm of acoustic intelligence. We have focused on several key ESG areas:

Environmental Responsibility: Datasea places a strong emphasis on energy efficiency, greenhouse gas emissions reduction, sustainable water management, waste minimization, and the responsible handling of hazardous materials. We remain committed to lessening our environmental footprint through innovative, eco-friendly practices.

Social Engagement: Our social commitment includes fostering inclusivity, diversity, and non-discrimination in our workforce. We are dedicated to attracting, developing, and retaining top talent. Ensuring the health and safety of our employees and evaluating the impact of our supply chain are integral aspects of our approach.

Governance Practices: Datasea maintains the highest ethical standards, ensuring robust corporate governance. We prioritize network security, data privacy, and product quality to uphold our commitment to ethical conduct in all aspects of our operations.

Our focus on these ESG priorities aligns with our mission to minimize environmental impact, creating a safer and more conducive living environment, enhance societal well-being, and maintain a resilient governance structure in a technologically advanced industry like acoustic intelligence.

By prioritizing these aspects, our goal is to make a significant and lasting impact on our stakeholders and the broader environment. Datasea remains committed to the effective implementation of our 2023 ESG initiatives to address these priorities and achieve our ESG goals. While no recent ESG reports have been released, we continue to focus on ESG integration, striving for ongoing improvements and increased transparency in our sustainability efforts. We eagerly anticipate sharing our progress and accomplishments with stakeholders in the upcoming ESG reports and communications.

Competition

It is essential to recognize that acoustic technology is a broad and diverse field. Different acoustic attributes find extensive applications in various niche sectors, and distinct competitive landscapes exist across different application areas. Major tech companies like Baidu, Alibaba, Tencent, and others have also invested in acoustic-related technologies, potentially impacting future market dynamics. We anticipate that competition in the markets we engage in will continue to intensify as existing competitors enhance or broaden their product offerings, and as new companies enter the market. Moreover, our ability to compete effectively depends on various factors, including technological innovation, product safety, as well as attributes such as price and brand reputation.

Going Concern

The accompanying unaudited 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 three months ended September 30, 2023 and 2022, the Company had a net loss of approximately $22,056 and $1.34 million, respectively. The Company had an accumulated deficit of approximately $28.09 million as of September 30, 2023, and negative cash flow from operating activities of approximately $6.74 million and $0.75 million for the three months ended September 30, 2023 and 2022, 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 September 30, 2023, the Company had cash of $1,218,748.

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We continue to bring in additional investors to support our company’s research and development, marketing and operations. On August 1, 2023, the Company entered into two separate subscription agreements with a certain non-U.S. investor, pursuant to which the Company agreed to sell and the investor agreed to purchase an aggregate of 4,760,000 shares of common stock price at a $1.2 per share purchase price. Such shares must be held for a period of 365 days. In accordance with such two agreements, Investor shall pay a total purchase price of $5,712,000 in RMB, at an amount of RMB 40,000,000, no later than September 30, 2023. On September 21, the Company has received all of the payment of RMB 40,000,000. On August 15, 2023, the Company entered into a subscription agreement with a non-U.S. investor to purchase an aggregate of 2,962,963 shares of common stock price at a $1.35 per share purchase price, with a total subscription price of $4,000,000. The shares must be held for a period of 180 days. On September 13, 2023, our Company announced the closing of an underwritten public offering of 5,000,000 shares of common stock at a public offering price of $0.40 per share, for aggregate gross proceeds of $1,635,000, after deducting underwriting discounts and other offering expenses. We believe these fundings demonstrate our investors’ confidence on our strategy and business.

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.

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 three Months ended September 30, 2023 and 2022

The following table sets forth the results of our operations for the three months ended September 30, 2023 and 2022, respectively, indicated as a percentage of net sales. Certain columns may not add up due to rounding.

|  | 2023 |  |  | % of Revenues |  |  | 2022 |  |  | % of Revenues |
Revenues |  | $ | 6,880,743 |  |  |  |  |  |  | $ | - |  |  |  |  |
Cost of revenues |  |  | 6,806,008 |  |  |  | 98.9 | % |  |  | - |  |  |  | - | %
Gross profit |  |  | 74,735 |  |  |  | 1.1 | % |  |  | - |  |  |  | - | %
Selling expenses |  |  | 84,447 |  |  |  | 1.2 | % |  |  | 104,114 |  |  |  | - | %
Research and development |  |  | 155,004 |  |  |  | 2.3 | % |  |  | 106,628 |  |  |  | - | %
General and administrative expenses |  |  | 693,060 |  |  |  | 10.1 | % |  |  | 884,960 |  |  |  | - | %
Total operating expenses |  |  | 932,511 |  |  |  | 13.6 | % |  |  | 1,095,702 |  |  |  | - | %
Loss from operations |  |  | (857,776 | ) |  |  | (12.5 | )% |  |  | (1,095,702 | ) |  |  | - | %
Non-operating expenses, net |  |  | (7,758 | ) |  |  | (0.1 | )% |  |  | (1,175 | ) |  |  | - | %
Loss before income taxes |  |  | (865,534 | ) |  |  | (12.6 | )% |  |  | (1,096,877 | ) |  |  | - | %
Income tax expense |  |  | - |  |  |  | - | % |  |  | 8 |  |  |  | - | %
Loss before noncontrolling interest from continuing operation |  |  | (865,534 | ) |  |  | (12.6 | )% |  |  | (1,096,885 | ) |  |  | - | %
Income (loss) before noncontrolling interest from discontinued operation |  |  | 833,546 |  |  |  | 12.1 | % |  |  | (337,062 | ) |  |  | - | %
Less: income (loss) attributable to noncontrolling interest from continuing operation |  |  | (9,932 | ) |  |  | (0.1 | )% |  |  | 5,135 |  |  |  | - | %
Less: income (loss) attributable noncontrolling interest from discontinued operation |  |  | - |  |  |  | - | % |  |  | (101,759 | ) |  |  | - | %
Net loss to the Company from continuing operation |  |  | (855,602 | ) |  |  | (12.4 | )% |  |  | (1,102,020 | ) |  |  | - | %
Net loss to the Company from discontinued operation |  |  | 833,546 |  |  |  | 12.1 | % |  |  | (235,303 | ) |  |  | - | %
Net loss to the Company |  | $ | (22,056 | ) |  |  | (0.3 | )% |  |  | (1,337,323 | ) |  |  | - | %

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Revenues

We had revenues of $6,880,743 and $nil for the three months ended September 30, 2023 and 2022, respectively, which shows a $6,880,743 increase by comparing with the same period of 2022. The increase in revenues was mainly due to the rapid increase of 5G messaging business in China. For the three months ended September 30, 2023, revenues mainly consisted of service fees from our 5G SMS service.

From July 1, 2023 to September 30, 2023, the Company generated revenue of $6,880,743, including $6,880,463 from the 5G messaging business and $280 from the acoustic intelligence.

Cost of Revenues

We recorded $6,806,008 and $0 cost of revenues for the three months ended September 30, 2023 and 2022, respectively, which shows a $6,806,008 increase by comparing with the same period of 2022. For the three months ended September 30, 2023, cost of revenues was mainly the 5G SMS service platform fees and Cloud Platform construction to suppliers. The increase in cost of revenues was due mainly to the increased revenue of 5G SMS. For the three months ended September 30, 2023, the cost of 5G messaging was $6.81 million, and the cost of intelligent acoustics business was $141.

Gross Profit

Gross profit for the three months ended September 30, 2023 was $74,735 compared to $nil for the three months ended September 30, 2022, which shows a $74,735 increase by comparing with the same period of last fiscal year. The increase in gross profit was mainly due to the increase in sales for the three months ended September 30, 2023.

Gross margin is 1.1% for the three months ended September 30, 2023.

From the perspective of market prospects, according to the prediction of GSMA (Global Association for Mobile Communication Systems), by 2025, the number of 5G connections in China will exceed the sum of North America and Europe, ranking first in the world. The number of 5G connections will reach 460 million, accounting for 28% of the total connections in the country. 5G messaging has become an international standard. According to the Global System for Mobile Communications Association, as of September 2020, 90 mobile network operators worldwide have launched RCS, with 473 million global monthly active users; It is expected that the RCS market will be approximately $74 billion by the end of 2021. Mobile squared predicts that by 2023, 74.6% of smartphone users will use RCS channels for communication. China will become one of the largest single contributors to the global growth of mobile internet users in the coming years, accounting for nearly 20% of the total global increase.

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Combining the advantages of “Internet of Things+” intelligent terminals and 5G messaging industry chain, Shuhai Information is advancing with the time, taking the train of the 5G era, and developing 5G message/phone top up business. At this stage, Shuhai is carrying out the development, operation and promotion services of the Internet of Things market and increasing the effective combination of resources with Mobile Internet enterprises and the Internet of Things industrial chain.

In 2023, the 5G phone recharge business of Shuhai Information accounts for a relatively big proportion of the total revenue, because, at this stage, the business belongs to the early stage of the development, operation and promotion services of the Internet of Things market, and the investment in all aspects is large. In addition, the gross profit of the phone charge recharging business is generally low. As a result, the annual gross profit margin decreased from the previous year. The Company’s focus in this business is to integrate new resources, expand new businesses related to 5G, combine the Company’s years of deep cultivation and accumulation in 5G news, and take this opportunity to open up more 5G-related businesses to increase the Company’s revenue and new business.

In China’s mature and transparent market today, gross margins on services are far greater than those on hardware sales. The improvement of gross profit margin shows that the Company’s measures to improve gross profit margin are gradually showing effect: 1) costs will be reduced by economic scale over a larger number of customers base and the increase in production; 2) the Company, by adopting the differentiation strategy, grows brand recognition and customer loyalty, strengthening the Company’s pricing power; 3) As the scale of 5G recharge services and the number of serviced customers, along with service quality, continue to improve, customized and value-added services, as well as service fees, will gradually increase. This will boost the profitability of the Company’s related businesses. The Company will continue to increase the share of high gross profit products in the sales while increasing the revenue, so as to further improve the gross profit rate and give investors a better return on investment.

Selling, General and Administrative, and Research and Development Expenses

Selling expenses were $84,447 and $104,114 for the three months ended September 30, 2023 and 2022, respectively, representing a decrease of $19,667 or 18.9%. The decrease was mainly due to the decrease in payroll expense of salespersons by $79,798, decreased travel expense by $5,089, and decreased other selling expenses by $1,388, which was partly offset by increased advertising and marketing expense by $66,608.

Currently, we are focusing on expanding the Company’s leading intelligent acoustics technologies and products and continuing to develop 5G-related applications. We incurred R&D expenses of $155,004 and $106,628 during the three months ended September 30, 2023 and 2022, respectively, which shows a $48,376 or 45.4% increase by comparing with the same period of 2022.

Research and development expenses of $155,004 for three months ended September 30, 2023. The Company’s research and develop results include but are not limited to the following:

As one of the leading service providers in China’s 5G communication field, Datasea has several primary products and services targeting different customers and needs, including 5G Integrated Messaging Marketing Cloud Platform (“5G IMMCP”), Smart Push (precision marketing solution) and 5G messaging Top Up business related applications applicable to various industries in China. Together with artificial intelligence (AI), machine learning and data analytic capability, our Acoustics and 5G intelligent products and solutions are able to serve more than 48.42 million enterprises and businesses of all types (over 99% are SMEs) and households in China with digital and intelligent services.

Leveraging Datasea’s cutting-edge intelligent acoustics technology together with AI technology, we successfully developed a series of ultrasonic disinfection products named the “Hailijia” series air sterilizer products. This lineup includes solutions tailored for indoor (desktop and floor), car use, bathroom and cloakroom sterilization and deodorizer, positioned in the health field of acoustic disinfection, can be widely used in homes and different public places, including offices, educational institutions, transportation, hospitals, etc. We started to launch those new products in the China market in the year of 2023. These products can provide more effective solutions for purifying the environment and protecting health for people. Leading labs such as the Wuhan Institute of Virology have proven this ultrasonic disinfection technology to have 99.83% efficacy in nine seconds against Covid-19 and 99.99% efficacy against Staphylococcus Albus and E-col. Meanwhile, this strategic transformation and process not only provide safer and healthier lifestyles for Chinese users, but also for users in the United States and globally.

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General and administration expenses decreased $191,900, or 21.7% from $884,960 during the three months ended September 30, 2022 to $693,060 during the three months ended September 30, 2023. The decrease was mainly attributed to decreased rent expense by $113,819, and decreased consulting and director compensation by $123,741, which was partly offset by increased travel expense by $21,833 and increased other G&A expenses by $23,827.

The Company has more accurate and scientific management methods in personnel costs and risk control. We take human capital as a key indicator to promote business growth and technological innovation by improving efficiency. By downsizing the numbers of non-core position staff, the Company manages to control expenses, while does not affect the work efficiency and efficiency in any way. At the same time the Company strives to pursue better integration channel with related industries, i.e., outsourcing sales branch for Acoustic products and establishing joint venture to obtain the investment to 5G messaging technology area.

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

Non-Operating Income (Expenses), net

Non-operating expenses were $7,758 for the three months ended September 30, 2023, consisting mainly of interest income of $106 and other expenses of $7,864. Non-operating expenses were $1,175 for the three months ended September 30, 2022, consisting mainly of interest income of $64 and other expenses of $1,239.

Net (Income) Loss from Discontinued Operation

We generated net income from discontinued operation of $ 833,546, which was the gain on disposal of Zhangxun, and net loss of $337,062 for the three months ended September 30, 2023 and 2022, respectively.

Net Loss from continuing operation

We generated net losses from continuing operation of $855,602 and $1,102,020 for the three months ended September 30, 2023 and 2022, respectively, a $246,418 or 22.4% decrease by comparing with the same period of 2022. The decrease in net loss was mainly due to the decrease in operating expenses and increased gross profit as explained above.

Accounts receivable

The operating revenue of the three months ended September 30, 2023 was $6,880,743, the balance of accounts receivable was $22,158 at September 30, 2023. In the same period last year, the operating revenue was $nil, and the accounts receivable balance was $155,280 at September 30, 2022. 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 enhance our ability to continue to operate as a going concern, we are dedicating resources to generate recurring revenues and sustainable operating cash flows.

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

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As of September 30, 2023, we had a working capital of $3,442,072 or a current ratio of 1.77:1, and our current assets were $7,911,853. As of June 30, 2023, we had a working capital deficit of $3,617,058 or a current ratio of 0.26:1. Our current assets were $1,289,517.

We expect the Company to continue to support its ongoing operations and financing through revenue growth and increased financing activities. However, there is no assurance that the Company will be able to secure such 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 three months ended September 30, 2023 and 2022, respectively.

|  | 2023 |  |  | 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 |

Cash Flow from Operating Activities

Net cash used in operating activities was $6,744,413 during the three months ended September 30, 2023, compared to net cash used in operating activities of $752,697 during the three months ended September 30, 2022, an increase in cash outflow of $5,991,716. The increase in cash outflow was mainly due to increased cash outflow on prepaid expenses and other current assets by $5,771,784, decreased cash inflow on accounts receivable by $114,947 and decreased cash inflow on accrued expenses and other payables by $249,050, which was partly offset by decreased cash outflow on unearned revenue by $97,291 and decreased cash outflow on payment on operating lease liabilities by $53,288.

Cash Flow from Investing Activities

Net cash used in investing activities totaled $365 for the three months ended September 30, 2023, which consisted of cash paid for the acquisition of office furniture and equipment of $330, and cash loss due to disposal of subsidiary of $35. Net cash used in investing activities totaled $102,845 for the three months ended September 30, 2022, which consists of cash paid for the acquisition of office furniture and equipment of $403, cash paid for acquisition and development of software systems of $73,154, and long-term investment into high-tech companies of $29,288.

Cash Flow from Financing Activities

Net cash provided by financing activities was $8,080,455 during the three months ended September 30, 2023, which was the net proceeds from loans payable of $879,422, 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 $184,425 and repayment to related party by $675,828. Net cash provided by financing activities was $790,302 during the three months ended September 30, 2022, which was the proceeds of loans payable of $820,508, but partly offset by a repayment to related parties of $30,206.

As of September 30, 2023, the total liabilities of Datasea are $4,508,122, which shows a 28.8% decrease from June 30, 2023. The decrease of liability is due to the repayment to related party by $667,929, decreased accrued expenses and other payables by $767,645, decreased lease liability by $98,941, decreased unearned revenue by $136,114, and decreased accounts payable by $708,882, which was partly offset by increased loan payable by $553,088.

Cash inflows generated from financing activities for the three months ended September 30, 2023 were $8,080,455, compared to $790,302 in the same period last year. This year’s net cash inflows are 922% more than last year’s net cash inflows from financing activities, this is entirely due to the Company’s better financing outlook and more mature financing attitude. We pay more attention to financing planning issues and the cost of financing.

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Analysis of several index

For three months ended September 30, 2023 and September 30, 2022, the Company’s revenue was $6,880,743 and $nil respectively. This is mainly due to the Company’s self-developed 5G SMS call pricing and traffic recharge supply platform, which has assisted in the digital transformation and upgrading of enterprises in the Chinese market. And the Company seized the market opportunity, based on this platform, newly developed 5G top up business and made breakthrough progress. At present, the newly added business is steadily growing and has broad prospects for the future.

For three months ended September 30, 2023 and September 30, 2022, the Company’s sales expenses were $84,447 and $104,114 respectively, a decrease of $19,667 over the previous year, with a decline rate of 18.89%. This is mainly due to the Company strengthening budget control of sales expenses, analyzing the market, products, and sales targets, reasonably setting various expense budgets, and strengthening monitoring of budget execution, timely adjusting and optimizing. At the same time, it is also due to the strengthening of the expense approval process, strict control of sales expenses, setting clear accounting periods and approval standards, and strengthening supervision of the expense reimbursement process to prevent unnecessary expense expenditures.

For three months ended September 30, 2023 and September 30, 2022, the Company’s management expenses were $693,060 and $884,960 respectively, a decrease of $191,900 over the previous year, with a decline rate of 21.68%. This is mainly due to the Company’s detailed management expense budget plan, including budget and control objectives for various management expenses, as well as corresponding control measures, which has increased the granularity of management expense management. At the same time, the process has been streamlined, reducing management expenses by simplifying the process and reducing unnecessary links. Moreover, the management structure has been optimized and the organizational structure has been adjusted to improve management efficiency and reduce management expenses.

As of September 30, 2023 and June 30, 2023, the Company’s cash balance was $1,218,748 and $19,728, respectively, an increase of $1,199,020 or 60.78 times compared to the previous year. Mainly due to the increased demand for the Company’s products and services, which has led to an increase in sales revenue, and the expansion of financing channels, which has led to multiple capital inflows, the Company has optimized its asset structure and enhanced its financial capacity and liquidity.

As of September 30, 2023 and June 30, 2023, the balance of capital reserve was $32,194,070 and $24,122,973, respectively, an increase of $8,071,097 over the previous year, with a growth rate of 33.46%, mainly due to the increase in the issuance of shares by the Company. An increase in stock issuance can provide the Company with more capital reserves and help them cope with future challenges. For the Company, this stock issuance has introduced a large amount of high-quality funds, which is conducive to the integration of upstream and downstream enterprises and can promote the Company’s performance growth.

43

Going forward

Datasea is currently in the phase of transitioning from a China-focused company to a global presence. We are committed to transforming into an international technology company with manufacturing facilities, intellectual property layout, sales networks, and customer bases in the United States. We aim to achieve international leadership in research and development, technological collaborations, talent development, and deepening our presence in the U.S. market. We will provide cutting-edge artificial intelligence solutions, particularly in acoustic intelligence, to contribute to the development of the digital world on a global scale. To accomplish this objective, the Company’s management has outlined the following plans:

| ● | To strengthen our acoustic intelligence operations in the United States, which includes product safety and functionality testing, establishing production lines, building sales and distribution systems, expanding our portfolio of U.S. and international patents, and identifying potential international merger and acquisition targets. This will solidify our internationalization strategy and maintain our leading position on a global scale;

| ● | Expanding our range of acoustic intelligence products for broader applications in fields like acoustic engineering, acoustic agriculture, acoustic medicine, acoustic beauty, and acoustic healthcare;

| ● | Obtaining leading position and greater control over the supply chain for the acoustic intelligence industry through M&A, with a focus on the U.S. market, and ongoing beneficial vertical integration;

| ● | Continuing to enhance our existing 5G messaging business services, actively pursuing market share capture, and improving gross profit margins;

| ● | Sustaining collaborations with top-tier domestic and international technical institutions to conduct research and development in the field of acoustic intelligence. We aim to stimulate demand through supply-side innovation, maintaining our growth throughout the industry lifecycle;

| ● | Expanding global sales, achieving localization of our core products, and better aligning with customer demands;

| ● | These initiatives are geared towards advancing our internationalization strategy, fostering innovation, and strengthening our position within the acoustic intelligence sector;

| ● | Enhance the Company’s brand awareness by omni-channel marketing and obtain PCT international patents to boost up the value of intangible assets; and

| ● | Maintain clients’ loyalty by providing outstanding customer service, exclusive service experience, and appropriate transparency and publicity.

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.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

This item is not applicable as we are currently considered a smaller reporting company.

44

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

As required by Rule 13a-15 of the Securities Exchange Act of 1934, our principal executive officer and principal financial officer evaluated our disclosure controls and procedures (as defined in Rules 13a-15(e) or 15d-15(e) of the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and principal financial officer concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not effective. This conclusion was reached in light of the following material weaknesses in internal control over financial reporting:

| (i) | inadequate segregation of duties and effective risk assessment;

| (ii) | lack of personnel adequately trained in U.S. GAAP; and

| (iii) | insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both U.S. GAAP and SEC guidelines.

Management’s Strategies for Enhancing Internal Control:

In the previous fiscal year, we recognized the weaknesses in our internal control over financial reporting and have taken proactive steps to enhance and refine our internal control framework. These initiatives primarily include:

| 1. | Continuous Improvement of Internal Control Procedures: We remain committed to refining our internal control processes, encompassing various aspects such as the budget approval process, procurement and asset management, credit control, internal audits, and cost accounting. Additionally, we have compiled a comprehensive internal control policy, incorporating guidelines for procurement control, inventory management, and fraud prevention.

| 2. | Collaborative Oversight Mechanism: To strengthen internal control implementation, we have established a collaborative mechanism between the internal control department and the legal department. This mechanism involves conducting interviews with department heads, promptly addressing identified risk areas, and ensuring corrective actions are taken.

| 3. | Engagement with Financing Underwriters: We have engaged financing underwriters to work closely with our international department to facilitate the company’s financing efforts. This partnership aims to improve our understanding of investor backgrounds and identify financing methods that align best with our objectives.

| 4. | Enhanced Collaboration with Legal Professionals: We are reinforcing collaboration between our internal and external legal teams to proactively mitigate risks.

In addition to these efforts, we have adopted various internal control policies, including the review of accounting personnel duties and responsibilities, travel allowances, reimbursement procedures, receivable management, asset control, internal audit processes, and cost accounting. Furthermore, we have established an internal audit department under the leadership of a director of internal audit, along with a legal team, to ensure compliance and effective risk management.

Further Enhancements Include:

| 5. | Personnel Training: We are committed to training our staff to ensure the proper execution of internal control policies and procedures.

| 6. | Regular Reporting to the Audit Committee: We will continue to provide quarterly summaries of internal control and audit reports to the Audit Committee.

| 7. | Quarterly Review with U.S. CPA: Each quarter, we will conduct a trial balance review in collaboration with a U.S. Certified Public Accountant (CPA) after their review or audit.

Specifically we have also implemented the following practices to enhance Datasea featured internal control system:

1. Projects Pre-approval:

We have carried out project development at irregular intervals according to the needs of business development. Before the project is officially initiated, we have organized the setup of the project review group. The project review group has mainly reviewed the project’s market development prospect report, project proposal, project report and other documentations that are prepared by the project development team. After communication and discussion by the review team, the project will be formally approved.

45

2. Significant Issues:

Significant issues will go through meetings of the President’s Office. During those meetings, the Company’s strategic adjustments of the business and major projects or events will be discussed. Only after the board meeting or the resolution of the board of directors, the decisions will be implemented in accordance with the meetings.

3. HR Management, Responsibility, Rewards and Penalties System:

We have strict control over talents and their efficiency, from the probation period to the conversion to regular employees. After the employees passing the strict evaluation, they will be included in the regular employees pool and sign the job responsibility letter and performance commitment letter. They will go through monthly performance assessment and evaluation as the basis for salary settlement. We will give rewards to employees with excellent performance from time to time, and the rewards are not limited to cash and stocks. We also gives certain penalty measures for employees’ work mistakes, such as deduction of performance-based salary.

4. Budget Management:

The internal control department organizes all departments to participate in the full budget formulation and budget implementation, and comprehensively develop and implement the annual full budget data according to funds, assets, project initiation, business line revenue, and costs. The internal control center strictly controls the budget. The execution department, the finance department, the CEO and the chairman of the board jointly approve and execute the budget. In the process of budget implementation, we adopt the monthly rolling budget system, and the Group financial management internal control center makes statistical analysis of the implementation results to help each business unit complete the performance targets and strive to achieve the annual target of the Group company.

5. Operation Management:

We combine centralized and decentralized management styles according to the business line types and operating characteristics of each subsidiary of the group. We will give our subsidiaries certain management rights so that we will not miss any business opportunities. In terms of production and operation, from project initiation, procurement to sales, we have a complete control process. For example, before purchasing, we need to look around in the market and select high-quality suppliers after the audit of the group’s financial management internal control center. We are willing to build long-term stable and friendly cooperation with high-quality suppliers. We will develop a complete process from the product check-in to check-out. After the approval of all parties, the procedure of product check-out will be completed to avoid risks.

6. Business Development Personnel Management:

For excellent business development personnel, we formulate relevant royalty management measures with comprehensive considerations about different lines of business, different products combined with different market conditions. We distribute salary and bonus according to performance. Business development personnel who successfully complete the sales target can get generous remuneration. These measures actively motivate business development personnel to complete the group’s annual performance goals.

Changes in Internal Control over Financial Reporting

Other than as described above, there were no changes in our internal control over financial reporting during the quarter ending September 30, 2023 that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

46

PART II OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We are not a party to any pending legal proceedings and no such proceedings are known to be contemplated.

ITEM 1A. RISK FACTORS

Not required of smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

During the three months ended September 30, 2023, there were no modifications, adoptions or terminations by any directors or officers to any contract, instruction or written plan for the purchase or sale of securities of the Company that is intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or non-Rule 10b5-1 trading agreements.

ITEM 6. EXHIBITS.

Exhibit |  | Description
31.1 |  | Certification by Chief Executive Officer pursuant to Sarbanes Oxley Section 302
31.2 |  | Certification by Chief Financial Officer pursuant to Sarbanes Oxley Section 302
32.1* |  | Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350
32.2* |  | Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350
101.INS |  | Inline XBRL Instance Document
101.SCH |  | Inline XBRL Taxonomy Extension Schema Document
101.CAL |  | Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF |  | Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB |  | Inline XBRL Taxonomy Extension Label Linkbase Document XBRL
101.PRE |  | Inline XBRL Taxonomy Extension Presentation Linkbase Document
104 |  | Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).

* | The certifications attached as Exhibits 32.1 and 32.2 accompany this quarterly report on Form 10-Q pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, and shall not be deemed “filed” by the Registrant for purposes of Section 18 of the Securities Exchange Act of 1934, as amended.

47

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

| DATASEA INC.
Date: November 13, 2023 | By: | /s/ Zhixin Liu
| Name: | Zhixin Liu
| Title: | President
|  | Chief Executive Officer
|  | (principal executive officer)

Date: November 13, 2023 | By: | /s/ Mingzhou Sun
| Name: | Mingzhou Sun
| Title: | Chief Financial Officer
|  | (principal financial officer and principal accounting officer)

48

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