UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2024

☐ 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 May 13, 2024, 3,057,944 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	31
Item 3	Quantitative and Qualitative Disclosures about Market Risk	58
Item 4	Controls and Procedures	58

	Part II - Other Information
Item 1	Legal Proceedings	60
Item 1A	Risk Factors	60
Item 2	Unregistered Sales of Equity Securities and Use of Proceeds	60
Item 3	Defaults Upon Senior Securities	60
Item 4	Mine Safety Disclosures	60
Item 5	Other Information	60
Item 6	Exhibits	60

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

DATASEA INC.

CONSOLIDATED BALANCE SHEETS

	MARCH 31, 2024 (UNAUDITED)			JUNE 30, 2023

ASSETS
CURRENT ASSETS
Cash	$	52,529		$	19,728
Accounts receivable		17,044			255,725
Inventory, net		184,137			241,380
Value-added tax prepayment		99,269			71,261
Prepaid expenses and other current assets		2,264,583			701,423
Total current assets		2,617,562			1,289,517

NONCURRENT ASSETS
Long-term investment		56,378			55,358
Property and equipment, net		53,730			85,930
Intangible assets, net		568,307			1,185,787
Right-of-use assets, net		78,610			137,856
Total noncurrent assets		757,025			1,464,931

TOTAL ASSETS	$	3,374,587		$	2,754,448

LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES
Accounts payable	$	266,755		$	1,005,059
Unearned revenue		54,061			609,175
Accrued expenses and other payables		579,370			1,409,939
Due to related parties		714,492			1,162,856
Operating lease liabilities		96,079			124,640
Bank loan payable		482,499			594,906
Total current liabilities		2,193,256			4,906,575

NONCURRENT LIABILITIES
Operating lease liabilities		-			26,449
Bank loan payable- non-current		-			91,215
Loan payable- non-current		-			1,310,306
Total noncurrent liabilities		-			1,427,970

TOTAL LIABILITIES		2,193,256			6,334,545

COMMITMENTS AND CONTINGENCIES

STOCKHOLDERS’ EQUITY (DEFICIT)
Common stock, $0.001 par value, 25,000,000 shares authorized, 3,017,944 and 1,889,315 shares issued and outstanding as of March 31, 2024 and June 30, 2023, respectively		3,018			1,889
Additional paid-in capital		35,058,598			24,148,868
Accumulated comprehensive income		250,668			393,252
Accumulated deficit		(34,060,073	)		(28,063,258	)
TOTAL COMPANY STOCKHOLDERS’ EQUITY (DEFICIT)		1,252,211			(3,519,249	)

Noncontrolling interest		(70,880	)		(60,848	)

TOTAL EQUITY (DEFICIT)		1,181,331			(3,580,097	)

TOTAL LIABILITIES AND EQUITY (DEFICIT)	$	3,374,587		$	2,754,448

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

DATASEA INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(UNAUDITED)

	THREE MONTHS ENDED MARCH 31,						NINE MONTHS ENDED MARCH 31,
	2024			2023			2024			2023

Revenues	$	1,383,001		$	84,555		$	19,612,213		$	216,014
Cost of goods sold		1,373,130			12,914			19,425,372			108,944

Gross profit		9,871			71,641			186,841			107,070

Operating expenses
Selling		970,443			45,002			2,204,834			194,704
General and administrative		3,075,941			755,334			4,392,457			2,506,693
Research and development		71,178			144,054			343,553			399,494

Total operating expenses		4,117,562			944,390			6,940,844			3,100,891

Loss from operations		(4,107,691	)		(872,749	)		(6,754,003	)		(2,993,821	)

Non-operating income (expenses)
Other income (expenses)		(34,351	)		17,324			(88,402	)		(18,241	)
Interest income		217			19			1,946			112

Total non-operating income (expenses), net		(34,134	)		17,343			(86,456	)		(18,129	)

Loss before income tax		(4,141,825	)		(855,406	)		(6,840,459	)		(3,011,950	)

Income tax		-			-			-			8

Loss before noncontrolling interest from continuing operation		(4,141,825	)		(855,406	)		(6,840,459	)		(3,011,958	)
Income (loss) before noncontrolling interest from discontinued operation		-			(441,659	)		833,546			(1,130,139	)

Less: loss attributable to noncontrolling interest from continuing operation		(105	)		(57	)		(10,098	)		(8,924	)
Less: loss attributable to noncontrolling interest from discontinued operation		-			(1,849	)		-			(209,701	)

Net loss attribute to noncontrolling interest		(105	)		(1,906	)		(10,098	)		(218,625	)

Net loss to the Company from continuing operation		(4,141,720	)		(855,349	)		(6,830,361	)		(3,003,034	)
Net income (loss) to the Company from discontinued operation		-			(439,810	)		833,546			(920,438	)

Net loss to the Company		(4,141,720	)		(1,295,159	)		(5,996,815	)		(3,923,472	)

Other comprehensive item
Foreign currency translation loss attributable to the Company		(15,969	)		(20,782	)		(142,584	)		(69,549	)
Foreign currency translation gain attributable to noncontrolling interest		(42	)		2,012			66			30,748

Comprehensive loss attributable to the Company	$	(4,157,689	)	$	(1,315,941	)	$	(6,139,399	)	$	(3,993,021	)

Comprehensive income (loss) attributable to noncontrolling interest	$	(147	)	$	106		$	(10,032	)	$	(187,877	)

Basic and diluted net loss per share	$	(1.55	)	$	(0.80	)	$	(2.49	)	$	(2.42	)

Weighted average shares used for computing basic and diluted loss per share *		2,666,438			1,621,642			2,413,014			1,621,642

*	retroactively reflect 1-for-15 reverse stock split effective on January 19, 2024

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

DATASEA INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

NINE AND THREE MONTHS ENDED MARCH 31, 2024 AND 2023

(UNAUDITED)

	Common Stock				Additional paid-in			Accumulated			Accumulated other comprehensive						Noncontrolling
	Shares		Amount		capital			deficit			income			Total			interest

Balance at July 1, 2023		1,889,315	$	1,889	$	24,148,868		$	(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		685,940		686		8,060,600			-			-			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		2,575,255		2,575		32,229,568			(28,085,314	)		232,036			4,378,865			(70,788	)

Net loss		-		-		-			(1,833,039	)		-			(1,833,039	)		(61	)

Shares issued for stock compensation expense		-		-		22,103			-			-			22,103			-

Foreign currency translation gain		-		-		-			-			34,601			34,601			116

Balance at December 31, 2023		2,575,255		2,575		32,251,671			(29,918,353	)		266,637			2,602,530			(70,733	)

Net loss		-		-		-			(4,141,720	)		-			(4,141,720	)		(105	)

Shares issued for stock compensation expense		340,545		341		2,447,431			-			-			2,447,772			-

Shares issued for paying officers’ accrued salary and bonus		102,144		102		359,496			-			-			359,598			-

Foreign currency translation loss		-		-		-			-			(15,969	)		(15,969	)		(42	)

Balance at March 31, 2024		3,017,944	$	3,018	$	35,058,598		$	(34,060,073	)	$	250,668		$	1,252,211		$	(70,880	)

Balance at July 1, 2022		1,621,642	$	1,622	$	20,752,262		$	(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		1,621,642		1,622		20,868,512			(19,920,889	)		295,925			1,245,170			(954,587	)

Net loss		-		-		-			(1,290,990	)		-			(1,290,990	)		(120,095	)

Shares issued for stock compensation expense		-		-		117,000			-			-			117,000			-

Purchase of minority interest ownership		-		-		(982,014	)		-			-			(982,014	)		982,014

Foreign currency translation gain (loss)		-		-		-			-			(61,105	)		(61,105	)		32,426

Balance at December 31, 2022		1,621,642		1,622		20,003,498			(21,211,879	)		234,820			(971,939	)		(60,242	)

Net loss		-		-		-			(1,295,159	)		-			(1,295,159	)		(1,906	)

Shares issued for stock compensation expense		-		-		96,000			-			-			96,000			-

Foreign currency translation gain (loss)		-		-		-			-			(20,782	)		(20,782	)		2,012

Balance at March 31, 2023		1,621,642	$	1,622	$	20,099,498		$	(22,507,038	)	$	214,038		$	(2,191,880	)	$	(60,136	)

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

DATASEA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	NINE MONTHS ENDED MARCH 31
	2024			2023
Cash flows from operating activities:
Loss including noncontrolling interest	$	(6,006,913	)	$	(4,142,097	)
Adjustments to reconcile loss including noncontrolling interest to net cash used in operating activities:
Gain on disposal of subsidiary		(833,546	)		(7	)
Bad debt reversal		-			(21,679	)
Depreciation and amortization		412,333			532,272
Loss on disposal of fixed assets		589			-
Operating lease expense		137,703			495,160
Stock compensation expense		2,849,572			329,250
Changes in assets and liabilities:
Accounts receivable		(16,190	)		(716,695	)
Inventory		61,298			(44,690	)
Value-added tax prepayment		(42,318	)		(37,239	)
Prepaid expenses and other current assets		(1,575,526	)		200,625
Accounts payable		(210,979	)		1,021,759
Unearned revenue		(467,475	)		(185,477	)
Accrued expenses and other payables		(129,164	)		666,482
Payment on operating lease liabilities		(133,736	)		(426,033	)

Net cash used in operating activities		(5,954,352	)		(2,328,369	)

Cash flows from investing activities:
Acquisition of property and equipment		(3,692	)		(2,168	)
Acquisition of intangible assets		(105,184	)		(2,335	)
Cash received from disposal of fixed assets		-			694
Cash disposed due to disposal of subsidiary		(35	)		-
Long-term investment		-			(28,905	)

Net cash used in investing activities		(108,911	)		(32,714	)

Cash flows from financing activities:
Due to related parties		417,174			551,072
Proceeds from loan payables		-			1,692,853
Repayment of loan payables		(2,269,329	)		-
Net proceeds from issuance of common stock		8,061,286			-

Net cash provided by financing activities		6,209,131			2,243,925

Effect of exchange rate changes on cash		(113,067	)		(3,904	)

Net increase (decrease) in cash		32,801			(121,062	)

Cash, beginning of period		19,728			164,217

Cash, end of period	$	52,529		$	43,155

Supplemental disclosures of cash flow information:
Cash paid for interest	$	15,019		$	-
Cash paid for income tax	$	-		$	-

Supplemental disclosures of non-cash financing activities:
Right-of-use assets obtained in exchange for operating lease liabilities	$	125,138		$	173,455
Transfer of debt owing to the Company’s’ CEO to Mr. Wanli Kuai	$	729,338		$	-
Shares issued for paying officers' accrued salary and bonus	$	359,598		$	-

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

DATASEA INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2024 (UNAUDITED) AND JUNE 30, 2023

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Datasea Inc. (the “Company,” “Datasea,” 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.

SEC Form 10-Q filed by Datasea Inc.