Executive Summary / Key Takeaways

• Datasea Inc. is strategically transforming into a dual-engine technology enterprise, leveraging its Acoustic High-Tech and AI Multimodal Digitalization segments to drive cross-industry applications and achieve high-quality growth.
• The company reported record fiscal year 2025 revenue of $71.62 million, a 198.70% increase year-over-year, primarily fueled by the rapid expansion of its AI Multimodal Digitalization business and the strategic shift to solution-driven revenue in Acoustic High-Tech.
• Datasea's core technological differentiators, particularly its ultrasonic disinfection technology (99.83% efficacy against Covid-19 in nine seconds) and advanced AI multimodal algorithms, establish a competitive moat in high-value applications across healthcare, industrial, and agricultural sectors.
• Despite significant revenue growth and strategic advancements, Datasea faces a "going concern" uncertainty due to recurring losses and an accumulated deficit, necessitating continued focus on profitability and securing additional financing.
• The company's aggressive market expansion, including a 2B2C model in China and internationalization efforts in North America and Europe, alongside substantial R&D investment and M&A strategy, positions it for future growth in rapidly expanding markets like smart health wearables and digital rural services.

The Dual-Engine Strategy: Powering Datasea's Technological Evolution

Datasea Inc. (NASDAQ:DTSS) is strategically positioning itself at the confluence of two transformative technological currents: Acoustic High-Tech and AI Multimodal Digitalization. This dual-engine approach underpins the company's ambition to become a global leader in new-generation technology, establishing a unique competitive advantage in the burgeoning fields of acoustic intelligence and digital solutions. Operating primarily from China with an expanding international footprint, Datasea's strategy is to integrate cutting-edge acoustic science with advanced artificial intelligence to deliver innovative, cross-industry applications.

The broader industry landscape is characterized by rapid technological change and evolving standards, particularly in AI and IoT. The acoustic intelligence industry is experiencing rapid development, with its integration into next-generation information technologies continuously deepening. The market for acoustic components in China alone is projected to exceed RMB 46 billion by 2025, growing at a compound annual growth rate (CAGR) of 15.60% from 2021. Similarly, China's AI industry has already reached a market scale of nearly RMB 600 billion and is expected to maintain double-digit compound growth over the next decade. These macro trends provide a fertile ground for Datasea's specialized offerings.

Datasea's journey began in 2014, initially focusing on smart security solutions. A pivotal reverse merger in 2015 established its holding company structure, with core operations in China managed through a Variable Interest Entity (VIE). The company diversified into 5G messaging in early 2021, a segment that quickly became its fastest-growing, demonstrating robust market penetration. By 2022, Datasea expanded into acoustic intelligence, co-authoring China's first white paper on the industry and launching flagship products. This historical evolution underscores a consistent strategic pivot towards high-growth, technology-intensive sectors, laying the groundwork for its current dual-engine model.

Technological Edge: The Core of Datasea's Competitive Moat

Datasea's competitive differentiation is deeply rooted in its proprietary technological advancements across both its core segments. In Acoustic High-Tech, the company focuses on non-hearable mechanical wave effects, encompassing ultrasound, infrasound, and Schumann resonance technologies. This core technology is integrated with AI algorithms to create a robust system for collecting and processing acoustic data, addressing diverse challenges across multiple industries.

A prime example of this technological prowess is Datasea's ultrasonic disinfection technology. Leading laboratories, including the Wuhan Institute of Virology, have rigorously proven its effectiveness, demonstrating 99.83% efficacy against Covid-19 within nine seconds and 99.99% efficacy against Staphylococcus Albus and E. coli. This provides a broad-spectrum, non-selective disinfection alternative, offering a significant advantage in public health and environmental purification. The company's R&D extends to neuro-regulation, brain-computer interfaces, and industrial precision processing, with plans to develop ultrasonic 3D metal printing devices and acoustic plant growth promoters. The strategic intent is to achieve a global leading position in this field within three years, leveraging these quantifiable performance metrics to capture market share and command premium pricing.

In the AI Multimodal Digitalization segment, Datasea's core product is its self-developed Multimodal Intelligence Service Platform. This platform leverages the advanced Transformer model architecture, DeepSeek distributed training, and mixed-precision computing technologies. It enables real-time collection, analysis, and generation of text, voice, image, and video data, addressing cross-modal semantic inconsistencies through self-attention mechanisms. The platform's capabilities include multi-type data processing, cross-modal semantic calibration, business process automation, and intelligent recommendations and predictions. These technological capabilities translate into tangible benefits for customers, such as millisecond-level lesion detection in medical scenarios and real-time voice interactions in customer service, enhancing efficiency and accuracy. The company's R&D efforts are focused on optimizing these algorithms and expanding functional coverage across diverse applications like rural revitalization, beauty/health, and SME services, strengthening the high-margin characteristics of the business.

Financial Performance: A Trajectory of Growth and Transformation

Datasea's financial performance in fiscal year 2025 reflects a significant inflection point, driven by its strategic dual-engine transformation. The company reported record revenue of $71.62 million for the fiscal year ended June 30, 2025, marking a substantial 198.70% increase compared to $23.98 million in fiscal year 2024. This impressive growth was primarily propelled by the rapid expansion of its AI Multimodal Digitalization business, which generated $70.68 million in revenue for FY2025, a 194.86% increase from the previous year. The Acoustic High-Tech segment also contributed approximately $527,110 (RMB 3.77 million) from comprehensive acoustic technology solutions.

The company's gross profit for FY2025 surged to $2.44 million, a 415.49% increase from $474,105 in FY2024. This improvement in gross margin to 3.40% (from 2% in FY2024) is attributed to higher sales volumes and a strategic shift towards high-margin customized solution projects, particularly within the AI Multimodal Digitalization segment, where solutions delivered a gross margin exceeding 60%. This indicates a successful optimization of the business structure and effective cost control. Operating expenses decreased by 39.69% to $7.60 million in FY2025, primarily due to a $5.05 million reduction in stock compensation expense, alongside a decrease in advertising and marketing. Despite increased R&D investment, which rose by 154.60% to $914,996 in FY2025, the overall reduction in operating expenses contributed to a significant narrowing of the net loss. The net loss from continuing operations decreased by 58.40% to $5.09 million in FY2025, down from $12.21 million in FY2024, signaling a stable and recovering trend towards profitability.

In terms of liquidity, Datasea's cash balance increased by 242.49% to $620,807 as of June 30, 2025, primarily due to successful financing activities. While the company still reported a working capital deficit of $704,978, this represents an improvement from $952,090 in the prior year. Outstanding bank loans increased to $2.37 million in FY2025, reflecting the company's ability to secure financing, which it attributes to its strong credit standing.

Historically, operations have been funded through stock sales and shareholder loans, and management anticipates continued reliance on these sources, along with future equity or debt issuances, to support growth and address cash flow needs.

Competitive Landscape: Niche Innovation Against Established Giants

Datasea operates in a competitive landscape characterized by both large, established players and agile, niche innovators. In the smart security and AI solutions space, direct competitors include Hikvision (002415.SZ), Dahua Technology (002236.SZ), and global tech giant Cisco Systems (CSCO).

Hikvision, a leader in video surveillance and AI security, demonstrates strong financial performance with a gross profit margin of 44% and an operating profit margin of 15% in 2024. Its strengths lie in a broad global presence and advanced surveillance technology. Dahua Technology, another Chinese powerhouse, also shows robust margins (39% gross, 9% operating in 2024) and excels in cost-effective solutions. Cisco Systems, a global leader, boasts even higher margins (64% gross, 23% operating in 2025) and deep expertise in cloud-based security.

Datasea, with its TTM gross profit margin of 3.41% and operating profit margin of -7.20%, currently lags these larger competitors in overall profitability and scale. However, Datasea's competitive positioning is built on its agility and specialization in niche applications. Its focus on customized smart 3D security platforms and big data solutions for specific sectors like campuses and communities, coupled with its 5G messaging integration, offers greater flexibility and localized compliance compared to the more generalized offerings of its larger rivals. For instance, Datasea's ultrasonic disinfection technology provides a unique, quantifiable advantage in health-security applications, a segment where traditional surveillance giants may not have comparable specialized offerings.

The company's "first-mover advantage" in China's 5G messaging industry, authorized by three major Chinese operators, grants it access to a vast national market of 1.6 billion mobile users. This deep market localization and comprehensive product portfolio, including its own online cloud platforms, are critical differentiators against global players like Cisco, which may face challenges in adapting to specific Chinese market dynamics. Datasea's strategic partnerships with top research institutions and its role in co-authoring China's first "Acoustic High-Tech Industry White Paper" further solidify its position as a trailblazer in emerging technologies. While its smaller scale presents vulnerabilities in terms of operational costs and resource depth compared to its larger rivals, Datasea's ability to innovate rapidly and tailor solutions for high-growth scenarios, such as smart health wearables and digital rural services, allows it to carve out significant market share in specialized segments.

Outlook and Strategic Imperatives

Datasea's management expresses strong confidence in the company's future growth, projecting an annual revenue of $90 million and anticipating profitability in the coming fiscal year. This outlook is underpinned by several strategic imperatives and market tailwinds. The company plans to significantly increase R&D investment, particularly in integrating acoustic technologies with AI, targeting breakthroughs in neuro-regulation, brain-computer interfaces, and ultrasonic precision machining. The AI multimodal digital platform will further enhance cross-industry capabilities in data processing, speech recognition, and intelligent prediction, optimizing algorithms and exploring emerging technologies like deep learning.

Accelerated market expansion and internationalization are key priorities. Datasea aims to strengthen its domestic presence in healthcare, beauty, agriculture, and environmental protection through a dual approach of e-commerce and offline stores, while expanding its B2B client base with solution-based services. Internationally, the company is focusing on the U.S. and European markets, pursuing partnerships and localized product introductions through Datasea Acoustics LLC. The company expects to generate up to $0.98 million in service revenue from its smart insoles cooperation and anticipates expanding sales of acoustic disinfection products in the U.S. market after international certification. Agreements with beauty and health management companies are projected to yield an additional $17.8 million in revenue from the sale of acoustic products and 5G AI digital service systems by the end of 2025.

Strategic M&A and partnerships will play a crucial role in enhancing the industrial chain, with targets including acoustic technology companies, AI and big data firms, and industry application companies. This "cooperation first, acquisition later" approach aims to accelerate technological breakthroughs and market expansion. The company's long-term objective is to achieve cross-industry, multi-scenario global applications within three to five years, building a sustainable path of steady growth and optimizing its product mix towards high-margin offerings.

Risks and Challenges

Despite the ambitious growth strategy, Datasea faces several pertinent risks that could impact its investment thesis. The company's independent auditor has raised "substantial doubt about our ability to continue as a going concern" due to recurring losses and an accumulated deficit. While management is focused on generating recurring revenues and securing additional financing, there is no assurance that such funds will be available on favorable terms.

Operational risks are significant, particularly given that the majority of Datasea's business is based in China. The Variable Interest Entity (VIE) structure, crucial for its Chinese operations, is subject to regulatory scrutiny and potential changes in PRC laws, which could lead to severe penalties or loss of control over operations. Furthermore, international tariffs and worsening U.S.-China relations could materially and adversely affect business and financial results. Compliance with China's evolving data security and cybersecurity laws (e.g., Data Security Law, Personal Information Protection Law) entails significant expenses and could impact operations.

Internally, the company's limited operating history in certain high-tech areas and reliance on third-party contract manufacturers for product production pose risks related to supply chain disruptions and quality control. The effectiveness of internal controls over financial reporting was deemed "not effective" as of June 30, 2025, due to issues like unclear segregation of duties and a lack of U.S. GAAP-trained personnel, which could affect investor confidence. The company's success also heavily depends on retaining key personnel, including its CEO and Chairman, Ms. Zhixin Liu, and Director Mr. Fu Liu, whose loss could materially impact business development. The thinly traded nature of its common stock also presents liquidity risks for investors.

Conclusion

Datasea Inc. stands at a pivotal juncture, actively transforming into a technology powerhouse driven by its Acoustic High-Tech and AI Multimodal Digitalization segments. The company's record revenue growth in fiscal year 2025, fueled by expanding AI services and a strategic shift towards high-margin acoustic solutions, underscores its operational effectiveness and market traction. Its differentiated technologies, particularly in ultrasonic disinfection and advanced AI algorithms, provide a strong competitive foundation in high-growth sectors like smart health wearables and digital rural services.

While the company's "going concern" status and the inherent complexities of operating within China's regulatory environment present notable risks, Datasea's aggressive R&D investment, strategic market expansion plans, and commitment to technological leadership are clear indicators of its long-term vision. The ability to successfully execute its internationalization strategy, optimize its product mix for higher profitability, and secure necessary financing will be critical in translating its technological advantages and market opportunities into sustained shareholder value. The investment thesis hinges on Datasea's continued ability to innovate and adapt, leveraging its unique technological capabilities to capture market share in rapidly evolving global tech landscapes.