United States securities and exchange commission logo
February 16, 2022
Zhixin Liu
Chief Executive Officer
Datasea Inc.
20th Floor, Tower B, Guorui Plaza
1 Ronghua South Road, Technological Development Zone
Beijing, People s Republic of China 100176
Re: Datasea Inc.
Form 10-K for
fiscal year ended June 30, 2021
Filed September 28,
2021
File No. 001-38767
Dear Ms. Liu:
We have limited our review of your filing to the financial
statements and related
disclosures and have the following comments. In some of our comments, we
may ask you to
provide us with information so we may better understand your disclosure.
Please respond to these comments within ten business days by
providing the requested
information or advise us as soon as possible when you will respond. If
you do not believe our
comments apply to your facts and circumstances, please tell us why in
your response.
After reviewing your
response to these comments, we may have additional comments.
Form 10-K for fiscal year ended June 30, 2021
Part I
Item 1. Description of Business, page 1
1. We note your
definitions on page i. At the onset of Part I, clearly disclose how you will
refer to the holding
company, subsidiaries, and VIE when providing the disclosure
throughout the document
so that it is clear to investors which entity the disclosure is
referencing and which
subsidiaries or entities are conducting the business operations.
Refrain from using
terms such as the "Company", we or our when describing
activities or functions
of a VIE and refrain from using "our VIE" when referring to the
VIE. For example,
disclose, if true, that your subsidiaries and/or the VIE conduct
operations in China and
that the VIE is consolidated for accounting purposes, but is not an
entity in which you own
equity. Disclose clearly the entity (including the domicile) in
which investors
purchase an interest.
Zhixin Liu
Datasea Inc.
February 16, 2022
Page 2
2. At the onset of Part I, please provide prominent disclosure that
having your operations
conducted by your subsidiaries and through contractual arrangements
with a variable
interest entity (VIE) based in China involves unique risks to
investors. If true, disclose
that these contracts have not been tested in court. Explain whether
the VIE structure is
used to provide investors with exposure to foreign investment in
China-based companies
where Chinese law prohibits direct foreign investment in the operating
companies, and
disclose that investors may never hold equity interests in the Chinese
operating company.
Your disclosure should acknowledge that Chinese regulatory authorities
could disallow
this structure, which would likely result in a material change in your
operations and/or a
material change in the value of your securities, including that it
could cause the value of
such securities to significantly decline or become worthless. Provide
a cross-reference to
your detailed discussion of risks facing the company as a result of
this structure.
3. We note your disclosures regarding VIE agreements and corporate
structure on pages 23
and 24. At the onset of Part I, please provide a diagram of the
company s corporate
structure, identifying the person or entity that owns the equity in
each depicted entity.
Describe all contracts and arrangements through which you claim to
have economic rights
and exercise control that results in consolidation of the VIE s
operations and financial
results into your financial statements. Identify clearly the
entity(ies) in which the
company s operations are conducted. Describe the relevant
contractual agreements
between the entities and how this type of corporate structure may
affect investors and the
value of their investment, including how and why the contractual
arrangements may be
less effective than direct ownership and that the company may incur
substantial costs to
enforce the terms of the arrangements. Disclose the uncertainties
regarding the status of
the rights of the United States holding company with respect to its
contractual
arrangements with the VIE, its founders and owners, and the challenges
the company may
face enforcing these contractual agreements due to legal uncertainties
and jurisdictional
limits.
4. We note your disclosure that you control and receive the economic
benefits of your VIE's
business operations through contractual arrangements and on page i you
disclose that the
VIE agreements give you control of the entity and effective ownership of
its
assets. However, neither the investors in the holding company nor the
holding company
itself have an equity ownership in, direct foreign investment in, or
control of, through such
ownership or investment, the VIE. Accordingly, please refrain from
implying that the
contractual agreements are equivalent to equity ownership in the
business of the VIE. Any
references to control or benefits that accrue to you because of the VIE
should be limited to
FirstName LastNameZhixin Liu
a clear description of the conditions you have satisfied for
consolidation of the VIE under
Comapany
U.S.NameDatasea Inc.
GAAP. Additionally, your disclosure should clarify that you
are the primary
beneficiary of the
February 16, 2022 Page 2 VIE for accounting purposes.
FirstName LastName
Zhixin Liu
FirstName
Datasea Inc.LastNameZhixin Liu
Comapany16,
February NameDatasea
2022 Inc.
February
Page 3 16, 2022 Page 3
FirstName LastName
5. We note that the consolidated VIE constitutes a material part of your
consolidated
financial statements. At the onset of Part I, please provide in
tabular form a condensed
consolidating schedule that disaggregates the operations and depicts
the financial position,
cash flows, and results of operations as of the same dates and for the
same periods for
which audited consolidated financial statements are required. The
schedule should present
major line items, such as revenue and cost of goods/services, and
subtotals and
disaggregated intercompany amounts, such as separate line items for
intercompany
receivables and investment in subsidiary. The schedule should also
disaggregate the
parent company, the VIE and its consolidated subsidiaries, the WFOEs
that are the
primary beneficiary of the VIE, and an aggregation of other entities
that are consolidated.
The objective of this disclosure is to allow an investor to evaluate
the nature of assets held
by, and the operations of, entities apart from the VIE, as well as the
nature and amounts
associated with intercompany transactions. Any intercompany amounts
should be
presented on a gross basis and when necessary, additional disclosure
about such amounts
should be included in order to make the information presented not
misleading.
6. At the onset of Part I, please provide a clear description of how cash
is transferred through
your organization. Disclose your intentions to distribute earnings or
settle amounts owed
under the VIE agreements. Quantify any cash flows and transfers of
other assets by type
that have occurred between the holding company, its subsidiaries, and
the consolidated
VIE, and the direction of transfer. Quantify any dividends or
distributions that a
subsidiary or consolidated VIE have made to the holding company and
which entity made
such transfer, and their tax consequences. Similarly quantify
dividends or distributions
made to U.S. investors, the source, and their tax consequences. Your
disclosure should
make clear if no transfers, dividends, or distributions have been made
to date. Describe
any restrictions on foreign exchange and your ability to transfer cash
between entities,
across borders, and to U.S. investors. Describe any restrictions and
limitations on your
ability to distribute earnings from the company, including your
subsidiaries and/or the
consolidated VIE, to the parent company and U.S. investors as well as
the ability to settle
amounts owed under the VIE agreements. Provide cross-references to the
condensed
consolidating schedule and the consolidated financial statements
7. We note your risk factor summary on page 43. At the onset of Part I,
please revise to
include a summary of risk factors and disclose the risks that your
corporate structure and
being based in or having the majority of the company s operations in
China poses to
investors. In particular, describe the significant regulatory,
liquidity, and enforcement
risks with cross-references to the more detailed discussion of these
risks. For example,
specifically discuss risks arising from the legal system in China,
including risks and
uncertainties regarding the enforcement of laws and that rules and
regulations in China
can change quickly with little advance notice; and the risk that the
Chinese government
may intervene or influence your operations at any time, or may exert
more control over
offerings conducted overseas and/or foreign investment in China-based
issuers, which
could result in a material change in your operations and/or the value
of your securities.
Zhixin Liu
FirstName
Datasea Inc.LastNameZhixin Liu
Comapany16,
February NameDatasea
2022 Inc.
February
Page 4 16, 2022 Page 4
FirstName LastName
Acknowledge any risks that any actions by the Chinese government to
exert more
oversight and control over offerings that are conducted overseas
and/or foreign investment
in China-based issuers could significantly limit or completely hinder
your ability to offer
or continue to offer securities to investors and cause the value of
such securities to
significantly decline or be worthless.
8. At the onset of Part I, provide prominent disclosure about the legal
and operational risks
associated with having the substantial majority of the company s
operations in China.
Your disclosure should make clear whether these risks could result in
a material change in
your operations and/or the value of your shares and/or could
significantly limit or
completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless. Your disclosure
should address how recent statements and regulatory actions by China
s government, such
as those related to the use of variable interest entities and data
security or anti-monopoly
concerns, have or may impact the company s ability to conduct its
business, accept
foreign investments, or list on a U.S. or other foreign exchange.
Also, disclose that
trading in your securities may be prohibited under the Holding Foreign
Companies
Accountable Act (HFCAA) if the PCAOB determines that it cannot inspect
or investigate
completely your auditor, and that as a result an exchange may
determine to delist your
securities. Disclose whether your auditor is subject to the
determinations announced by
the PCAOB on December 16, 2021.
9. We note disclosure on page 41 regarding government regulation and
licenses. At the onset
of Part I, please disclose each permission or approval that you, your
subsidiaries, or the
VIE are required to obtain from Chinese authorities to operate your
business and to offer
the securities being registered to foreign investors. State whether
you, your subsidiaries, or
the VIE are covered by permissions requirements from the China
Securities Regulatory
Commission (CSRC), Cyberspace Administration of China (CAC) or any
other
governmental agency that is required to approve the VIE s
operations, and state
affirmatively whether you have received all requisite permissions or
approvals and
whether any permissions or approvals have been denied. State clearly
if you have obtained
the required license under Order 32 and whether you have obtained CRSC
approval for
the listing and trading of your securities in the U.S. Please also
describe the consequences
to you and your investors if you, your subsidiaries, or the VIE: (i)
do not receive or
maintain such permissions or approvals, (ii) inadvertently conclude
that such permissions
or approvals are not required, or (iii) applicable laws, regulations,
or interpretations
change and you are required to obtain such permissions or approvals in
the future.
Item 1A. Risk Factors, page 49
10. We note your disclosure on page 64 about the Holding Foreign Companies
Accountable
Act. Please expand your risk factors to disclose that the United
States Senate has passed
the Accelerating Holding Foreign Companies Accountable Act, which, if
enacted, would
decrease the number of non-inspection years from three years to
two years, and thus,
Zhixin Liu
Datasea Inc.
February 16, 2022
Page 5
would reduce the time before your securities may be prohibited from
trading or delisted.
Update your disclosure to reflect that the Commission adopted rules to
implement the
HFCAA and that, pursuant to the HFCAA, the PCAOB has issued its report
notifying the
Commission of its determination that it is unable to inspect or
investigate completely
accounting firms headquartered in mainland China or Hong Kong. In
addition, while we
note that you have a U.S. based auditor that is registered with the
PCAOB and currently
subject to PCAOB inspection, please disclose any material risk to the
company and
investors if it is later determined that the PCAOB is unable to
inspect or investigate
completely your auditor because of a position taken by an authority in
a foreign
jurisdiction. For example, disclose that lack of inspection could
cause trading in your
securities to be prohibited under the HFCAA and as a result an
exchange may determine
to delist your securities. Also ensure you address the impact that the
lack of PCAOB
inspection may have on your securities in the risk factor summary on
page 45.
11. We note you disclosures on page 57 regarding the risks and
uncertainties of the policies of
the PRC government. Given the Chinese government s significant
oversight and
discretion over the conduct of your business, please revise to
highlight the risk that the
Chinese government may intervene or influence your operations at any
time, which could
result in a material change in your operations and/or the value of
your securities. Also,
given recent statements by the Chinese government indicating an intent
to exert more
oversight and control over offerings that are conducted overseas
and/or foreign investment
in China-based issuers, acknowledge the risk that any such action
could significantly limit
or completely hinder your ability to offer or continue to offer
securities to investors and
cause the value of such securities to significantly decline or be
worthless.
12. We note your disclosure on page 65 regarding recent actions by the
CAC. In light of
recent events indicating greater oversight by the CAC over data
security, particularly for
companies seeking to list on a foreign exchange, please revise your
disclosure to explain
how this oversight impacts your business and to what extent you
believe that you are
compliant with the regulations or policies that have been issued by
the CAC to date.
Item 9A. Controls and Procedures, page 80
13. Please revise management s report to identify the version of the
Committee of Sponsoring
FirstName LastNameZhixin Liu
Organizations of the Treadway Commission (COSO) Internal Control -
Integrated
Comapany NameDatasea
Framework Inc.
that was used to perform your assessment, (i.e., the 1992
Framework or the
Updated
February Framework
16, 2022 Page 5 issued in 2013). Please refer to Item 308(a)(2) of
Regulation S-K.
FirstName LastName
Zhixin Liu
FirstName
Datasea Inc.LastNameZhixin Liu
Comapany16,
February NameDatasea
2022 Inc.
February
Page 6 16, 2022 Page 6
FirstName LastName
In closing, we remind you that the company and its management are
responsible for the
accuracy and adequacy of their disclosures, notwithstanding any review,
comments, action or
absence of action by the staff.
You may contact Joyce Sweeney, Senior Staff Accountant, at (202)
551-3449 or
Kathleen Collins, Accounting Branch Chief, at (202) 551-3499 with any
questions.
Sincerely,
Division of
Corporation Finance
Office of Technology