Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

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:

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

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

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

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

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

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

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changes in Chinese government regulations; and

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

Overview and Recent Developments

Datasea Inc. ("Datasea" or the "Company", NASDAQ: DTSS) is a technology Company incorporated under the laws of the State of Nevada on September 26, 2014, with subsidiaries and operating entities located in Delaware, USA, and China. Since its incorporation in 2014, Datasea has been committed to the exploration, application, and commercialization of cutting-edge technologies. As a global high-tech Company spanning both the Chinese and U.S. markets, Datasea's business focuses on two main segments: Acoustic High-Tech and 5G+ AI Multimodal Digitalization. Through continuous R&D investment, product innovation, and industrial collaboration, the Company has gradually built a complete "technology - product - market" closed-loop system, achieving large-scale application and rapid growth in several industries. As a global high-tech Company with deep integration of acoustics and artificial intelligence as the technological foundation, Datasea advances its dual-business engines of "Acoustic High-Tech + 5G+ AI Multimodal Digitalization" to drive cross-industry applications. As one of the global proponents and industrial promoters of the "acoustic effect" concept, the Company leverages acoustic technology to establish unique technological barriers in five key fields-industrial, agricultural, healthcare, medical, and IoT-achieving full-chain value conversion from technological R&D to industry applications. In the past fiscal years, as high-margin solutions from both segments have gradually scaled, Datasea has transitioned from "scale growth" to "quality improvement," laying a solid foundation for long-term objectives and maximizing shareholder value.

Overall Quarter Performance

For the three months ended September 30, 2025 and September 30, 2024, the Company's gross profit was $1,169,092 and $196,981, respectively. Gross profit increased by $ 972,111 from the same period last year, an increase of 493.50% from the same period last year. For the three months ended September 30, 2025 and September 30, 2024, the gross profit margins were 8.46% and 0.93% respectively. The overall gross profit margin of the Company has significantly improved. This positive change is mainly attributed to the Company's proactive and successful product structure optimization strategy, which strategically increased the sales proportion of high-margin products. The core driving factors come from two innovative product lines: acoustic intelligent products and 5G-AI multi-modal technology solutions. This financial result not only proves the correctness of the Company's strategic decisions, but also clearly reflects that our product innovation has been recognized by the market, and the enterprise is steadily developing in the direction of high quality and high efficiency.

For the three months ended September 30, 2025, revenue was $13,813,551, compared with $21,081,094 in the same period last year. Revenue decreased by $7,267,543, or 34.47%. The main reason for the decline in revenue lies in the Company's proactive contraction of its low-margin 5G AI multimodal traffic business and its continuous optimization of the overall business structure, focusing on high-value-added sectors. Despite a decline in revenue, the Company's gross profit margin significantly increased from 0.93% in the same period of the previous year to 8.46%, demonstrating the effectiveness of the Company's business transformation oriented towards profit quality. Acoustic intelligent products and 5G AI multimodal digital solutions have become the main growth engines. Meanwhile, the Company has proactively reduced its standardized 5G multimodal traffic business with relatively low gross profit margins and shifted to a high value-added revenue structure characterized by technology-driven and customization, achieving a transformation from "scale growth" to "value growth".

The phased decline in revenue is an active choice made by the Company during the process of optimizing its business structure, while the significant increase in gross profit margin marks a phased achievement of the Company's shift from pursuing scale expansion to focusing on profit quality and sustainable growth. We believe this transformation can effectively lay a solid foundation for the Company's future profit growth and long-term competitiveness.

As of September 30, 2025 and June 30, 2025, the intangible assets were $4,613,692 and $3,495,984 respectively. The intangible assets increased by $ 1,117,708, representing a 31.97% increase compared to the beginning of the period.The increase of the proportion of intangible assets indicates that the Company is undergoing a strategic transformation towards a "light-asset, high-value" model. Through external acquisition patents related to AI multi-modal digital business, enterprises can quickly obtain mature technologies and resources, respond promptly to market changes, seize the initiative, and efficiently expand new fields, new markets or new product lines with such assets. While actively expanding external resources, the Company continues to invest in internal research and development to maintain sustained and organic innovation capabilities. These efforts provide a solid foundation for the Company's long-term and stable growth.

Our Business Summary

Segment I-Acoustics high tech Segment:

We deeply understand the market's demand for new application areas, technologies, and requirements. Therefore, through the relentless efforts of our team, we have achieved leading-edge advancements in acoustic understanding and algorithms.

I. Overview of the Company's Acoustic high-tech Business

As one of the global pioneers of the "acoustic effect" concept, Datasea has consistently positioned "Acoustics + AI" as its core technological engine. The Company is deeply engaged in the high-tech acoustic industry, continuously building a leading global technological framework in the acoustic field and driving the industry's transformation toward intelligence and digitalization.

Since achieving a major technological breakthrough in August 2025 in AI-enhanced acoustic coupling for neural regulation and precision medicine, Datasea's acoustic business has officially entered an accelerated commercialization stage, forming a multi-scenario, multi-sector business ecosystem.

From a business layout perspective, Datasea continues to advance its strategic framework of "Acoustics + AI + Application Scenarios," focusing on five core application areas-acoustic industry, acoustic agriculture, acoustic medicine, acoustic healthcare and wellness, and acoustic IoT technologies. At the same time, the Company extends its expertise to additional sectors such as consumer electronics, providing high value-added and globally competitive acoustic products and integrated solutions that empower industries to enhance efficiency and achieve sustainable development.

At the technical architecture level, the Company combines fundamental acoustic theory with artificial intelligence algorithms to build a core technological system centered on the study and application of non-audible mechanical wave effects.This interdisciplinary field of "Acoustics + AI" continues to expand the boundaries of modern acoustic science. Supported by AI-driven acoustic algorithms, data modeling, and intelligent sensing technologies, Datasea efficiently transforms scientific achievements into industrialized, commercially viable solutions, providing systematic innovations in health regulation, industrial precision processing, environmental protection, and smart agriculture.

From a market performance and development outlook perspective, as of September 30, 2025, representing the first quarter of fiscal year 2026, the Company's acoustic business continued the strong growth momentum. Datasea remains highly confident in maintaining the growth trajectory and further improving the profitability of its acoustic segment in fiscal year 2026. The Company plans to strengthen its competitive advantages through the scaled sales and international deployment of high-margin acoustic high-tech products and AI multimodal technology solutions, thereby consolidating its leadership in the global market.

At the same time, Datasea places great emphasis on industry-academia-research collaboration and industry leadership. The Company has established in-depth cooperation with top domestic and international research institutions, including the Institute of Acoustics, Chinese Academy of Sciences, the Cloud Computing and Big Data Research Institute of the China Academy of Information and Communications Technology, the Artificial Intelligence Research Institute of Harbin Institute of Technology, and Tsinghua University.

Together, these collaborations drive ongoing innovation in acoustic technologies.

Moreover, Datasea, in collaboration with the Ministry of Industry and Information Technology and other authoritative institutions, jointly released China's first White Paper on the Acoustic High-tech Industry, which provides a comprehensive analysis of the application prospects of acoustic high-tech across various sectors. This initiative underscores the Company's leading position in both domestic and global acoustic technology fields and lays a solid foundation for advancing the nationalization and globalization of acoustic technology.

II. Acoustic Technology Innovation

As the core source of competitiveness for its acoustic business, Datasea continues to advance its strategic framework of "Acoustics + AI + Application Scenarios." Centered on key directions including ultrasound, infrasound, and Schumann resonance, the Company has built a comprehensive technological closed-loop-from fundamental acoustic theory and AI algorithms to multi-scenario applications. By deeply integrating acoustic technologies with artificial intelligence, Datasea has established a diversified technological and application system covering five major fields-industrial, agricultural, medical, health, and IoT-and formed a cross-industry empowerment model of "Acoustics + AI + Vertical Scenarios." This model is driving the transformation of acoustics from a single-discipline science into a multidimensional, scenario-driven, and industrialized ecosystem. Datasea is accelerating its evolution toward becoming a global leader in acoustic intelligence and AI multimodal integration.

(i) Core Technology System Development

Datasea has deeply integrated frontier advancements in the acoustic field, building a full-chain technological capability that spans research and development, product transformation, and scenario application under a dual-engine structure of "Fundamental Acoustic Theory + AI-Driven Algorithms."

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Breakthroughs in Multi-Band Acoustic Technologies: The Company continues to advance the research and industrialization of ultrasound, infrasound, and Schumann resonance technologies, unlocking the unique application value of different frequency bands-ultrasound's cavitation, thermal, and mechanical effects; infrasound's low-frequency penetration; and Schumann resonance's synchronization with biological rhythms-providing a robust technical foundation for diversified application scenarios.

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AI-Enhanced Acoustic Integration: AI-driven processing models are embedded into the Company's acoustic technology framework to optimize the entire process from acoustic signal acquisition, analysis, and modeling to intelligent control. Through dynamic parameter adaptation powered by AI algorithms, Datasea achieves higher precision, efficiency, and adaptability, overcoming the traditional limitations of "fixed parameters and single-use scenarios."

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Scenario-Extended Acoustic Architecture: Building upon its "Acoustic Core + AI Algorithm Platform + Vertical Scenarios" model, Datasea has established large-scale applications and commercial ecosystems across the five major fields of medical, industrial, agricultural, health, and IoT. With a modular acoustic core, standardized interfaces, and transferable algorithmic models, the Company enables rapid technology reuse and secondary development across diverse scenarios. Looking ahead, this architecture is inherently scalable to additional industries and applications, continuously expanding the boundaries and growth potential of "Acoustics + AI."

(ii) Technological Innovation and Applications Across Five Core Fields

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Acoustic Industrial Field: Empowering Intelligent Manufacturing Across the Value Chain

To address the core needs of industrial manufacturing-quality enhancement, cost reduction, and efficiency improvement-Datasea has implemented a "Acoustics + AI + Industrial Scenario" integration strategy. The Company embeds acoustic technology throughout the entire production lifecycle, from design and processing to inspection and maintenance, forming three core technical systems:

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Equipment Health Management: Utilizing sound-print recognition and AI-based diagnostic models, the system continuously collects and analyzes operating sound signals of industrial equipment, establishing a "sound data-intelligent diagnosis" platform that enables predictive maintenance and health assessment while minimizing downtime.

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Precision Processing Enhancement: Through ultrasonic-assisted cutting, welding, and forming, the technology significantly improves the precision and surface quality of hard-to-machine materials such as high-strength alloys and composites.

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Nondestructive Testing and Safety Assurance: Using ultrasonic and infrasound detection to identify internal defects in complex structural components without disassembly, the Company supports quality traceability and safety compliance under global Industry 4.0 and intelligent manufacturing standards.

These technologies are being deployed in sectors such as energy, automotive, and electronics, building a closed loop of "acoustic acquisition - AI analysis - industrial control" for intelligent manufacturing.

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Acoustic Agriculture Field: Dual Engines of Green Sustainability and Efficient Production

Aligned with China's national strategies of "Green Agriculture" and "Rural Revitalization," Datasea integrates acoustic technologies across the entire agricultural value chain to create an intelligent agriculture system centered on "sound-based growth stimulation, acoustic pest control, and acoustic quality detection."

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Sound-Wave Growth Stimulation: Specific frequency bands are used to stimulate plant cell activity and photosynthesis, improving crop yield and quality while reducing fertilizer dependence and achieving low-carbon, sustainable farming.

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Acoustic Pest Control: Leveraging insects' sensitivity to specific acoustic frequencies, the Company develops purely physical, residue-free sound-based pest-repelling systems that substantially reduce pesticide usage.

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Acoustic Quality Detection: By analyzing sound transmission characteristics, internal density, moisture, and ripeness of crops can be evaluated for intelligent grading and pricing.

Datasea is co-establishing a Joint Acoustic Agriculture Laboratory with research institutions to advance standardization and large-scale deployment of acoustic farming equipment, and to integrate these technologies with agricultural IoT systems for "Smart Agriculture 4.0."

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Acoustic Medical Field: Precision Neuromodulation and Non-Pharmaceutical Intervention

Datasea has established a full-cycle framework for precision intervention in neurological disorders, centered on Low-Intensity Focused Ultrasound (tFUS), forming a closed loop of "detection - analysis - diagnosis - real-time intervention."

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Precision Neuromodulation: AI-driven algorithms dynamically adjust ultrasound parameters to achieve non-invasive modulation for neurological conditions such as Parkinson's disease, epilepsy, depression, and sleep disorders, ensuring high safety and repeatability.

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Multi-Scenario Medical Adaptation: The Company is developing high-end clinical intervention systems for tertiary hospitals and portable therapeutic devices for community rehabilitation centers, extending neuromodulation from clinical treatment to home-based recovery.

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Brain-Computer Interface (BCI) Synergy: By integrating BCI with acoustic micro-stimulation, Datasea enables real-time neural signal collection and feedback synchronization, pioneering the next frontier of "acoustic-neural + brain-machine fusion."

This technology serves as the foundation for Datasea's medical and consumer-grade product strategy in precision rehabilitation, emotional regulation, and cognitive enhancement.

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Acoustic Health and Elderly-Care Field: Full-Scenario Health Protection and Management

In response to the growing global demand for health protection and wellness in the post-pandemic era, Datasea has built a comprehensive sound-based health ecosystem covering environmental sterilization, physiological regulation, cognitive enhancement, and sleep improvement.

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Green Sterilization Technology: Utilizing ultrasonic cavitation, the Company has developed consumable-free, chemical-free sterilization devices. Third-party laboratory testing verified a 99.83% inactivation rate of COVID-19 within nine seconds, making these products suitable for hospitals, airports, schools, homes, and senior-care facilities worldwide.

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Sleep and Cognitive Enhancement: By modulating brainwave rhythms through Schumann resonance frequencies, Datasea's devices help alleviate anxiety, improve sleep quality, and achieve a closed-loop process of "monitoring - intervention - optimization."

Flagship products such as the Tianer sterilization series and Star Dream sleep-aid systems have become high-margin growth drivers, and the Company is expanding their commercialization into overseas markets.

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Acoustic Internet-of-Things (AIoT) Field: Intelligent Perception and Multimodal Connectivity

Through collaboration with top institutions including the Chinese Academy of Sciences and Tsinghua University, Datasea is advancing the integration of acoustics and IoT to establish a complete "acoustic sensing - data acquisition - intelligent decision-making" system:

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Intelligent Acoustic Sensing: High-sensitivity, low-power acoustic sensors enable real-time environmental monitoring and abnormal sound detection, supporting predictive maintenance, safety alerts, and urban noise management.

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Multi-Scenario IoT Adaptation: By embedding acoustic sensing and AI decision algorithms into smart-home terminals and smart-city nodes, Datasea enables functions such as voice control, environmental awareness, and public-safety alerts.

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Global Technology Deployment: Through its wholly owned U.S. subsidiary Datasea Acoustics LLC, the Company is expanding global patent coverage and commercialization, planning cooperative initiatives with international IoT and medical-device enterprises to accelerate worldwide deployment of "Acoustic IoT" solutions.

(iii) Industrialization Support for Technological Innovation

To ensure that technological innovation efficiently translates into commercial value, the Company has established a comprehensive industrialization support system for its acoustic technologies:

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Closed-Loop R&D Mechanism: Datasea has developed a full-cycle R&D framework encompassing market demand research, technology development, prototype testing, product iteration, and scenario validation, ensuring that every stage of innovation remains closely aligned with real-world market needs.

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Third-Party Verification and Compliance System: All acoustic technology products undergo rigorous third-party laboratory testing-such as virus inactivation testing for disinfection devices and safety and performance validation for medical equipment-and fully comply with relevant regulatory requirements to ensure lawful and reliable market entry.

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Capacity and Quality Assurance: The Company continues to expand its precision acoustic manufacturing capacity, enhance production automation, and strengthen quality control systems. Standardized production and process management ensure consistency and stability across products, providing strong production support for large-scale commercialization.

III. Acoustic Products

Based on the combination of acoustic technology and artificial intelligence, Datasea has successfully developed a series of innovative products, including:

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Acoustic Health Products: Ultrasonic disinfectants, acoustic sterilizing cleaners, ultrasonic skin repair devices, widely applied in hospitals, airports, hotels, transportation, and other sectors.

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Acoustic Health: The "Star Dream" brand non-contact sleep aid device, utilizing low-frequency Schumann resonance and brainwave magnetic induction to improve deep sleep quality.

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Acoustic Medicine: AI medical robots, ultrasonic wrinkle removal devices, ultrasonic fat reduction and body shaping devices, serving the medical aesthetics industry.

New Products in Acoustic Technology Planning

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Short-Term Plan: Around environmental acoustic technology applications and cardio-brain acoustic technology applications, including：

	●	Brain Cortisol Regulation Device: Uses sound wave technology to regulate cortisol concentration in the brain, improving mental state and learning efficiency, applicable in mental health and education fields.
	●	Pet Disinfection and Deodorizing Purifier: Utilizes ultrasonic technology to eliminate pet environment odors and provide strong air disinfection, suitable for households and pet-related facilities.

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Mid-Term Plan:Around environmental acoustic technology applications and cardio-brain acoustic technology applications, including:

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Food and Water Cleaning and Sterilization Devices: Combines ultrasonic cleaning and sterilization technology to provide convenient home-use products, ensuring food safety and clean drinking water.

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Cardiovascular Health Products: Develops acoustic technology-based health monitoring and treatment devices for cardiovascular and cerebrovascular systems, promoting innovation in the medical health sector.

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Long-Term Plan: Precision design and manufacturing of acoustic products, including:

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Acoustic Agriculture:

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Ultrasonic Agricultural Product Preservation and Pest Control Devices: Extends the shelf life of agricultural products, reduces pesticide use, and enhances agricultural production efficiency.

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Acoustic Plant Growth Stimulators: Optimizes plant growth environments through sound wave technology, improving crop yield and quality.

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Acoustic Industry:

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Ultrasound-Assisted Liquid-Phase Separation Machines: Enhances liquid separation efficiency in manufacturing, reducing energy consumption.

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Ultrasonic Metal 3D Printing Technology: Drives the upgrading of the manufacturing industry, enabling high-precision and high-efficiency metal processing.

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Acoustic Medical and Elderly Care:

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Develops acoustic technology-based medical devices, such as ultrasonic therapy instruments and acoustic rehabilitation equipment, serving the medical and elderly care sectors.

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Acoustic Internet of Things (IoT) Technology:

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Integrates acoustic technology with IoT to develop intelligent acoustic sensors and devices, promoting the development of smart cities and smart homes.

Recent Developments

During the quarter ended September 30, 2025, the Company and its subsidiaries entered into the following material agreements with its key customers:

From May 15, 2025 to July 25, 2025, the wholly-owned subsidiary of the Company, Shenzhen Shuhai Jingwei Information Technology Co., Ltd. (hereinafter referred to as "Shuhai Jingwei"), and Yuxiang Zhiyao (Tianjin) Innovation Technology Co., Ltd. (hereinafter referred to as "Yuxiang Zhiyao") signed several agreements for the entrusted processing of the air purifier AP450A. The contract amount was RMB 4,742,900, and the contract quantity was 6,460 units. From July 1 to September 30, 2025, a total of 4,869 units of equipment were sold. Revenue from Yuxiang Zhiyao in this period reached RMB3,155,362.83 (approximately US$442,596). The signing and execution of this contract marked a strong start for the sound environment disinfection products to enter the terminal consumption market, laying a solid foundation for future business expansion and brand influence.

In September 2025, the wholly-owned subsidiary of the Company, Shuhai Jingwei and Yuxiang Zhiyao each signed a refurbishment cost agreement. The total number of refurbished units was 3,240, with an income amount of RMB 214,327.76 (approximately US$30,063).

On October 9, 2025, the wholly-owned subsidiary of the Company, Shuhai Jingwei signed a contract with Yuxiang Zhiyao for the entrusted processing of the negative ion sleep device Z5. The contract amount is RMB 1,995,000 and the contract quantity is 2,500 units.

In addition to the aforementioned sales of acoustic intelligent products, from July 1, 2025 to September 30, 2025, Shuhai Jingwei also sold 137 acoustic high-tech products to individual customers, with a total amount of RMB 115,335.59 (approximately US$13,246).

IV. Industry Space and Position of the Acoustic Business

Datasea is deeply rooted in the acoustic high-tech industry and continues to experience rapid growth in technological innovation, product development, and industrial applications. The Company emphasizes extensive domestic and international cooperation to promote the integration of industry, academia, and research. With a strategic focus on the acoustic intelligence sector, Datasea has established five key sub-sectors within the acoustic field-acoustic healthcare, acoustic health, acoustic industry, acoustic agriculture, and acoustic IoT-leading the industry through cutting-edge Acoustic + AI technologies and products.

Datasea holds a leading position in various acoustic technologies, such as ultrasound, infrasound, and Schumann resonance. To promote research and innovation in these areas, the Company actively collaborates with numerous renowned research institutions and universities, including the Institute of Acoustics, Chinese Academy of Sciences; the Cloud Computing and Big Data Research Institute, China Academy of Information and Communications Technology; the Internet Industry Research Institute at Tsinghua University; the Artificial Intelligence Research Institute at Harbin Institute of Technology; Beijing Union University; and the Remote Sensing Research Institute of Jilin University. Through these partnerships, we are committed to pioneering new research topics and developing innovative technological applications that drive progress within the acoustic field. To better achieve these objectives, Datasea has established joint laboratories to enhance the integration and collaboration of research resources.

Furthermore, the Company, in collaboration with the Ministry of Industry and Information Technology, the Key Laboratory for Artificial Intelligence Technology and Applications Evaluation, and the Cloud Computing and Big Data Research Institute of the China Academy of Information and Communications Technology, has jointly released China's first white paper on the acoustic high-tech industry. This white paper provides a detailed discussion on the applications of acoustic high-tech across various industries, demonstrating Datasea's proactive role in leading industry development. It highlights the Company's prominent position in the acoustic high-tech field both domestically and globally, and further reinforces the strategic importance of Datasea in driving the nationalization and globalization of acoustic technology.

Going forward, Datasea will continue to strengthen its technological and industrial influence by:

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Leading the formulation of national and international standards for acoustic high-tech products;

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Expanding its participation in clinical validation and regulatory frameworks for acoustic neuromodulation and healthcare devices;

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Promoting global collaboration through its U.S. subsidiary, Datasea Acoustics LLC, to drive international patent deployment and product commercialization.

These initiatives further solidify Datasea's position as a global leader in acoustic intelligence, contributing to both the nationalization and globalization of the acoustic high-tech industry.

V. International Expansion of the Acoustic Business

The international development of acoustic products is a strategic priority for Datasea. Since the establishment of its wholly owned subsidiary, Datasea Acoustics LLC, in Delaware in 2023, the Company has gradually expanded its business operations in the United States. Datasea has partnered with several well-known online e-commerce platforms and brick-and-mortar distributors in the U.S. to broaden the market for its acoustic products, including collaborations with companies such as iPower (NASDAQ: IPW) and Meglio Interiors LLC. In addition, the Company has collaborated with the century-old U.S. intellectual property firm to pursue patent applications and acquisitions, thereby building a robust international intellectual property portfolio.

To support its long-term globalization strategy, Datasea has initiated discussions with several potential strategic partners and venture funds in the United States regarding joint development and acquisition opportunities in precision healthcare and acoustic consumer electronics. These discussions are aimed at integrating R&D, production, and commercialization resources across China and the United States, enabling Datasea to accelerate the global deployment of its high-margin acoustic healthcare and wellness products.

Looking ahead, the Company plans to establish a North American Acoustic Innovation Center under Datasea Acoustics LLC, focusing on technology transfer, localized manufacturing, and clinical research collaborations with medical and academic institutions. This initiative will further enhance Datasea's international competitiveness, accelerate its path to global commercialization, and position the Company as a world-leading innovator in acoustic intelligence.

VI. Future Outlook for the Acoustic Business

Datasea will continue to deepen its "Acoustic + AI Precision Manufacturing" strategy, leveraging continuous technological innovation to drive global market expansion and reinforce its leadership in the high-tech acoustic sector. Entering fiscal year 2026, the Company's acoustic business has entered a new stage of industrial scaling, guided by its mission to enable intelligent, non-pharmaceutical, and sustainable health solutions through acoustic technology.

The Company's acoustic business development strategy unfolds across the following three dimensions:

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Technology R&D

Datasea will focus its R&D efforts on five core areas - acoustic industry, acoustic agriculture, acoustic healthcare, acoustic wellness, and acoustic IoT technologies - to further expand the application boundaries of acoustic science. In particular, the Company will deepen research and productization in AI-enhanced ultrasound neuromodulation, brain-computer interface (BCI) interaction, and foot nerve stimulation.

Datasea plans to accelerate the construction of a "detection-analysis-diagnosis-real-time intervention" closed-loop system, integrating low-intensity focused ultrasound (tFUS) with AI algorithms to achieve intelligent control from sound signal acquisition to neural response feedback, thereby strengthening its core technological barriers in acoustic neuromodulation. Through these initiatives, Datasea aims to accelerate the global adoption and industrial upgrading of its high-tech acoustic products, driving the transformation of acoustic science into real-world health and industrial applications.

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Market Expansion

Datasea will continue to integrate high-quality resources through strategic mergers, acquisitions, and joint ventures, building a complete global acoustic technology value chain. The Company will adopt a "self-deployment + acquisition integration + strategic partnership" model to establish a multi-tiered business network across North America, Europe, and Southeast Asia.

Through Datasea Acoustics LLC, the Company will establish an overseas sales and patent management center, while collaborating with local universities, research institutions, and medical groups to advance the registration and commercialization of acoustic healthcare products in international markets. These initiatives will enhance Datasea's global presence and reinforce its brand influence worldwide.

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Talent and Production Capacity

Datasea is committed to cultivating an international R&D ecosystem by attracting cross-disciplinary talent in acoustics, AI, neuroscience, and material engineering. The Company will continue to expand its precision acoustic manufacturing capacity, improve its production automation and quality control systems, and establish joint research centers with global academic institutions. These initiatives will ensure strong technical and operational support for the Company's long-term global strategy.

Together, these strategic initiatives will enable Datasea to continuously strengthen its leadership in the global "Acoustic + AI" high-tech industry, accelerate the industrialization and capitalization of acoustic intelligence, and drive the Company toward a higher-quality growth cycle, creating sustained and exceptional long-term value for shareholders, partners, and users worldwide.

Segment II-5G+ AI multimodal digital

Our achievements of AI Multimodal digital

As one of China's leading service providers in the 5G+AI multimodal digitalization sector, Datasea continues to strengthen its leadership through technological innovation, industrial application, and large-scale commercial deployment. Building upon the solid foundation established in fiscal year 2025, the Company further upgraded its AI multimodal intelligent platform in the first quarter of fiscal year 2026, integrating the latest DeepSeek 2.0 distributed training system and optimized Transformer-based multimodal architecture. These advancements enable Datasea to achieve higher data throughput, faster decision processing, and more precise multimodal interaction capabilities.

From a technical perspective, the platform has evolved into a next-generation AI-driven multimodal computing infrastructure, capable of processing massive datasets across text, voice, image, video, and sensor data in real time. The introduction of reinforcement learning algorithms and low-latency 5G edge computing nodes allows the platform to deliver AI services with millisecond-level response speed, ensuring high reliability and scalability for enterprise-level deployments.

In functionality, Datasea's platform now supports full-process intelligent automation, covering data acquisition, adaptive analysis, predictive decision-making, and feedback optimization. With continuous enhancement of its core AI models, the platform provides precise and personalized solutions for clients across multiple industries. These capabilities drive operational efficiency, optimize user engagement, and reduce business costs by up to 30%.

In terms of practical application value, Datasea's platform has demonstrated strong commercial capabilities. At present, the platform's services cover several key sectors, including new media, digital rural development, and finance. Through the deep integration of AI and big data, customer satisfaction has consistently remained above 95%, underscoring the platform's technological sophistication and commercial viability.

These advances have solidified Datasea's position as an industry benchmark for intelligent multimodal communication systems. By integrating AI generative models, multimodal semantics, and 5G connectivity, Datasea is not only redefining enterprise digital interaction but also pioneering a new paradigm of AI-powered intelligent services.

Looking ahead, the Company will continue to accelerate the commercialization of its multimodal platform, expand strategic cooperation with global technology partners, and enhance cross-border data service capabilities. Through sustained innovation and market scaling, Datasea aims to establish a world-class multimodal digital ecosystem empowering intelligent connectivity across industries worldwide.

I. Technological Innovation of 5G+AI

At the forefront of 5G and artificial intelligence integration, Datasea has further enhanced its distinctive technological framework, driving the next leap in multimodal digital services.

Entering fiscal 2026, the Company upgraded its core architecture with DeepSeek 2.0 distributed training and Transformer-based multimodal alignment models, significantly boosting cross-modal reasoning and generative intelligence performance.

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Core Technical Architecture:

Datasea has independently developed a unified Transformer model architecture capable of processing multimodal inputs-audio, text, image, video, and sensor signals-in parallel through advanced self-attention and cross-attention mechanisms. The model achieves adaptive learning and semantic alignment across modalities, overcoming the traditional challenge of "cross-modal semantic inconsistency.

This architecture demonstrates exceptional performance in image-text correlation analysis, audio-video synchronization, and speech-to-semantic conversion, forming a strong technological foundation for Datasea's AI applications across industrial, healthcare, retail, and consumer sectors.

The Company also established a three-engine system comprising AIUC (Understanding Engine), AIGC (Generation Engine), and AGENT (Action Engine), forming a universal capability framework for multimodal intelligence. This architecture enables a full-cycle intelligent process-from data comprehension and content generation to task execution-supporting multi-language understanding, video synthesis, speech generation, and interactive AI experiences.

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Algorithm and Model Optimization: By integrating DeepSeek's distributed training methods, our platform has achieved notable advancements across several critical domains:

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Natural Language Processing: Enables high-quality text generation and multilingual translation.

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Intelligent Programming: Supports automatic code generation, debugging, and optimization.

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Logical Reasoning: Establishes chain-of-thought output to enhance decision-making quality.

In terms of data security and compliance, Datasea employs Multi-Party Computation (MPC) and Trusted Data Space (TDS) frameworks to ensure data privacy and integrity throughout transmission, storage, and computation.

This secure architecture allows "data availability without visibility," ensuring compliant and traceable use of AI and data resources, and providing a trusted foundation for intelligent analysis and decision-making.

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Core Capabilities of the Intelligent System

Datasea's 5G+AI intelligent analysis system now embodies four core capabilities:

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Dynamic Resource Allocation: Automatically distributes computing resources based on real-time workload.

2.

Anomaly Detection & Proactive Alerting: Predicts and prevents system failures through multimodal pattern recognition.

3.

Adaptive Process Optimization: Continuously enhances workflow efficiency through AI feedback loops.

4.

Knowledge Graph Integration: Connects disparate data sources to enable semantic decision automation.

Empowered by 5G's low latency and high bandwidth, these technological breakthroughs have greatly improved feature recognition accuracy, reduced model training costs by approximately 25%, and generated tangible business value for enterprises.

Together, these advancements underscore Datasea's leadership in 5G+AI integrated applications. Moving forward, the Company will continue to invest in frontier research, expand industry-specific use cases, and build a globally competitive multimodal digital ecosystem empowering the next wave of intelligent transformation.

II. 5G+AI Product and Application Scenarios

In the era of accelerated digital transformation, the demand for 5G+AI multimodal digital applications is experiencing rapid growth across industries. Leveraging its advanced multimodal data processing platform, Datasea has built an intelligent digital ecosystem that integrates text, image, voice, and video data to support enterprises and organizations in achieving intelligent upgrades, operational efficiency, and sustainable growth.

Datasea's 5G+AI multimodal solutions are divided into two major application layers:

(1)

core customer-oriented digital solutions that directly serve enterprise and consumer markets; and

(2)

extended industrial application scenarios that empower broader sectors with intelligent transformation capabilities.

Core Customer-Oriented Solutions

Datasea's multimodal technologies are reshaping digital service models across multiple industries. By integrating visual, voice, and textual data, the Company provides high-value digital solutions in the following four key customer segments:

●

Digital Solutions for Small and Micro Enterprises: Integrates membership management, intelligent marketing, and customer engagement tools to help small and micro enterprises lower digitalization barriers, improve marketing efficiency, and achieve intelligent business operations.

●

New Media Marketing Solution: Combines AIGC (AI-Generated Content) and AI digital human technologies to realize automated content creation, precision distribution, and campaign performance tracking, helping brands achieve low-cost, high-conversion digital marketing and strengthen consumer engagement.

●

Digital Rural Development Solution: Provides smart agriculture management, rural logistics coordination, and remote public services in response to China's Rural Revitalization Policy, promoting intelligent governance, data-driven decision-making, and sustainable agricultural development.

●

Beauty and Healthcare Digitalization Solution: Offers end-to-end digital management systems for offline wellness and beauty stores, enabling integrated operations, intelligent customer management, and synergy with Datasea's acoustic hardware business for enhanced service efficiency and user experience.

Extended Industrial Application Scenarios

Beyond the above core markets, Datasea's 5G+AI multimodal digital technology has been widely adopted across multiple high-value industrial sectors, accelerating intelligent transformation and creating new business models:

●

Communication, Logistics, and Smart Delivery: Utilizes 6G communications, IoT, and AI-based scheduling to optimize logistics routing, enable real-time tracking, and enhance nationwide logistics efficiency.

●

Smart Healthcare: Integrates multimodal data from CT, MRI, ultrasound, and pathology images with AI detection algorithms to support remote diagnostics, lesion identification, and personalized health management.

●

Smart Manufacturing: Combines 5G connectivity with multimodal sensing and AI analytics to automate production processes, perform predictive maintenance, and ensure product quality stability.

●

Education and Training: Creates immersive learning experiences by merging text, audio, and visual content. AI digital tutors and virtual training environments enhance engagement and comprehension for students and professionals.

●

Finance and Risk Management: Employs multimodal data fusion and 5G real-time analytics for precise credit assessment, fraud detection, and transaction risk control, improving decision-making accuracy by over 20%.

●

Security and Smart City Management: Fuses video analytics, acoustic sensing, and AI forecasting models to enable proactive risk detection and emergency response, improving urban safety and governance efficiency.

In summary, Datasea's 5G+AI multimodal technology holds broad potential across both consumer-oriented and industrial application domains. By empowering enterprises, institutions, and communities with intelligent, data-driven digital capabilities, Datasea is accelerating the transformation of multiple industries and solidifying its position as a leader in AI-driven multimodal innovation.

III. Recent Developments in the 5G+AI Business

Key Customers and Agreements

For the three months ended September 30, 2025，our revenues were $13,813,551. The Company has optimized its product structure, increased the sales of high-margin products such as acoustic intelligent products and 5G AI multimodal technology solutions, and carried out revenue optimization for the 5G AI multimodal traffic business, which had a relatively low gross profit margin during the market expansion period.

On September 12, 2025, Shuhai Beijing signed an agreement with Anhui Gukai Business Co., LTD. (hereinafter referred to as "Anhui Gukai"). Relying on its AI multi-modal technology capabilities, Shuhai Beijing will focus on the e-commerce scenario and create a full-chain module covering "product display - payment service - order service - customer relationship management".

The objective of the platform development plan is to support the customization of localized content for product display according to the target market. The payment module integrates multiple payment interfaces and synchronously optimizes the regional payment conversion rate. Customer management integrates regional user behavior data to generate precise profiles.

In addition, the AI engine can intelligently recommend the time and channel for product placement, and the data monitoring module can track the product placement effect in real time, helping the client achieve precise placement in multi-channel e-commerce marketing, reduce costs and improve conversion rates. As of September 30, 2025, revenue of RMB 2,075,471.70 (approximately US$291,121.67) was obtained from Anhui Gukai.

On September 12, 2025, Shuhai Beijing signed an agreement with Yuxiang Zhiyang (Tianjin) Innovation Technology Co., LTD. (hereinafter referred to as "Yuxiang Zhiyang"). Shuhai Beijing has its own independently developed 5K-AI multimodal new media marketing service platform, providing Yuxiang with specialized services for mature system solutions based on cutting-edge technology architectures.

The customized new media marketing service platform solution will focus on supporting the Douyin live-streaming sales and smart home appliance marketing scenarios of Yuxiang Oxygen Production, covering product promotion, user interaction, and live-streaming e-commerce conversion. It will help Yuxiang Oxygen Production build a precise marketing and brand communication system in the Douyin live-streaming sales and smart home appliance marketing scenarios. As of September 30, 2025, revenue of RMB 2,169,811.32 (approximately US$ 304,354.48) was obtained from Yuxiang Smart Oxygen.

On September 13, 2025, Shuhai Beijing signed an agreement with Beijing Shuhai Culture Media Co., LTD. (hereinafter referred to as "Culture Media"). Shuhai Beijing has its own independently developed 5K-AI multimodal new media marketing service platform, providing Culture Media with mature system solution specialized services based on cutting-edge technology architecture.

The new media marketing service platform helps the entire industry with marketing services. Relying on the 5G multi-modal form, the platform can form AI intelligent marketing based on the core technology of the group. With content creation and management, data monitoring and analysis, user operation and interaction as marketing themes, it can send advertisements, manage advertisements, and mark the placement areas and attributes, achieving the precise placement function of new media marketing. As of September 30, 2025, revenue from culture and media was RMB 2,264,150.94 (approximately US$317,587.28).

Datasea's 5G+AI multimodal digital platform offers comprehensive and intelligent digital solutions to a wide spectrum of industry clients, spanning from small and micro enterprises to large-scale corporations. By deeply integrating advanced AI technologies with the high-efficiency connectivity capabilities of 5G networks, Datasea not only significantly optimized clients' business processes but also continuously innovated digital service models, business models, ofering robust technological support for sustainable growth.

During the reporting period, the Company's primary revenue was derived from service fees related to its 5G+AI multimodal digital business. From July 1 to September 30, 2025, this segment generated revenue of USD 13.32 million. This performance was mainly driven by the rapid expansion of China's 5G+AI multimodal digital industry, where the Company has maintained a leading position through its first-mover advantages and advanced technological capabilities. Meanwhile, the continuously expanding customer base further supported the steady growth of the business, helping the Company sustain a stable revenue scale within its core operations.

Although the Company's overall revenue experienced a temporary decline during the reporting period, the 5G+AI multimodal digital business, as the core revenue driver, continued to demonstrate strong resilience and long-term growth potential. Its stable performance was primarily supported by two key factors:

(1)

the rapid development of China's 5G+AI multimodal digital industry, which provides broad market opportunities and favorable policy support for the Company; and

(2)

the continuous expansion of the customer base and deeper technological penetration, which further reinforced this segment's position as a crucial pillar in the Company's overall revenue structure.

In terms of business composition, several of the Company's technical solutions- such as 5G+ AI multi-modal services for small, medium and micro enterprises, 5G+ AI multi-modal digital rural services, and 5G +AI multi-modal new media marketing services- have achieved commercial revenue realization, generating a total of RMB 6.53 million (approximately USD0.92 million). This signifies that the Company's 5G+AI multimodal digital business has been fully implemented and entered a stage of rapid expansion. Meanwhile, these solutions are characterized by high gross margins, which have effectively elevated the Company's overall profitability and demonstrated continuous improvement in profit quality through technological innovation and structural optimization.

ESG and Corporate Governance - Quarterly Update

During this quarter, Datasea continued to advance its Environmental, Social, and Governance (ESG) framework with a stronger emphasis on corporate governance, internal control, and data transparency.

Compared with the previous quarter, this quarter's efforts focused on strengthening board oversight, enhancing supply chain compliance, and embedding measurable governance accountability into the Company's daily operations.

Corporate Governance and Transparency Enhancement

To further improve its governance structure and ensure transparent, compliant operations, Datasea implemented the following measures during the quarter:

●

Independent Director Expertise: The newly appointed independent director brings extensive internal control and risk management experience from a leading Chinese securities firm, further enhancing the Board's oversight capability in compliance and financial governance.

●

Internal Control and Audit Strengthening: The Company completed a special review of its internal control over financial reporting and launched a quarterly compliance self-assessment mechanism across its subsidiaries and VIE structure to ensure transparency and consistency with SEC and Nasdaq regulatory requirements.

●

Disclosure and Compliance Coordination: Datasea established a quarterly ESG and governance disclosure review mechanism, jointly overseen by independent directors and senior management, to ensure the accuracy, completeness, and consistency of public filings and ESG data.

●

Whistleblower and Anti-Fraud Mechanism: The Company upgraded its internal reporting and investigation system, adding a dedicated module to the ESG data platform that supports anonymous reporting, case tracking, and remediation monitoring, ensuring accountability and ethical conduct.

These initiatives have strengthened Datasea's governance framework and enhanced its transparency, providing a solid foundation for investor confidence, regulatory compliance, and long-term value creation.

Green Operations - Enhanced Practices

Shenzhen Jingwei (Shenzhen) Information Technology Co., Ltd.,Datasea's Shenzhen subsidiary continued upgrading its green office operations:

●

Introduced a smart waste sorting system with a dedicated biodegradable waste channel, increasing sorting accuracy for recyclables to 91%;

●

Optimized paperless workflows, resulting in a 38% year-over-year reduction in quarterly paper consumption-equivalent to saving approximately 120 mature trees;

●

Office energy consumption per square meter: 0.72 kWh/㎡, a 15% decrease year-over-year.

Employee Development and Innovation Enablement

The Company further improved its talent development system:

●

ESG training coverage among employees rose to 85%, a 10 percentage point increase over the previous quarter;

●

The number of adopted internal green proposals grew by 35%.

Building the ESG Ecosystem

The following mechanisms were optimized this quarter:

1.

Internal ESG Action Points Program: Over 90% employee participation, with a cumulative total of more than 12,000 kilometers of green commuting completed;

2.

ESG Data Transparency Platform: Added a supply chain carbon footprint tracking module, enabling real-time data integration from the majority of Tier 1 suppliers.

Outlook

Moving forward, Datasea will continue to evolve its ESG strategy toward a governance-centered, data-driven, and performance-based model.

The Company plans to implement supplier carbon accounting and scoring mechanisms, enhance board-level risk and compliance oversight, and link executive performance metrics with ESG objectives.
Through these actions, Datasea aims to set a new governance benchmark among Nasdaq-listed technology companies, ensuring that transparency, accountability, and sustainability remain integral to its long-term growth strategy.

Going Concern

The accompanying consolidated financial statements were prepared assuming the Company will continue as a going concern, which contemplates continuity of operations, realization of assets, and liquidation of liabilities in the normal course of business. For the three months ending September 30, 2025 and 2024, the Company had a net loss of approximately $0.20 million and $1.96 million, respectively. The Company had an accumulated deficit of approximately $44.73 million as of September 30, 2025, and cash flow from operating activities of approximately $0.88 million and $(0.73) million for the three months ended September 30, 2025 and 2024, respectively.

The historical operating results indicate the Company has recurring losses from operations which raise the question related to the Company's ability to continue as a going concern although the range of such recurring operating losses has narrowed in recent years. There can be no assurance the Company will become profitable or obtain necessary financing for its business and investments or that it will be able to continue in business and investments. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties. As of September 30, 2025, the Company had cash of $745,264.

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

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

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

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

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

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

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

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

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

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

Significant Accounting Policies

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

New Software Copyright Acquired from July 1, 2025 to September 30, 2025

Software Copyright Owned by Shuhai Beijing

No.		Certification		Certificate No.
1		Multi-modal Data Intelligent Fusion Analysis System		Ruan Zhu Deng Zi No.16017456
2		Visual-linguistic joint emotion recognition system		Ruan Zhu Deng Zi No. 16019239
3		Sleep aid device user effectiveness analysis system		Ruan Zhu Deng Zi No. 16017039
4		Multi-modal Data Asset Precise Analysis System		Ruan Zhu Deng Zi No.16110664
5		Consumer Comprehensive Annotation System		Ruan Zhu Deng Zi No. 16295048
6		Service Provider Marketing Service System		Ruan Zhu Deng Zi No. 16295075
7		Multi-modal Marketing Plan Management System		Ruan Zhu Deng Zi No. 16295118
8		AI Multimodal Order Analysis System		Ruan Zhu Deng Zi No. 16295142

Software Copyright owned by Xunrui Technology

No.		Certification		Certificate No.
1		5G-AI Multi-modal Big Health Management Platform V1.0		Ruan Zhu Deng Zi No.16289179
2		5G-AI Multi-modal Digital Rural Service Platform V1.0		Ruan Zhu Deng Zi No. 16289834
3		5G-AI Multi-modal Email Reading and Management Platform V1.0		Ruan Zhu Deng Zi No.16281116
4		AI Intelligent Marketing Management Platform V1.0		Ruan Zhu Deng Zi No. 16278887
5		5G-AI SMS Delivery Platform V1.0		Ruan Zhu Deng Zi No.16289816

Patents that are currently under application from July 1, 2025 to September 30, 2025

Patent owned by Shuhai Beijing

No.		Certification		Request No.
1.		A brain-computer interface method and system based on real-time closed-loop vibration enhancement		ZL 2025111467773
2.		A human-computer interaction method based on multi-modal data		ZL 202510900234X
3.		A signal enhancement method and system for brain-computer interface based on acoustic wave coupling		ZL 2025111905621

Results of Operations

Comparison of the three months ended September 30, 2025, and 2024

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

		2025				% of Revenues				2024				% of Revenues
Revenues		$	13,813,551							$	21,081,094
Cost of revenues			12,644,459				91.5	%			20,884,113				99.1	%
Gross profit			1,169,092				8.5	%			196,981				0.9	%
Selling expenses			393,817				2.9	%			996,049				4.7	%
Research and development			512,924				3.7	%			103,079				0.5	%
General and administrative expenses			550,974				4.0	%			1,128,403				5.4	%
Total operating expenses			1,457,715				10.6	%			2,227,531				10.6	%
Loss from operations			(288,623	)			(2.1	)%			(2,030,550	)			(9.6	)%
Non-operating income, net			87,464				0.6	%			59,881				0.3	%
Loss before income taxes			(201,159	)			(1.5	)%			(1,970,669	)			(9.3	)%
Income tax expense			-				-	%			-					%
Loss before noncontrolling interest			(201,159	)			(1.5	)%			(1,970,669	)			(9.3	)%
Less: loss attributable to noncontrolling interest			(133	)			(0.001	)%			(8,680	)			(0.04	)%
Net loss to the Company			(201,026	)			(1.5	)%			(1,961,989	)			(9.3	)%

Revenues

For the three months ended September 30, 2025, revenue was $13,813,551, compared with $21,081,094 in the same period last year. Revenue decreased by $7,267,543, or 34.47%. The main reason for the decline in revenue lies in the Company's proactive contraction of its low-margin 5G AI multimodal traffic business and its continuous optimization of the overall business structure, focusing on high-value-added sectors. Despite a decline in revenue, the Company's gross profit margin significantly increased from 0.93% in the same period of the previous year to 8.46%, demonstrating the effectiveness of the Company's business transformation oriented towards profit quality.

The increase in gross profit margin is mainly attributed to multiple factors such as the optimization of product structure, the adjustment of pricing strategy and the strengthening of cost control.

Firstly, the Company has made strategic adjustments to its business structure. The data from the 2025 annual report has already shown that the proportion of high-margin products and solutions has significantly increased. Acoustic intelligent products and 5G AI multimodal digital solutions have become the main growth engines. This quarter, the sales proportion of acoustic health sleep products, air disinfection products and other series of products has increased, driving the overall gross profit margin to grow. Meanwhile, the Company has proactively reduced its standardized 5G multimodal traffic business with relatively low gross profit margins and shifted to a high value-added revenue structure characterized by technology-driven and customized features, achieving a transformation from "scale growth" to "value growth".

Secondly, in terms of pricing strategy, the Company gradually reduces promotional and discount activities oriented towards market expansion, and increases the average selling price through rational pricing. Although the order volume slightly declined in the short term, the profitability of individual items and the efficiency of cash recovery have significantly improved, thereby enhancing the overall gross profit margin.

Thirdly, the Company continuously reduces the costs of hardware manufacturing and system deployment through technological progress and supply chain optimization. The Company focuses on the direction of "high-end + lightweight", targeting high-value-added customers while also taking into account the demands of the lower-tier markets, achieving a balance between cost and performance in product design. By deepening cooperation with core suppliers, strengthening component integration and optimizing procurement strategies, the Company has significantly reduced hardware costs.

Overall, the above-mentioned structural optimization has enabled the Company to proactively reduce the scale of low-margin businesses while replacing some low-price orders with high-tech and high-margin products and services. This has led to a short-term decline in revenue, but has significantly enhanced the overall profit level. In line with the differentiated product positioning, the Company has implemented a combined pricing strategy, consolidating the achievements of gross profit margin improvement through a multi-level product structure and further optimizing the profit structure.

Overall, the temporary decline in revenue is an active choice made by the Company during the process of optimizing its business structure, while the significant increase in gross profit margin marks a phased achievement of the Company's shift from pursuing scale expansion to focusing on profit quality and sustainable growth. We believe this transformation can effectively lay a solid foundation for the Company's future profit growth and long-term competitiveness.

Cost of Revenues

For the three months ended September 30, 2025, we recorded a cost of revenues of $12,644,459, compared to $20,884,113 for the same period in 2024, reflecting a decrease of $8,239,654 or 39.5%. The cost of revenues for the three months ended September 30, 2025, was primarily driven by 5G AI multimodal digital platform fees and cloud platform construction costs paid to suppliers. The decrease in the cost of revenues was mainly due to the less revenue generated from the 5G AI multimodal digital segment.

For the three months ended September 30, 2025, the costs were as follows: $12.30 million for 5G AI multimodal digital, $344,354 for the acoustic intelligence business, and the cost of other was $1,289. For the three months ended September 30, 2024, the cost of 5G AI multimodal digital was $20.88 million, the cost of smart city was $1,716, and the cost of other was $409.

Gross Profit

Gross profit for the three months ended September 30, 2025, was $1,169,092 compared to $196,981 for the three months ended September 30, 2024, representing an increase of $972,111. This increase in gross profit was primarily driven by increased sales of high-margin products during the three months ended September 30, 2025 as a result of the Company's adjusting of its revenue focus on high margin products and services.

Gross margin was 8.5% for the three months ended September 30, 2025, compared to 0.9% for the same period in 2024. The improvement in gross margin was primarily driven by the rapid growth of high-margin customized solution projects, along with the Company's significant increase in market share. The growth in gross profit indicates that the Company has substantial development potential in its operations, including:

●

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

●

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

●

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

Improving Business Model Integration and Market Channels:

●

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

●

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

●

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

●

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

●

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

Selling, General and Administrative, and Research and Development Expenses

Selling expenses for the three months ended September 30, 2025 were $393,817, compared to $996,049 for the same period in 2024, reflecting a decrease of $602,232, or 60.5%. The decrease was mainly due to the decrease of advertising and marketing expenses by $606,071 and decreased service fee by $16,612, which was partly offset by increased payroll expense by $3,625, and increased rent expense and property management fee by $17,386.

Currently, we are focusing on expanding the Company's leading acoustics high-tech technologies and products, while continuing to develop 5G-related applications. We incurred R&D expenses of $512,924 and $103,079 during the three months ended September 30, 2025 and 2024, respectively, representing an increase of $409,845 or 397.6% as compared to the same period of 2024.

Research and development expenses for the three months ended September 30, 2025, totaled $512,924. The Company's research and development efforts have yielded several significant outcomes, including:

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

●

5G AI multimodal new media marketing service platform

●

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

●

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

●

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

●

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

●

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

●

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

Market Promotion Team

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

General and administration expenses decreased $577,429, or 51.2% from $1,128,403 during the three months ended September 30, 2024, to $550,974 during the three months ended September 30, 2025. The decrease was mainly due to decreased professional service fee by $462,196, decreased meal and entertainment expense by $22,630, decreased rent expense by 32,715, decreased welfare expense by $17,574, and decreased amortization expense of intangible asset by $31,075, which was partly offset by increased payroll expense by $15,062.

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

Non-Operating Income (Expenses), net

Non-operating income was $87,464 for the three months ended September 30, 2025, consisting mainly of interest income of $22 and other income of $87,442. Non-operating income were $59,881 for the three months ended September 30, 2024, consisting mainly of interest income of $4,055 and other income of $55,826.

Net Loss

We generated net loss of $201,026 and $1,961,989 for the three months ended September 30, 2025 and 2024, respectively, a $1,760,963 or 89.8% decrease by comparing with the same period of 2024. The decrease in net loss was mainly due to increase in gross profit and decrease in operating expenses as explained above.

Accounts receivable

The operating revenue of the three months ended September 30, 2025, was $13,813,551, the balance of accounts receivable was $1,171,918 at September 30, 2025. In the same period last year, the operating revenue was $21,081,094, and the accounts receivable balance was $18,445 at September 30, 2024. This quarter, the Company further segmented the market, planned eight regional headquarters, strengthened the collection control, and promoted the fund collection of contracted delivery projects, which led to the benign return of funds and had a far-reaching impact on the future.

Liquidity and Capital Resources

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

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

As of September 30, 2025, we had a working capital deficit of $1,364,756 or a current ratio of 0.67:1, and current assets in the amount of $2,717,887. As of June 30, 2025, our working capital deficit was $704,978, with a current ratio of 0.81:1, and current assets were $2,922,272.

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

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

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

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

		2025				2024
Net cash provided by (used in) operating activities		$	879,299			$	(732,655	)
Net cash used in investing activities		$	(1,551,009	)		$	(47,520	)
Net cash provided by financing activities		$	792,022			$	1,490,992

Cash Flow from Operating Activities

Net cash provided by operating activities was $879,299 during the three months ended September 30, 2025, compared to net cash used in operating activities of $732,655 during the three months ended September 30, 2024, a decrease in cash outflow of $1,611,954.

The decrease in cash outflow was mainly due to (1) decreased cash outflow on prepaid expenses and other current assets by $457,066, (2) decreased cash outflow in accounts payable by $709,705, and (3) decreased net loss by $1.76 million, which is partly offset by decreased payment received from customers for unearned by $1.21 million.

Cash Flow from Investing Activities

Net cash used in investing activities totaled $1.55 million for the three months ended September 30, 2025, which consisted of cash paid for acquisition of intangible assets by $1.55 million. Net cash used in investing activities totaled $47,520 for the three months ended September 30, 2024, which consisted of cash paid for the acquisition of office furniture and equipment of $2,752, and cash paid for acquisition of intangible assets by $44,768.

Cash Flow from Financing Activities

Net cash provided by financing activities was $792,022 during the three months ended September 30, 2025, which was from net proceeds from related parties of $90,683, and proceeds from loans of $701,339. Net cash provided by financing activities was $1,490,992 during the three months ended September 30, 2024, which was from the net proceeds from sale of our common stock through an equity financing of 1,958,751, which was partly offset by repayment of loan payables of $40,815 and repayment to related parties of $426,944.

Loan from banks

On April 10, 2024, Guozhong Times entered a loan agreement with Bank of Beijing for the amount of RMB 500,000 ($70,158) with a term of 12 months with a preferential annual interest rate of 3.45% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $nil and $619 interest expense for this loan. On April 9, 2025, the loan was paid in full.

On April 23, 2024, Guozhong Times entered a loan agreement with Beijing Rural Commercial Bank Economic and Technological Development Zone Branch for the amount of RMB 550,000 ($77,173) with a term of 12 months with the annual interest rate of 4.95% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $nil and $978 interest expense for this loan. On April 23, 2025, the loan was paid in full.

On April 25, 2024, Shuhai Beijing entered a loan agreement with Industrial Bank Co., Ltd for the amount of RMB 2,000,000 ($280,631) with a term of 12 months with a preferential annual interest rate of 3.88% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $nil and $2,786 interest expense for this loan. On April 24, 2025, the loan was paid in full.

On May 28, 2024, Guozhong Times entered a loan agreement with China Everbright Bank for the amount of RMB 1,000,000 ($140,315) with a term of 12 months with the annual interest rate of 3.4% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $nil and $1,221 interest expense for this loan. On May 27, 2025, the loan was paid in full.

On June 20, 2024, Shuhai Beijing entered a loan agreement with Bank of China for the amount of RMB 4,000,000 ($561,262) with a term of 12 months with a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $nil and $3,034 interest expense for this loan. On June 19, 2025, the loan was paid in full.

On March 31, 2025, Shuhai Beijing entered a credit line agreement with Bank of China for the amount of RMB 6,000,000 ($835,864) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $4,947 and $nil interest expense for this loan. As of September 30, 2025, $844,417 was recorded as current liabilities. Liu Fu is the guarantor of this loan agreement.

On May 20, 2025, Guozhong Times entered a credit line agreement with Beijing Bank for the amount of RMB 3,000,000 ($419,076) with a term of 12 months, the credit line has a fixed annual interest rate of 3.00% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $3,226 and $nil interest expense for this loan. As of September 30, 2025, $422,208 was recorded as current liabilities.

On May 21, 2025, Guozhong Times entered a loan agreement with Beijing Rural Commercial Bank Economic and Technological Development Zone Branch for the amount of RMB 1,000,000 ($139,692) with a term of 12 months with a fixed annual interest rate of 4.95% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $1,736 and $nil interest expense for this loan. As of September 30, 2025, $140,736 was recorded as current liabilities. Liu Zhixin is the guarantor of this loan agreement.

On June 6, 2025, Shuhai Beijing entered a credit line agreement with Bank of China for the amount of RMB 1,500,000 ($210,500) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. On June 11, 2025, Shuhai Beijing entered another credit line agreement with Bank of China for the amount of RMB 2,500,000 ($350,800) with a term of 12 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.30% to be paid every 21st of the third months of each quarter. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $3,298 and $nil interest expense for this loan. As of September 30, 2025, $562,944 was recorded as current liabilities. Liu Fu is the guarantor of these two credit lines.

On June 6, 2025, Shuhai Beijing entered a credit line agreement with Beijing Bank for the amount of RMB 3,000,000 ($419,076) with a term of 12 months, the credit line has a fixed annual interest rate of 2.70% to be paid every 21st of each month. For the three months ended September 30, 2025 and 2024, the Company recorded and paid $2,903 and $nil interest expense for this loan. As of September 30, 2025, $422,208 was recorded as current liabilities. Liu Fu is the guarantor of this loan agreement.

On September 23, 2025, Shuhai Beijing entered a credit line agreement with China Construction Bank for the amount of RMB 3,000,000 ($422,208) with a term of 36 months from the first withdrawing date, the credit line has a preferential annual interest rate of 2.55% to be paid every 20th of each Month. As of September 30, 2025, $422,208 was recorded as long term liabilities. Liu zhixin is the guarantor of this loan agreement.

On September 30, 2025, Guozhong Times entered a loan agreement with Bank of China for the amount of RMB 2,000,000 ($281,472) with a term of 12 months with an annual interest rate of 2.35% to be paid every 21st of the third months of each quarter. As of September 30, 2025, $281,472 was recorded as current liabilities. Liu zhixin is the guarantor of this loan agreement.

Financial index analysis

For the three months ended September 30, 2025 and September 30, 2024, the Company's gross profit was $ 1,169,092 and $ 196,981, respectively. Gross profit increased by $ 972,111 from the same period last year, an increase of 493.50% from the same period last year, and the current period increased market share and revenue significantly, so the gross margin increased simultaneously. The increase in gross profit margin means that the Company's development and operation has great potential ability. The reasons for the increase in gross profit are analyzed as follows:

1.

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

2.

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

3.

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

For the three months ended September 30, 2025 and September 30, 2024, the research and development expenses were $512,924 and $103,079 respectively. The investment in research and development increased by $409,845, representing a 397.60% growth compared to the same period last year. Through increasing research and development investment, we are actively laying out new product tracks. This strategic investment reflects that the Company is accumulating strength and injecting strong momentum for future performance growth. This forward-looking layout will not only help us seize the technological high ground in emerging markets, but also build a product matrix advantage for the future. We firmly believe that the current continuous investment in innovation will surely translate into tomorrow's market leadership and sustained growth in value returns.

For the three months ended September 30, 2025 and September 30, 2024, the operating expenses were $1,457,715 and $2,227,531 respectively. The operating expenses decreased by $769,816, representing a 34.56% reduction compared to the same period last year.

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

As of September 30, 2025 and June 30 2025, the Company's cash balance was $745,264 and $620,807, respectively, an increase of $ 124,457, or 20.04%, from the beginning of the period. The main reason is that the Company successfully obtained bank loans and an increase in gross profit during this period enhanced the visibility of the Company, enhanced the competitiveness of the Company, provided strong financial support for the Company's business expansion and projects, and used for technology research and development, market expansion, corporate brand building, etc., laying a solid foundation for the sustainable development of the Company.

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

As of September 30, 2025 and June 30, 2025, the intangible assets were $4,613,692 and $ 3,495,984 respectively. The intangible assets increased by $ 1,117,708, representing a 31.97% increase compared to the beginning of the period .

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

As of September 30, 2025 and June 30, 2025, the outstanding bank loans were $2,673,985 and $2,374,767 respectively. The amount increased by $ 299,218 , representing a 12.60% increase compared to the beginning of the period. The increase in the bank's short-term loan all come from well-known Chinese banks, such as China Construction Bank and Bank of China, directly reflects the Company's excellent credit standing, healthy financial performance, and stable debt repayment capacity. This move not only enhances our financial liquidity, providing a solid guarantee for seizing market opportunities, but also indicates that the bank holds a highly optimistic attitude towards our future development prospects, heralding a more stable bank-enterprise partnership.

For the three months ended September 30, 2025 and September 30, 2024, the gross profit margins were 8.46% and 0.93% respectively. The overall gross profit margin of the Company has significantly improved. This positive change is mainly attributed to the Company's proactive and successful product structure optimization strategy, which strategically increased the sales proportion of high-margin products. The core driving factors come from two innovative product lines: acoustic intelligent products and 5G-AI multi-modal technology solutions. This financial result not only proves the correctness of the Company's strategic decisions, but also clearly reflects that our product innovation has been recognized by the market, and the enterprise is steadily developing in the direction of high quality and high efficiency.

For the three months ended September 30, 2025 and September 30, 2024, the Company's losses were $ 201,026 and $ 1,961,989 respectively. The Company's losses have significantly decreased, and its business situation has shown a stable and recovering trend. This indicates that the strategic adjustments, cost control, and business optimization measures implemented by the Company have begun to yield results, and they have started to achieve substantial revenue generation. This positive change marks that the Company's operations have gradually returned to normal, laying a solid foundation for our anticipation of future profit prospects. The Company's future development is promising.

As of September 30, 2025 and June 30, 2025, the shareholders' equity was $3,023,673 and $2,952,208 respectively, increasing by $71,465, representing a 2.42% increase compared to the beginning of the period. The increase in the total shareholder equity of the Company is a core indicator of the enhancement of the enterprise's capital strength. It not only directly boosts the intrinsic value of the enterprise but also significantly enhances its financial stability and resilience in resisting internal and external risks, laying a solid foundation for the enterprise's sustainable operation and long-term development.

Q1 FY2026 Outlook and Strategic Priorities

Overview

Building upon the strong growth momentum and technological breakthroughs achieved in fiscal year 2025, Datasea Inc. has entered fiscal year 2026 with a solid foundation and a clear focus on profitability, global expansion, and technology-driven transformation. The Company's dual business engines-Acoustic High-Tech and AI Multimodal Digitalization-continue to reinforce each other, driving cross-industry integration and sustained revenue growth.

Datasea's management expects fiscal year 2026 to mark a pivotal year characterized by accelerated commercialization of its proprietary "Acoustics + AI + Application Scenarios" strategy, deeper international market penetration, and optimization of its product and service portfolio to enhance overall margins and long-term competitiveness.

Ø	Strengthened R&D Investment and Technological Upgrading

Datasea will continue to expand R&D investment to advance its acoustic and AI multimodal technology platforms.

●

In the acoustic segment, the Company will focus on deepening the industrialization of its low-intensity focused ultrasound (tFUS) and AI-driven neuromodulation technologies, expanding applications from medical intervention and health management to industrial diagnostics and precision agriculture.

●

Datasea will also accelerate next-generation product development based on multi-band acoustic systems (ultrasound, infrasound, and Schumann resonance), aimed at forming scalable and standardized technology modules adaptable to various industries.

●

In the AI multimodal segment, the Company plans to upgrade its distributed training architecture and Transformer-based multimodal models to enhance cross-modal data understanding, intelligent prediction, and generative capabilities. The integration of DeepSeek 2.0 will further improve the efficiency and scalability of multimodal digital solutions.

Ø	Market Expansion and Globalization

Datasea's strategic focus for fiscal year 2026 is to expand international commercialization while consolidating domestic market leadership.

●

In the United States, through its wholly owned subsidiary Datasea Acoustics LLC, the Company will accelerate product registration, sales channel expansion, and strategic partnerships with local distributors in healthcare, wellness, and consumer electronics. Initial sales in the U.S. market have demonstrated positive momentum, validating the global demand for Datasea's acoustic health and sterilization technologies.

●

In China, Datasea will continue to scale its retail presence in the beauty, healthcare, and environmental protection sectors through both e-commerce and offline channels, while strengthening its B2B relationships via integrated acoustic + AI solutions.

●

The Company is also preparing for entry into the European and Asia-Pacific markets, focusing on collaborations with IoT and smart-health technology partners to accelerate the adoption of "Acoustic + AI" applications globally.

Ø

Strategic Partnerships, M&A, and Ecosystem Expansion

Datasea plans to actively pursue strategic partnerships and targeted M&A to strengthen its industrial and technological ecosystem:

●

The Company will seek acquisitions in acoustics, smart sensing, and AI data processing to enhance its global patent portfolio and technology integration capabilities.

●

Through partnerships with leading research institutions such as the Chinese Academy of Sciences and Tsinghua University, Datasea will accelerate the transfer and commercialization of its latest research outcomes, including sound-wave coupling, acoustic BCI (brain-computer interface), and neuro-regulation technologies.

●

The Company also aims to form cross-industry alliances in smart manufacturing and digital agriculture, enabling "Acoustics + AI" solutions to penetrate broader markets and enhance recurring revenue potential.

Ø

Product Portfolio Optimization and Profitability Enhancement

Following the strong revenue growth and margin improvement achieved in fiscal 2025, Datasea will continue to optimize its product mix toward high-margin and technology-driven offerings:

●

The Company will prioritize acoustic health devices, medical-grade neuromodulation systems, and AI-based digital solutions as its core profit centers.

●

The business model transition from "hardware sales" to "hardware + AI platform" integration will further improve profitability by enabling recurring service income and deeper customer engagement.

●

Standardized modular product lines in sterilization, healthcare, and IoT will enhance economies of scale and accelerate global market replication.

Ø

Financial and Operational Outlook

Datasea reaffirms its strategic objective of sustained revenue growth and profitability enhancement in fiscal 2026.

●

The Company expects continued growth from existing long-term 5G + AI digital contracts in China, alongside significant revenue contribution from the acoustic product commercialization in both domestic and international markets.

●

R&D and operational investments will be disciplined and ROI-driven, balancing innovation with efficiency.

●

Datasea anticipates further gross margin improvement in fiscal 2026 as product mix shifts toward AI-driven acoustic solutions and high-value hardware offerings.

Ø

Market Trends and Industry Outlook

Datasea believes the convergence of acoustic intelligence and AI multimodal technologies will continue to drive structural growth opportunities across key sectors:

1.

Healthcare and Wellness: Rising global demand for non-invasive and precision health solutions positions Datasea's tFUS and AI neuromodulation systems for large-scale commercialization.

2.

Smart Manufacturing: The integration of acoustics and AI will support predictive maintenance, fault detection, and precision processing in advanced manufacturing.

3.

Agriculture and Green Technologies: The application of acoustic technologies in pest control, crop enhancement, and preservation will drive smart, sustainable agriculture.

4.

Consumer Health: Personalized and home-based acoustic devices (sleep, air sterilization, cognitive regulation) will expand market penetration through e-commerce and cross-border retail.

5.

Global Integration: As Datasea continues to expand internationally, it will leverage its U.S. and Chinese operational bases to form a dual-market synergy, reinforcing its role as a global leader in acoustic intelligence and AI multimodal innovation.

Ø	Corporate Compliance and Internal Control System

The Company places a strong emphasis on corporate governance, regulatory compliance, and internal control, continuously improving its risk management framework to ensure stable, transparent, and sustainable operations amid rapid business growth and international expansion.

●

Corporate Governance: Datasea strictly adheres to the regulatory requirements of the U.S. Securities and Exchange Commission (SEC) and Nasdaq, maintaining a sound governance structure through its Board of Directors, Audit Committee, and Compensation Committee to enhance decision-making transparency and oversight.

●

Internal Control: The Company continues to optimize its financial management, information disclosure, and compliance review procedures, establishing a closed-loop system of "risk identification-assessment-early warning-rectification" to ensure the authenticity, accuracy, and traceability of business operations and financial reporting.

●

Compliance and Data Security: Datasea is strengthening its global compliance system and data governance framework in line with international standards such as the General Data Protection Regulation (GDPR) and U.S. data privacy laws. These measures aim to protect information security, intellectual property, and regulatory compliance, thereby providing a solid institutional foundation for sustainable global development.

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

Off-Balance Sheet Arrangements

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

Critical Accounting Policies and Estimates

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

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

Critical Accounting Estimates

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

Critical Accounting Policies

Accounts Receivable, Net

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

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

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

Inventories, Net

Inventory is comprised principally of intelligent temperature measurement face recognition terminal and identity information recognition products, and is valued at the lower of cost or net realizable value. The value of inventory is determined using the first-in, first-out method. The Company periodically estimates an inventory allowance for estimated unmarketable inventories when necessary. Inventory amounts are reported net of such allowances. There were $154,049 and $152,907 allowances for slow-moving and obsolete inventory (mainly for Smart-Student Identification cards) as of September 30, 2025 and June 30, 2025, respectively.

Revenue Recognition

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

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

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

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

Recently Issued Accounting Pronouncements

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

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

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

The Company does not believe other recently issued but not yet effective accounting standards, if currently adopted, would have a material effect on the Company's consolidated financial position, statements of comprehensive income and cash flows as of September 30, 2025.