Quarterly Report for Quarter Ending December 31, 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. Datasea's business focuses on two main segments: Acoustic High-Tech and 5G+ AI Multimodal Digitalization. Through continuous research and development("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 high-tech Company with a technology foundation centered on the integration of acoustics and artificial intelligence, Datasea continues to advance its dual-business engines of "Acoustic High-Tech + 5G+AI Multimodal Digitalization," promoting the expansion of related technologies across multiple industry sectors. The Company focuses on acoustic technologies as a core technical direction and continues to conduct research and application exploration across key areas including industrial, agricultural, healthcare, medical, and IoT applications. Through ongoing development efforts, the Company is steadily accumulating differentiated technical capabilities and facilitating the transition of research into practical industry applications.

Overall Quarter Performance

For the six months ended December 31, 2025, revenue was $26,808,565, compared with $41,537,498 in the same period last year. Revenue decreased by $14,728,933, or 35.46%. For the six months ended December 31, 2025 and 2024, the Company's gross profit was $2,362,050 and $614,433, respectively. Gross profit increased by $1,747,617 from the same period last year, an increase of 284.43% from the same period last year. For the six months ended December 31, 2025 and 2024, the gross profit margins were 8.81% and 1.48% respectively. The overall gross profit margin of the Company has significantly improved.

Management believes that the substantial improvement in gross profit and gross margin reflects the continued execution of the Company's strategic transition toward technology-driven, high-value-added business models. During the six-month period, the Company deliberately moderated revenue growth by reducing standardized, low-margin services, while increasing the contribution from higher-margin, solution-oriented and technology-driven offerings.

During the six-month period, and particularly in the second quarter, Datasea further strengthened the technical foundation and application boundaries of its acoustic high-tech segment. Building upon its established "Acoustic + AI" platform, the Company achieved phased engineering progress in several emerging application directions, including acoustic-driven brain-computer interface technologies, industrial precision acoustics, and system-level acoustic solutions for healthcare and intelligent equipment scenarios. These developments reflect the Company's continued shift from single-device innovation toward system-level integration and application-oriented technology frameworks.

These engineering initiatives were pursued alongside the Company's revenue mix optimization and did not rely on near-term revenue contribution. In particular, the Company continued to advance its acoustic research, at the engineering and system validation level, in areas including non-invasive acoustic neuromodulation, closed-loop acoustic control, and acoustic signal enhancement technologies. These efforts are intended to support future applications in healthcare, rehabilitation, intelligent interaction, and other professional scenarios, while laying the technical groundwork for subsequent product validation and potential commercialization, subject to further development, regulatory considerations, and market conditions.

In parallel, Datasea continued to refine its 5G+AI multimodal digitalization business by further shifting its revenue mix toward customized, solution-oriented, and platform-based services with higher technical value and improved profitability characteristics. Through these combined strategic and operational initiatives, management believes the Company has achieved a meaningful improvement in profit quality and has taken important steps toward establishing a more sustainable foundation for long-term growth.

During the second quarter, as part of its ongoing technology development initiatives, the Company continued to strengthen its intellectual property portfolio through the acquisition and filing of patents primarily related to acoustic signal enhancement, brain-computer interface ("BCI") technologies, multimodal human-computer interaction, and advanced network resource optimization. Management believes these intellectual property assets support the Company's technology platform at a cross-segment level, aligning with both its acoustic technology initiatives and 5G+AI multimodal digitalization business.

While acoustic technologies represent a key strategic and long-term development focus, the Company's near-term revenue continues to be primarily supported by its 5G+AI multimodal digitalization business.

Our Business Summary

Segment I-Acoustics high tech Segment:

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

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

The Company's acoustic high-tech business is centered on the application of advanced acoustic technologies, including ultrasound, infrasound, directional sound, and acoustic coupling techniques. These technologies are integrated with artificial intelligence algorithms, sensing hardware, and system-level engineering capabilities to support differentiated application scenarios across multiple industries.

At present, the Company's acoustic technology platform has formed a layered application structure. In the health-related segment, the Company has developed and commercialized acoustic-based products for environmental disinfection and sleep assistance, utilizing ultrasonic sterilization, directional acoustic control, and frequency-based modulation technologies. These products represent the Company's established acoustic applications and provide an initial commercialization base for the broader technology platform.

Beyond these existing applications, the Company's acoustic platform has expanded into more complex medical and industrial application domains, where system-level integration, operational stability, and engineering coordination are essential. During the reporting period, the Company's acoustic business development was characterized by increasing emphasis on system-level solutions rather than standalone devices, reflecting the growing role of acoustics as an enabling technology across application scenarios.

Within this framework, the Company's acoustic business currently encompasses two principal strategic application directions:

(i)

healthcare-oriented acoustic technologies, including brain-computer interface and neuromodulation systems; and

(ii)

industrial precision acoustic technologies for advanced manufacturing applications.

In healthcare-related applications, the Company applies its acoustic technology foundation to non-invasive systems designed for integration with intelligent health devices and healthcare-related robotic platforms. In industrial applications, the Company applies ultrasonic technologies in combination with AI-assisted control and optimization frameworks to address precision processing requirements in advanced manufacturing environments.

Management believes that this layered, platform-based structure-ranging from commercially deployed health-related applications to engineering-stage medical and industrial system-level solutions-accurately reflects the current stage of the Company's acoustic business. This structure provides a coherent and scalable foundation for the continued expansion of acoustic technologies across application domains and supports subsequent execution-focused research and development while maintaining engineering discipline.

II. Acoustic Technologies and Collaboration in Health and Brain-Computer Interface Applications

In the healthcare domain, the Company continued to advance acoustic-driven technologies applicable to non-invasive health management and brain-computer interface ("BCI") systems. Building on previously disclosed research related to acoustic coupling and neuromodulation, the Company progressed multiple initiatives toward engineering-level system integration.

During December 2025, the Company announced progress in two acoustic-driven BCI core systems:

(i)

an Acoustic-Coupled Electroencephalogram ("EEG") Signal Enhancement System, designed to improve signal-to-noise ratio and data completeness during non-invasive EEG acquisition through acoustic field coupling; and

(ii)

a Real-Time Closed-Loop Vibration-Enhanced BCI System, intended to support dynamic signal decoding and feedback modulation through real-time acoustic stimulation mechanisms.

Subsequently, in January 2026, the Company disclosed further engineering-level advancements extending these core technologies toward application-oriented system frameworks. These initiatives included:

(i)

a BCI-based communication and care assistance system, focused on interpreting neural signals and mapping user intent into control instructions for assisted communication and caregiving scenarios; and

(ii)

a BCI-based upper-limb rehabilitation robot control system, exploring the translation of decoded neural signals into structured control logic for rehabilitation training devices.

During the reporting period, certain system components reached engineering-stage development, and application-oriented testing was initiated with an emphasis on system stability, responsiveness, and adaptability across different usage scenarios.

To support application-level validation of its acoustic-driven healthcare technologies, the Company entered into strategic collaborations with domestic partners specializing in brain-computer interface systems and healthcare robotics.

In particular, in January 2026, the Company established a strategic collaboration with Nanjing Linghang Intelligent Aviation Technology Co., Ltd., a China-based enterprise with experience in non-invasive BCI systems and rehabilitation robot applications. The collaboration focuses on joint technical testing, system integration evaluation, and application feasibility assessment of acoustic-enhanced BCI technologies within healthcare robot system architectures, including rehabilitation and assisted-care environments.

In parallel, the Company has engaged with healthcare-oriented partner, Shenzhen YiZhiMei Technology Co., Ltd., focusing on application exploration and validation of acoustic technologies in medical and wellness-related device scenarios. Management believes that collaboration-based validation with industry partners is a critical step in assessing practical deployment pathways, identifying system constraints, and informing future productization decisions.

III. Acoustic Technologies for Industrial Precision Processing

In parallel with healthcare-related initiatives, the Company continued to develop acoustic technologies for industrial precision processing. These efforts are based on the integration of ultrasonic-assisted processing, AI-driven parameter optimization, and multi-physics coupling simulation, with the objective of enhancing manufacturing precision, surface quality, and process consistency.

As described in the Company's industrial acoustic technology framework, target application areas include semiconductor substrate processing, aerospace material machining, and biomedical micro- and nano-fabrication. During the reporting period, development activities focused on prototype module validation, parameter stability, transducer reliability, and compatibility with existing industrial control systems.

IV. Integration of Acoustic Technology and AI Systems

A central element of the Company's strategy is the integration of acoustic technologies with artificial intelligence systems to form differentiated, system-level solutions. The Company believes that combining physical acoustic effects with data-driven intelligence enables application pathways that are difficult to replicate using software-only or hardware-only approaches.

During the reporting period, the Company continued refining its acoustic-AI integration framework, emphasizing system architecture design, algorithm-hardware coordination, and real-time feedback mechanisms. These efforts support both healthcare-oriented and industrial application scenarios and are intended to enhance scalability while maintaining system reliability.

The Company believes that this system-level integration differentiates its approach from software-only AI solutions and standalone hardware implementations.

V. Recent Developments

During the six months ended December 31, 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 Company's wholly owned subsidiary, Shenzhen Shuhai Jingwei Information Technology Co., Ltd. ("Shuhai Jingwei"), entered into multiple entrusted processing agreements with Yuxiang Zhiyang (Tianjin) Innovation Technology Co., Ltd. ("Yuxiang Zhiyang") for the manufacture of AP450A air purifiers. The total contract amount was RMB 4.74 million, with an aggregate contract quantity of 6,460 units. From July 1 to December 31, 2025, a total of 4,852 units were sold. During this period, Yuxiang Zhiyang's revenue reached RMB 3,144,230.09 (approximately USD 442,551). The execution of these contracts marked a solid initial entry of acoustic environmental disinfection products into the consumer market, laying a foundation for future business expansion and brand development.

In September 2025, Shuhai Jingwei and Yuxiang Zhiyang separately entered into renovation cost agreements, covering a total of 3,240 units, with total revenue of RMB 214,327.76 (approximately USD 30,166.73).

On October 9, 2025, Shuhai Jingwei entered into an entrusted processing agreement with Yuxiang Zhiyang for the negative ion sleep device Z5. The contract amount was RMB 19.995 million, with a contract quantity of 2,500 units.

In addition to the above acoustic intelligent product sales, from July 1 to December 31, 2025, Shuhai Jingwei sold 261 acoustic high-tech products to individual customers, generating total revenue of RMB 171,179.88 (approximately USD 24,093).

Operating Performance Overview - Acoustic High-tech Business

During the reporting period, revenue generated from the Company's acoustic business represented a relatively small portion of the Company's overall revenue structure. Revenue from the acoustic business was primarily derived from entrusted manufacturing activities, direct sales of acoustic intelligent and high-tech products, and a limited number of renovation and ancillary service agreements.

Although the revenue scale of the acoustic business remained limited during the reporting period, management believes that the execution of the relevant contracts, together with the delivery and sale of the associated products, validated the technical feasibility, manufacturability, and initial market acceptance of the Company's acoustic environmental disinfection and health-related products. These execution results provided practical evidence supporting the application of the Company's acoustic technologies in consumer-oriented scenarios and established an operational foundation for subsequent product standardization and broader market deployment.

During the reporting period, the Company's focus in the acoustic business was not on pursuing rapid short-term revenue growth, but rather on technical validation and capability development across core application areas, including, without limitation, acoustic medical and brain-computer interface-related neuromodulation applications; acoustic robots and intelligent devices for health management; and precision manufacturing and system integration applications within the acoustic industrial sector. In connection with these focus areas, the Company concentrated on product performance verification, production process optimization, and multi-scenario application testing.

Management believes that this gradual, phased approach helps effectively control research and development and commercialization execution risks during the early stages, while laying a solid foundation for the subsequent scale-up and commercialization of the Company's acoustic technologies. As technological maturity and application validation continue to advance, the Company's acoustic business is progressively developing replicable and scalable product and solution capabilities, supporting a steady transition toward commercialization.

Centered on acoustic technology as a core underlying capability, the Company has conducted scenario-based validation across multiple application areas, including medical and health applications, brain-computer interface and neuromodulation technologies, intelligent health devices and robots, industrial precision manufacturing, and environmental and public-safety-related applications, and maintains the technical foundation to extend such applications into additional domains.

VI. Future Outlook for the Acoustic Business

Looking forward, the Company views its acoustic high-tech business as a core and long-term strategic pillar, positioned to support multiple application scenarios across healthcare, industrial manufacturing, and intelligent systems. Rather than being limited to a single product category, the Company's acoustic technologies are applied across diverse application scenarios, with the ability to continuously enhance system performance and functional outcomes in different industry contexts through system-level integration and engineering validation.

In the healthcare domain, the Company intends to continue advancing acoustic-driven health and brain-computer interface technologies, with a focus on non-invasive neuromodulation, signal enhancement, and closed-loop system architectures. These efforts are aimed at supporting applications in health management, rehabilitation, and assisted-care scenarios, while progressively clarifying feasible pathways for system deployment and potential productization through ongoing validation and collaboration.

In parallel, the Company plans to further develop its acoustic technologies for industrial precision processing, leveraging ultrasonic-assisted processing and AI-driven control frameworks to address high-precision manufacturing requirements. Target application areas include semiconductor substrates, aerospace materials, and biomedical micro- and nano-fabrication, where acoustic technologies may enhance processing accuracy, consistency, and system stability through continued engineering validation.

More broadly, management believes that the Company's acoustic technologies represent a core acoustic technology platform applied across multiple application scenarios, capable of being integrated with artificial intelligence, sensing systems, and control systems to address complex application requirements. As additional application scenarios are validated, the Company expects the scope of acoustic-based solutions to expand accordingly, without being confined to a fixed set of industries or product forms.

Management believes that positioning acoustic high-tech as a core business pillar, rather than a standalone product line, allows the Company to continuously apply its acoustic technologies to new and evolving application scenarios, thereby supporting long-term value creation.

Segment II-5G+ AI multimodal digital

I. Our Business Performance and Ongoing Services of AI Multimodal Digitalization

During the period, the Company continued to deliver its multimodal digital services through solution-based projects, including AI-driven new media and content operations solutions, digital rural development platform solutions, enterprise digital management solutions for small and micro businesses, and data analysis support services for financial-related institutions. These solutions are designed to address concrete operational needs of clients by integrating multimodal data processing with AI-driven analysis and decision support.

The Company's multimodal digitalization business is primarily delivered through project-based and solution-oriented service arrangements, with implementation cycles, service scopes, and pricing structures customized based on specific client requirements. Depending on the nature of the application scenario, projects may involve phased deployment, iterative optimization, and ongoing service delivery. Certain solutions are provided on a continuous basis with repeat engagements, reflecting the platform's suitability for supporting clients' recurring operational and management needs.

The Company's multimodal platform supports the coordinated processing of text, voice, image, video, and structured data, and enables real-time analysis and intelligent decision support under 5G network conditions. These capabilities allow the Company to deliver AI-driven digital services to customers with high responsiveness, system reliability, and scalability, providing technical support for sustained commercialization across multiple application scenarios.

Management believes that the continued delivery, operational stability, and repeat engagement of these solutions reflect the maturity of the Company's multimodal platform. The AI multimodal digitalization segment has evolved into a stable service-oriented business component, contributing to the Company's overall revenue structure while maintaining flexibility to adapt to changing client requirements and application conditions.

II. Technology Framework of 5G+AI Multimodal Digitalization

Datasea's 5G+AI multimodal digitalization platform is an integrated system designed to process and analyze different types of data-such as text, images, audio, and video-in a coordinated manner. In simple terms, the system enables businesses to collect, understand, and respond to multiple forms of digital information in real time or near real time.

The platform utilizes artificial intelligence models, including Transformer-based architectures. A Transformer model is a widely used AI structure that allows a system to analyze relationships within and across different types of data simultaneously. This enables the platform to perform tasks such as semantic understanding, content generation, and decision support across multiple data formats.Supported by distributed computing and 5G network infrastructure, the system processes multimodal inputs efficiently and converts them into actionable outputs tailored to specific application scenarios.

III. 5G+AI Solutions and Application Projects

During the reporting period, the Company continued to focus on solution-oriented delivery by applying its 5G+AI multimodal capabilities to client projects designed around practical operational and management needs. Rather than deploying standardized software products, the Company structures its solutions based on specific business workflows, data environments, and performance objectives of each project.

Key solution areas include:

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Digital Solutions for Small and Micro Enterprises, which support customer relationship management, intelligent marketing, and operational analytics to improve efficiency and reduce digitalization costs;

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New Media and Content Operations Solutions, utilizing AI-generated content and digital human technologies to support automated content production, distribution optimization, and performance monitoring across digital channels;

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Digital Rural Development Solutions, providing data-driven tools for agricultural management, rural services coordination, and remote operations in support of intelligent rural governance initiatives; and

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Beauty and Healthcare Digital Management Solutions, offering integrated digital platforms for offline service providers and enabling coordination with the Company's acoustic hardware products, where applicable, to enhance service efficiency and user experience.

These solutions are primarily delivered to enterprise clients, local service operators, and institutional customers. Project scopes are typically structured to support day-to-day operations, digital management processes, and data-driven decision-making, with implementation approaches adjusted according to client scale and application complexity. Management believes that continued emphasis on solution-based delivery allows the Company to effectively align its technology capabilities with real-world business requirements and supports the sustainable development of the 5G+AI multimodal digitalization segment.

IV. Recent Developments in the 5G+AI Business

Key Customers and Agreements

For the six months ended December 31, 2025, our revenues were $26,808,565. During the reporting period, the Company optimized its product mix by increasing sales of higher-margin offerings, including acoustic intelligent products and 5G+AI multimodal technology solutions, while implementing revenue optimization measures for the 5G+AI multimodal business, which had relatively lower gross margins during its market expansion phase.

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 December 31, 2025, revenue of RMB 2,075,471.70 (approximately US$292,123.54) 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 5G-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 December 31, 2025, revenue of RMB 2,169,811.32 (approximately US$ 305,401.89) 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 December 31, 2025, revenue from culture and media was RMB 2,264,150.94 (approximately US$318,680.23).

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.

On November 19, 2025, Beijing Shuhai signed an agreement with Hainan Taihe Ruixiang Technology Development Co., Ltd. (hereinafter referred to as "Hainan Taihe Ruixiang"). Beijing Shuhai possesses an independently developed 5G-AI multi-mode new media marketing service platform, providing Hainan Taihe Ruixiang with a mature system solution service based on the cutting-edge technology architecture.The customized new media marketing platform solution will focus on supporting the live-streaming e-commerce product marketing scenarios of Hainan Taihe Ruixiang, covering product promotion, user interaction, and live-streaming e-commerce conversion, helping Hainan Taihe Ruixiang build a precise marketing and brand communication system in the live-streaming e-commerce product marketing scenarios. As of December 31, 2025, Hainan Taihe Ruixiang's revenue was RMB 2,169,811.32 (approximately USD 305,401.89).

On November 24, 2025, Beijing Shuhai signed a supplementary agreement with Beijing Meimei Partner Network Technology Co., Ltd. (hereinafter referred to as "Beijing Meimei"). Due to the business upgrade of Beijing Meimei, it needs to carry out technical iteration and functional expansion on the original 5G-AI multi-modal small and medium-sized enterprise service platform. Beijing Shuhai has mature upgrade technical solutions and implementation capabilities in this field and will provide technical solution services to Beijing Meimei. As of December 31, 2025, the revenue of Beijing Meimei was RMB 943,396.23 (approximately USD 132,783.43).

On December 1, 2025, Beijing Shuhai signed an agreement with Hainan Taihe Ruixiang Technology Development Co., Ltd. (hereinafter referred to as "Hainan Taihe Ruixiang"). Beijing Shuhai possesses an independently developed 5G-AI multi-modal small and medium-sized enterprise service platform, providing Hainan Taihe Ruixiang with a specialized service solution based on a mature system architecture with cutting-edge technology.Key scenarios such as enterprise management digitalization, efficient business collaboration, data value mining, and compliance security guarantee are supported throughout the entire chain from infrastructure setup, core functional module deployment to business process adaptation. This provides precise service matching and efficient business connection for the small and medium-sized enterprise customers served by Hainan Taihe Ruixiang, ultimately helping Hainan Taihe Ruixiang build a standardized and scalable small and medium-sized enterprise service system, improving service efficiency and customer retention rate, and achieving the scale growth and sustainable operation of the platform business.As of December 31, 2025, Hainan Taihe Ruixiang's revenue was RMB 2,169,811.32 (approximately USD 305,401.89).

On December 8, 2025, Beijing Shuhai and He Yue (Tianjin) Cultural Media Co., Ltd. (hereinafter referred to as "He Yue") signed an agreement. Beijing Shuhai possesses an independently developed 5G-AI multi-mode new media marketing service platform, which provides He Yue with a mature system solution service based on the cutting-edge technology architecture.

The new media marketing service platform assists the marketing services of all industries. Relying on the 5G multi-modal form, the platform can form AI intelligent marketing based on the group's core technology, including content creation and management, data monitoring and analysis, user operation and interaction. It sends, manages and labels advertisements, as well as marks the placement area and attributes for the placement, to achieve the precise placement function of new media marketing.

As of December 31, 2025, He Yue's revenue was RMB 2,264,150.94 (approximately USD 318,680.23).

On December 4, 2023, Heilongjiang Xunrui signed an agreement with Harbin Yusheng Intelligent Engineering Co., Ltd. (hereinafter referred to as "Yusheng"). Yusheng entrusted Heilongjiang Xunrui to be responsible for the supply and construction, as well as data connection of the high-standard farmland project for smart agriculture in Tielishi - a project of Heilongjiang Xunrui. By December 31, 2025, Yusheng's revenue was RMB 977,641 (approximately USD 137.603).

Operating Performance Overview

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 December 31, 2025, this segment generated revenue of USD 26.31 million. During this period, based on its long-term development strategy, the Company proactively advanced adjustments to its business direction and revenue structure, focusing on 5G+AI multimodal digital technology solutions with higher gross margins and stronger sustainability, while correspondingly reducing exposure to business segments that were in an expansion phase and characterized by relatively lower gross margins. Against this backdrop, the Company experienced a temporary decline in overall revenue during the reporting period, while achieving a substantial improvement in gross profit and gross margin.

Notwithstanding the above, as the Company's core revenue source, the 5G+AI multimodal digital business continued to demonstrate strong stability and long-term development potential. Such stability was primarily attributable to the Company's executed and continuously performed technical service and system solution contracts, under which relevant projects continued to be delivered and revenue was recognized during the reporting period. At the same time, the Company continued to optimize its business structure by increasing the revenue contribution from higher-margin technology solution offerings and reducing the proportion of lower-margin expansion-oriented businesses, which effectively supported the sustained operation of its core business and contributed to ongoing improvements in earnings quality.

From a business composition perspective, multiple technical solutions-including 5G+AI multimodal services for small and micro enterprises, 5G+AI multimodal rural digital services, and 5G+AI multimodal new media marketing services-have achieved commercial revenue realization, generating total revenue of RMB 15.06 million (approximately USD 2.12 million). This indicates that the Company's 5G+AI multimodal digital business has been fully implemented and has entered a stage of rapid expansion. These solutions are characterized by relatively high gross margins and, through technological innovation and structural optimization, have effectively enhanced the Company's overall profitability and continuously improved earnings quality.

ESG and Corporate Governance - Quarterly Update

During this quarter, Datasea continued to advance its Environmental, Social, and Governance (ESG) framework, with a primary focus on governance execution, internal process refinement, and ongoing transparency in operations. The Company's ESG-related efforts during the period emphasized continuity and practical implementation, rather than the introduction of new standalone initiatives.

Compared with the previous quarter, management's focus shifted toward consolidating governance practices already established, enhancing internal coordination across business units, and reinforcing compliance awareness throughout day-to-day operations.

Corporate Governance and Internal Control Progress

During the quarter, the Company continued to strengthen its corporate governance framework through incremental improvements and ongoing oversight activities, including:

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Board Oversight and Governance Engagement: The Board, including independent directors, continued to review governance, compliance, and risk management matters on a regular basis, with an emphasis on internal control effectiveness and disclosure discipline.

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Internal Control and Compliance Execution: The Company continued implementing its internal control and compliance processes across subsidiaries and affiliated operating entities, including periodic internal reviews and compliance checks designed to support consistency with applicable SEC and Nasdaq requirements.

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Disclosure Review and Coordination: Management maintained its internal review procedures for public disclosures and governance-related information, with continued involvement from relevant functional teams to support accuracy, consistency, and timely reporting.

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Ethics and Reporting Mechanisms: Existing employee reporting and internal review mechanisms remained in place during the quarter, supporting ethical conduct, issue escalation, and internal accountability as part of the Company's governance framework.

Management believes that these ongoing governance practices contribute to a stable and disciplined operating environment and support transparent engagement with investors and regulators.

Environmental and Operational Practices

During the quarter, Datasea continued to promote environmentally responsible practices within its operations, particularly at its Shenzhen-based subsidiary. These efforts focused on maintaining previously implemented green office initiatives, including waste classification, paperless workflows, and energy usage management.

The Company believes that maintaining operational discipline in environmental practices, even without the introduction of new programs during the quarter, supports long-term sustainability objectives and responsible resource utilization.

Employee Engagement and ESG Awareness

The Company continued to promote ESG awareness among employees through internal communication, training, and participation-oriented initiatives. Employee engagement activities related to environmental responsibility and ethical conduct were maintained during the quarter, reinforcing ESG-related awareness as part of the Company's organizational culture.

Management believes that sustained employee participation is an important component of effective ESG execution and supports the practical implementation of governance and sustainability principles.

Outlook

Looking ahead, Datasea intends to continue advancing its ESG framework in a measured and governance-centered manner. The Company plans to further refine internal governance processes, enhance risk and compliance oversight, and progressively improve ESG-related data organization and reporting practices.

Management believes that a disciplined, execution-focused ESG approach supports long-term operational stability, regulatory compliance, and sustainable value creation, while remaining aligned with the Company's current stage of development and business priorities.

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 December 31, 2025 and 2024, the Company had a net loss of approximately $0.54 million and $1.14 million, respectively. For the six months ending December 31, 2025 and 2024, the Company had a net loss of approximately $0.74 million and $3.10 million, respectively. The Company had an accumulated deficit of approximately $45.27 million as of December 31, 2025, and cash flow from operating activities of approximately $1.54 million and $(1.59) million for the six months ended December 31, 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 December 31, 2025, the Company had cash of $671,785.

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 December 31, 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

Software Copyright owned by Tianjin Information

No.		Certification		Certificate No.
1		Intelligent acoustic environment adaptive noise reduction platform		Ruan Zhu Deng Zi No.16185992
2		AI enterprise aggregated user cloud platform		Ruan Zhu Deng Zi No. 15844106
3		Multimodal acoustic fusion analysis software		Ruan Zhu Deng Zi No.16029826
4		Supply Chain Management System		Ruan Zhu Deng Zi No. 15472698
5		Multimodal intelligent content generation and synthesis system		Ruan Zhu Deng Zi No.16328796

Patents that are currently under application from July 1, 2025 to December 31, 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
4.		A brainwave intelligent driving system		ZL 2021104654635

Patent owned by GuozhongTimes

No.		Certification		Request No.
1.		A resource allocation method for 6G dense networking without overlapping interference based on deep reinforcement learning		ZL2023101483037

Results of Operations

Comparison of the three months ended December 31, 2025, and 2024

The following table sets forth the results of our operations for the three months ended December 31, 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		$	12,995,014							$	20,456,404
Cost of revenues			11,802,056				90.8	%			20,038,952				98.0	%
Gross profit			1,192,958				9.2	%			417,452				2.0	%
Selling expenses			328,974				2.5	%			407,669				2.0	%
Research and development			733,243				5.6	%			74,402				0.4	%
General and administrative expenses			647,317				5.0	%			1,173,733				5.7	%
Total operating expenses			1,709,534				13.2	%			1,655,804				8.1	%
Loss from operations			(516,576	)			(4.0	)%			(1,238,352	)			(6.1	)%
Non-operating income(expenses), net			(22,091	)			(0.2	)%			110,636				0.5	%
Loss before income taxes			(538,667	)			(4.1	)%			(1,127,716	)			(5.5	)%
Income tax expense			-				-	%			-					%
Loss before noncontrolling interest			(538,667	)			(4.1	)%			(1,127,716	)			(5.5	)%
Less: loss attributable to noncontrolling interest			92				(0.001	)%			8,562				0.04	%
Net loss to the Company			(538,759	)			(4.1	)%			(1,136,278	)			(5.6	)%

Revenues

For the three months ended December 31, 2025, revenue was $12,995,014, compared with $20,456,404 in the same period last year. Revenue decreased by $7,461,390, or 36.5%. 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 2.0% in the same period of the previous year to 9.2%, demonstrating the effectiveness of the Company's business transformation oriented towards profit quality.

From October 1, 2025 to December 31, 2025, the Company generated revenue of $12,995,014, including $12,988,682 from the 5G AI multimodal digital business, $6,330 from acoustic intelligence business and $2 from other. From October 1, 2024 to December 31, 2024, the Company generated revenue of $20,456,404, including $20,085,988 from the 5G AI multimodal digital business, $326,936 from software licensing, 43,304 from acoustic intelligence business and $176 from other.

Management believes that the substantial improvement in gross profit and gross margin reflects the continued execution of the Company's strategic transition toward technology-driven, high-value-added business models. During the six-month period, the Company deliberately moderated revenue growth by reducing standardized, low-margin services, while increasing the contribution from higher-margin, solution-oriented and technology-driven offerings.

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 8.52million (approximately USD1.20 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.

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 December 31, 2025, we recorded a cost of revenues of $11,802,056, compared to $20,038,952 for the same period in 2024, reflecting a decrease of $8,236,896 or 41.1%. The cost of revenues for the three months ended December 31, 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 December 31, 2025, the costs were as follows: $11.76 million for 5G AI multimodal digital, $39,875 for the acoustic intelligence business, and the cost of other was $354. For the three months ended December 31, 2024, the cost of 5G AI multimodal digital was $19.71 million, the cost of software licensing was $317,414 and the cost of acoustic intelligence business was $16,184.

Gross Profit

Gross profit for the three months ended December 31, 2025, was $1,192,958 compared to $417,452 for the three months ended December 31, 2024, representing an increase of $775,506. This increase in gross profit was primarily driven by increased sales of high-margin products during the three months ended December 31, 2025 as a result of the Company's adjusting of its revenue focus on high margin products and services.

Gross margin was 9.2% for the three months ended December 31, 2025, compared to 2.0% for the same period in 2024. The improvement in gross margin was primarily driven by the rapid growth of high-margin customized solution projects, along with the Company's significant increase in market share. 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 December 31, 2025 were $328,974, compared to $407,669 for the same period in 2024, reflecting a decrease of $78,695, or 19.3%. The decrease was mainly due to the decrease of advertising and marketing expenses by $460,467 and decreased payroll expense and benefits by $26,526, which was partly offset by increased service fee by $70,015, and increased consulting fee by $338,500.

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 $733,243 and $74,402 during the three months ended December 31, 2025 and 2024, respectively, representing an increase of $658,841 or 885.5% as compared to the same period of 2024.

Research and development expenses for the three months ended December 31, 2025, totaled $733,243. 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 $526,416, or 44.9% from $1,173,733 during the three months ended December 31, 2024, to $647,317 during the three months ended December 31, 2025. The decrease was mainly due to decreased professional service fee by $264,846, decreased rent expense by 20,624, decreased amortization expense of intangible asset by $246,571, and decreased auto expense by $40,523, which was partly offset by increased meal and entertainment expense by $23,551.

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 expense was $22,091 for the three months ended December 31, 2025, consisting mainly of interest income of $54 and other expenses of $22,145. Non-operating income were $110,636 for the three months ended December 31, 2024, consisting mainly of interest income of $875 and other income of $109,761.

Net Loss

We generated net loss of $538,759 and $1,136,278 for the three months ended December 31, 2025 and 2024, respectively, a $597,519 or 52.6% 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.

Comparison of the six months ended December 31, 2025, and 2024

The following table sets forth the results of our operations for the six months ended December 31, 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		$	26,808,565							$	41,537,498
Cost of revenues			24,446,515				91.2	%			40,923,065				98.5	%
Gross profit			2,362,050				8.8	%			614,433				1.5	%
Selling expenses			722,791				2.7	%			1,403,718				3.4	%
Research and development			1,246,167				4.6	%			177,481				0.4	%
General and administrative expenses			1,198,291				4.5	%			2,302,136				5.5	%
Total operating expenses			3,167,249				11.8	%			3,883,335				9.3	%
Loss from operations			(805,199	)			(3.0	)%			(3,268,902	)			(7.9	)%
Non-operating income, net			65,373				0.2	%			170,517				0.4	%
Loss before income taxes			(739,826	)			(2.8	)%			(3,098,385	)			(7.5	)%
Income tax expense			-				-	%			-				-	%
Loss before noncontrolling interest			(739,826	)			(2.8	)%			(3,098,385	)			(7.5	)%
Less: loss attributable to noncontrolling interest			(41	)			(0.0002	)%			(118	)			(0.0003	)%
Net loss to the Company			(739,785	)			(2.8	)%			(3,098,267	)			(7.5	)%

Revenues

For the six months ended December 31, 2025, revenue was $26,808,565, compared with $41,537,498 in the same period last year. Revenue decreased by $14,728,933, or 35.5%. 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 1.5% in the same period of the previous year to 8.8%, demonstrating the effectiveness of the Company's business transformation oriented towards profit quality.

From July 1, 2025 to December 31, 2025, the Company generated revenue of $26,808,565, including $26,313,993 from the 5G AI multimodal digital business, $494,279 from acoustic intelligence business and $293 from other. From July 1, 2024 to December 31, 2024, the Company generated revenue of $41,537,498, including $41,161,572 from the 5G AI multimodal digital business, $3,046 from Smart City Business, $45,768 from acoustic intelligence business and $326,936 from software licensing.

Management believes that the substantial improvement in gross profit and gross margin reflects the continued execution of the Company's strategic transition toward technology-driven, high-value-added business models. During the six-month period, the Company deliberately moderated revenue growth by reducing standardized, low-margin services, while increasing the contribution from higher-margin, solution-oriented and technology-driven offerings.

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 15.06million (approximately USD2.12 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.

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 six months ended December 31, 2025, we recorded a cost of revenues of $24,446,515, compared to $40,923,065 for the same period in 2024, reflecting a decrease of $16,476,550 or 40.3%. The cost of revenues for the six months ended December 31, 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 six months ended December 31, 2025, the costs were as follows: $24.1 million for 5G AI multimodal digital, $384,230 for the acoustic intelligence business, and the cost of other was $1,643. For the six months ended December 31, 2024, the costs were as follows: $40.6 million for 5G AI multimodal digital, $1,716 for smart city, $317,414 for software licensing, and $16,593 for the acoustic intelligence business.

Gross Profit

Gross profit for the six months ended December 31, 2025, was $2,362,050 compared to $614,433 for the six months ended December 31, 2024, representing an increase of $1,747,617. This increase in gross profit was primarily driven by increased sales of high-margin products during the six months ended December 31, 2025 as a result of the Company's adjusting of its revenue focus on high margin products and services.

Gross margin was 8.8% for the six months ended December 31, 2025, compared to 1.5% 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 six months ended December 31, 2025 were $722,791, compared to $1,403,718 for the same period in 2024, reflecting a decrease of $680,927, or 48.5%. The decrease was mainly due to the decrease of advertising and marketing expenses by $1,066,539 and decreased payroll expense and benefits by $24,047, which was partly offset by increased service fee by $53,404, increased consulting fee by $338,500, and increased rent expense and property management fee by $22,855.

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 $1,246,167 and $177,481 during the six months ended December 31, 2025 and 2024, respectively, representing an increase of $1,068,686 or 602.1% as compared to the same period of 2024.

Research and development expenses for the six months ended December 31, 2025, totaled $1,246,167. 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.

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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 $1,103,845, or 48.0% from $2,302,136 during the six months ended December 31, 2024, to $1,198,291 during the six months ended December 31, 2025. The decrease was mainly due to decreased professional service fee by $765,134, decreased rent expense by 53,339, decreased welfare expense by $17,093, and decreased amortization expense of intangible asset by $277,647, which was partly offset by increased other expenses by $5,566.

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 $65,373 for the six months ended December 31, 2025, consisting mainly of interest income of $76 and other income of $65,297. Non-operating income was $170,517 for the six months ended December 31, 2024, consisting mainly of interest income of $4,930 and other income of $165,587.

Net Loss

We generated net loss of $739,785 and $3,098,267 for the six months ended December 31, 2025 and 2024, respectively, a $2,358,482 or 76.1% 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 six months ended December 31, 2025, was $26,808,565, the balance of accounts receivable was $1,288,297 at December 31, 2025. In the same period last year, the operating revenue was $41,537,498, and the accounts receivable balance was $210,980 at December 31, 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 December 31, 2025, we had a working capital deficit of $2,017,373 or a current ratio of 0.6:1, and current assets in the amount of $3,024,170. As of June 30, 2025, our working capital deficit was $704,978, with a current ratio of 0.8:1, 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 six months ended December 31, 2025 and 2024, respectively.

		2025				2024
Net cash provided by (used in) operating activities		$	1,540,994			$	(1,587,575	)
Net cash used in investing activities		$	(2,834,002	)		$	(3,957,527	)
Net cash provided by financing activities		$	1,333,960			$	5,659,128

Cash Flow from Operating Activities

Net cash provided by operating activities was $1,540,994 during the six months ended December 31, 2025, compared to net cash used in operating activities of $1,587,575 during the six months ended December 31, 2024, a decrease in cash outflow of $3,128,566.

The decrease in cash outflow was mainly due to (1) decreased cash outflow on accounts payable by $672,144, (2) decreased cash outflow on inventory by $227,148, (3) decreased cash outflow on accrued expense and other payables by $203,283, (4) decreased cash outflow on value-added tax prepayment by $78,137, and (5) decreased net loss with non-cash adjustment by $3.6 million, which was partly offset by (1) decreased cash inflow on prepaid expenses and other current assets by $1.1 million, 2) decreased cash inflow on unearned revenue by $149,424, and (3) decreased cash inflow on accounts receivable by $394,925.

Cash Flow from Investing Activities

Net cash used in investing activities totaled $2.83 million for the six months ended December 31, 2025, which consisted of cash paid for the acquisition of office furniture and equipment of $340 and cash paid for acquisition of intangible assets by $2.83 million. Net cash used in investing activities totaled $3.96 million for the six months ended December 30, 2024, which consisted of cash paid for the acquisition of office furniture and equipment of $7,255, and cash paid for acquisition of intangible assets by $3.95 million.

Cash Flow from Financing Activities

Net cash provided by financing activities was $1,333,960 during the six months ended December 31, 2025, which was from net proceeds from related parties of $67,206, and proceeds from loans of $1,226,754. Net cash provided by financing activities was $5,659,128 during the six months ended December 31, 2024, which was from the net proceeds from sale of our common stock through an equity financing of 5,939,133, which was partly offset by repayment of loan payables of $40,698 and repayment to related parties of $239,307.

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 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 December 31, 2025 and 2024, the Company recorded and paid nil and $619 interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid nil and $1,229 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 December 31, 2025 and 2024, the Company recorded and paid nil and $961 interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid nil and $1,939 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 December 31, 2025 and 2024, the Company recorded and paid nil and $2,741 interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid nil and $5,527 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 December 31, 2025 and 2024, the Company recorded and paid nil and $1,201 interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid nil and $2,422 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 December 31, 2025 and 2024, the Company recorded and paid nil and $3,518 interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid nil and $6,552 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 December 31, 2025 and 2024, the Company recorded and paid $4,927 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $9,874 and nil interest expense for this loan. As of December 31, 2025, $853,631 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 December 31, 2025 and 2024, the Company recorded and paid $3,207 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $6,433 and nil interest expense for this loan. As of December 31, 2025, $426,815 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 December 31, 2025 and 2024, the Company recorded and paid $1,748 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $3,484 and nil interest expense for this loan. As of December 31, 2025, $142,272 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 December 31, 2025 and 2024, the Company recorded and paid $3,285 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $6,582 and nil interest expense for this loan. As of December 31, 2025, $569,087 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 December 31, 2025 and 2024, the Company recorded and paid $2,892 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $5,795 and nil interest expense for this loan. As of December 31, 2025, $426,815 was recorded as current liabilities. Liu Fu is the guarantor of this loan credit line.

On September 23, 2025, Shuhai Beijing entered a credit line agreement with China Construction Bank for the amount of RMB 5,000,000 ($711,359) 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. For the three months ended December 31, 2025 and 2024, the Company recorded and paid $2,632 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $2,632 and nil interest expense for this loan. As of December 31, 2025, $711,359 was recorded as current 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. For the three months ended December 31, 2025 and 2024, the Company recorded and paid $1,507 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $1,507 and nil interest expense for this loan. As of December 31, 2025, $284,544 was recorded as current liabilities. Liu zhixin is the guarantor of this loan agreement.

On October 10, 2025, Shuhai Beijing entered a credit line agreement with Bank of Communications Beijing Free Trade Zone Branchfor the amount of RMB 2,000,000 ($284,544) with a term of 24 months, the credit line has a fixed annual interest rate of 2.65% to be paid every 21st of each month. For the three months ended December 31, 2025 and 2024, the Company recorded and paid $1,103 and nil interest expense for this loan. For the six months ended December 31, 2025 and 2024, the Company recorded and paid $1,103 and nil interest expense for this loan. As of December 31, 2025, $284,544 was recorded as current liabilities. Liu Fu is the guarantor of this loan credit line.

Financial index analysis

For the six months ended December 31, 2025 and December 31, 2024, the Company's gross profit was $2,362,050 and $614,433, respectively. Gross profit increased by $1,747,617 from the same period last year, an increase of 284.4% 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 six months ended December 31, 2025 and 2024, the research and development expenses were $1,246,167 and $177,481 respectively. The investment in research and development increased by $1,068,686, representing a 602.1% 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 six months ended December 31, 2025 and 2024, the operating expenses were $3,167,249 and $3,883,335 respectively. The operating expenses decreased by $716,086, representing a 18.4% 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 December 31, 2025 and June 30 2025, the Company's cash balance was $671,785 and $620,807, respectively, an increase of $ 50,978, or 8.21%, 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 December 31, 2025 and June 30, 2025, the intangible assets were $5,297,992 and $ 3,495,984 respectively. The intangible assets increased by $1,802,008, representing a 51.55% 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 December 31, 2025 and June 30, 2025, the outstanding bank loans were $3,699,067 and $2,374,767 respectively. The amount increased by $1,324,300 , representing a 55.77% 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 six months ended December 31, 2025 and 2024, the gross profit margins were 8.8% and 1.5% 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 six months ended December 31, 2025 and 2024, the Company's net losses were $739,785 and $3,098,267 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 December 31, 2025 and June 30, 2025, the shareholders' equity was $3,481,783 and $2,952,208 respectively, increasing by $529,575, representing a 17.9% 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.

As of December 31, 2025 and June 30, 2025, accounts receivable were $1,288,297 and $1,374,180 respectively, a decrease of $85,883, representing a reduction of 6.25% compared to the beginning of the period. A decline in accounts receivable indicates that the company's ability to collect payments has been enhanced, and sales have been converted into cash more quickly, directly improving the efficiency of cash flow. This not only reduces the risk of bad debts and ensures the quality of profits, but also indicates that the company can achieve growth in a healthier way.

Outlook and Strategic Priorities

Overview

Building on the structural adjustments and operational progress achieved during the six months ended December 31, 2025, Datasea Inc. enters the first quarter of fiscal year 2026 with a clearer execution focus and a more refined business structure. The Company's dual business segments-Acoustic High-Tech and 5G+AI Multimodal Digitalization-have each advanced from initial scale expansion toward more application-oriented and value-focused development.

Management views fiscal year 2026 as a period of execution, validation, and continuously expansion, during which previously established technology platforms and solution frameworks are expected to translate into more stable revenue contribution, improved margin quality, and clearer commercialization pathways.

Strengthened R&D Execution and Technology Advancement

Going forward, the Company will continue to advance its research and development activities; however, the focus of R&D will further shift from forward-looking and exploratory research toward engineering validation, system optimization, and application readiness enhancement. Management believes that the primary objective of R&D at this stage is to enable acoustic-related technologies with an established technical foundation to achieve stable operation and deployable capability within specific application scenarios.

Acoustic Medical and Health-Related Applications

In the area of acoustic medical and health-related applications, including brain-computer interface and neuromodulation use cases, the Company's R&D efforts will concentrate on engineering-level system validation and scenario-based application deployment. Relevant activities primarily focus on evaluating the system-level performance of non-invasive acoustic modulation technologies in application environments such as health-related robots and intelligent devices.

R&D efforts will emphasize:

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the stability and consistency of acoustic neuromodulation systems under continuous operating conditions;

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the coordination and integration performance among acoustic signal enhancement and modulation modules, sensing systems, control frameworks, and intelligent algorithms;

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the adaptability and repeatability of system performance across different application environments.

These R&D initiatives are intended to progressively translate previously completed forward-looking or exploratory research outcomes into system solutions with engineering feasibility and application readiness, thereby laying the foundation for further validation and potential productization.

Precision Acoustics and Industrial Applications

In the area of precision acoustics and industrial applications, the Company will continue advancing the engineering application of ultrasonic technologies integrated with artificial intelligence, with R&D efforts focused on building modular and system-level integration capabilities for industrial use cases.

Key R&D activities will include:

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developing general-purpose functional modules for industrial machine tool upgrades based on "ultrasonics + AI" integrated technologies, designed to be compatible with mainstream numerical control systems and to address precision processing requirements in sectors such as aerospace and automotive manufacturing;

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in the field of ultra-precision processing, continuing to advance system-level integration solutions for high-end manufacturing scenarios, with a focus on ultra-precision processing requirements for semiconductor substrates and biomedical micro- and nano-scale devices, while enhancing precision control, system coordination, and long-term operational stability.

Management believes that these precision acoustics R&D initiatives support the practical deployment of acoustic technologies in advanced manufacturing and provide a replicable engineering pathway for the Company's expansion into industrial application scenarios.

5G+AI Multimodal Digitalization R&D Focus

In the 5G+AI multimodal digitalization segment, R&D activities will primarily focus on the operational performance, scalability, and system reliability of existing solutions, supporting the continued delivery and optimization of ongoing project-based and solution-oriented services, rather than introducing new foundational model architectures.

Related technical work will emphasize improving system stability and delivery efficiency in real-world business environments to better support current commercialization efforts.

Management Assessment

Management believes that this execution- and deployment-oriented R&D strategy enhances the capital efficiency of research investment, aligns technological advancement more closely with near- to mid-term business needs, and supports the Company's continued development across its healthcare-related and industrial application focus areas.

Market Expansion and Commercial Execution

For fiscal year 2026, the Company's market strategy emphasizes deepening commercialization within existing markets while selectively expanding international exposure.

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In the United States, the Company plans to continue advancing market entry for acoustic-related products through regulatory preparation, channel development, and localized partnerships, building on initial progress achieved in prior periods.

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In China, commercial efforts will remain focused on solution-based delivery across healthcare, beauty, environmental, and enterprise digitalization sectors, leveraging existing customer relationships and channel infrastructure.

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Rather than broad geographic expansion, management's priority is to validate repeatability and scalability within current target markets before committing additional resources to new regions.

Strategic Partnerships, M&A, and Ecosystem Development

Following earlier ecosystem-building initiatives, the Company's approach to partnerships and potential acquisitions in fiscal year 2026 will be selective and execution-driven.

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Collaboration with research institutions and industry partners will continue to emphasize application validation, system integration testing, and commercialization feasibility, particularly in healthcare-related acoustic systems and industrial precision applications.

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Any potential M&A activities will be evaluated primarily on their ability to enhance system integration capability, application deployment efficiency, or intellectual property depth, rather than scale expansion alone.

Management believes this disciplined approach reduces integration risk and supports sustainable long-term value creation.

Product Portfolio Optimization and Margin Focus

With product structure optimization already underway, the Company's near-term priority is to reinforce high-value product and solution lines while maintaining operational discipline.

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Acoustic health-related products, system-level acoustic solutions, and customized AI-driven digital services are expected to remain central to the Company's value proposition.

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The Company will continue transitioning from transaction-based revenue toward solution-oriented and service-supported delivery models, supporting more predictable revenue characteristics.

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Standardization efforts will focus on internal modularization and operational efficiency, rather than rapid external product line expansion.

Financial and Operational Outlook

Management remains focused on profit quality, cost discipline, and sustainable growth in fiscal year 2026.

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Revenue contribution is expected to continue from existing solution-based contracts in the AI multimodal segment, alongside gradual contribution from acoustic product commercialization.

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Operating and R&D expenditures will remain closely aligned with identifiable business objectives and validation milestones.

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The Company anticipates that continued refinement of product mix and solution delivery will support further improvement in gross margin profile over time.

Market Trends and Industry Positioning

Management continues to believe that the convergence of acoustic technologies and AI-enabled systems presents long-term structural opportunities across multiple industries. However, the Company's near-term focus remains on practical application validation rather than broad market claims.

Key areas of continued relevance include:

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Healthcare and wellness applications emphasizing non-invasive, system-based solutions;

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Industrial and manufacturing scenarios requiring precision, stability, and repeatability;

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Enterprise digitalization services requiring integrated data processing and decision support.

Corporate Governance and Operational Discipline

The Company will continue to prioritize corporate governance, regulatory compliance, and internal control as core operational foundations during fiscal year 2026.

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Existing governance structures, internal control procedures, and disclosure processes will remain in place, with continued emphasis on execution consistency across operating entities.

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Management believes that maintaining governance discipline is essential to supporting the Company's ongoing transformation and international business activities.

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 December 31, 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 $155,731 and $152,907 allowances for slow-moving and obsolete inventory (mainly for Smart-Student Identification cards) as of December 31, 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 December 31, 2025.