Datasea Inc.

Greetings. Welcome to DataC's second quarter of fiscal year 2022 financial highlights and updates. At this time, all participants are in a listen-only mode. The question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero from your telephone keypad. Please note, this conference is being recorded. I'll now turn the conference over to Annabelle Zhang. Annabelle, you may now begin.

Okay. Thank you so much, and good day, everyone. Welcome to Dead Sea's second quarter fiscal year 2022 financial results conference call. With us today are Sunny Liu, Chief Executive Officer, Kathy Sun, Chief Financial Officer, and Ann Beljong. I'm the principal IR contact in the U.S. This call is also being webcast from the website. A replay of this call will be available later today. Please refer to the press release for more details. Let me quickly go over the safe harbor statement. So today's discussion may contain forward-looking statements. Forward-looking statements involve inherent risks and uncertainties that may cause actual results to differ materially from our current expectations. For detailed discussion of these risks and uncertainties, please refer to our latest quarterly report on Form 10-Q and other documents filed with the USFEC. Any forward-looking statements that we make on this call are based on assumptions as of today, and we do not undertake any obligation to update these statements, except as required under applicable law. In addition, during today's call, CEO will give the prepared remarks in Chinese first, and a translator will provide consecutive translation in English. Other management team member will give their prepared remarks in English. During the Q&A session, we will take questions in both English and also Chinese, and the translator will provide consecutive translations. All translations are for convenience purposes only. In the case of any discrepancies, management statements in the original language will prevail. With that, I will now turn the call over to the CEO of DataCity, Sunny Liu. Sunny, please go ahead.

Good morning, ladies and gentlemen. My name is Sunny Liu. I am the CEO of DataC. Thanks for joining us today for the second quarter earnings report conference call. Shuhai shares were established in the United States in September 2014. In 2018, it was listed on Nasdaq. Our mission is to become a well-known high-tech cross-border group. Our mission is to create and develop advanced artificial intelligence technology that provides advanced artificial intelligence technology for business and retail customers around the world, and to lead the digital world.

DataC was incorporated in Nevada in September 2014 and listed on NASDAQ in 2018. Our vision is to become a well-known high-tech multinational corporation. Our mission is to provide cutting-edge artificial intelligence, including 5G messaging, acoustic intelligence, and digital smart city to both commercial and retail customers globally. 通过全体员工的共同努力,

Shuhai has become China's leading 5G communication service provider, China's 5G news work group management unit, and will continue to use the innovation advantage of entering the industry as early as possible to establish brand recognition and customer loyalty, and comprehensive market share.

Through the great efforts of the team, DataC became China's leading 5G messaging service provider, and we will continue to build on the first mover advantages to enhance brand awareness, build customer loyalty, and drive market share. 此外,得益于公司的专有技术和业务线之间的巨大的系统效应。

The company and the Ministry of Public Information, Artificial Intelligence, Key Technology and Application Review Work and Informatization重点实验室, China Information and Communication Research Institute, Yun Calculation and Big Data Research Institute, jointly published the first white paper of the Chinese biotechnology industry. At the same time, the company's series of biotechnology products, In addition, benefiting from the great synergy between our proprietary technology and business lines, DataCity, together with MIT, Ministry of Industry and Information Technology,

Key Octel Laboratory stands for artificial intelligence, key technology, application evaluation, and informatization. And the Cloud Computing and Big Data Institute of CAIT, China Academy of Information and Communications Technology, jointly released the first white paper on China's acoustic intelligence industry. At the same time, the company's series of acoustic intelligence products will create huge demand change how people work and live, and drive an industrial revolution. The smart city will also enter an explosive growth period with the development of the society.

为了有效地实现公司顶层设计和战略目标, 管理层计划为以下几点。 利用市场推广,继续积极开拓5G通信业务。

To achieve the strategic objective, we have set the following plans. Continue to aggressively promote our 5G messaging services. Establish competitive advantages in the acoustic intelligence segment through innovation and product differentiation, both in the domestic and international markets.

Team up with domestic and international technology institutions to strengthen our research and development capabilities and accelerate the development of the next generation products.

and lay the groundwork for international intellectual property rights to enhance our brand awareness and business goodwill.

Expand into overseas markets, such as high-consumption-rate Western countries,

and high GDP growth in Southeast Asian countries, and optimize our capital structure and lower our financing costs. create strategic alliance with potential partners via M&A or joint venture activities, and provide outstanding customer service, exclusive customer experience, and appropriate transparency in the marketing to build strong customer loyalty.

管理层认为,中国市场给予了包括5G在内的众多行业的持续发展非常多的政策支持。 For example, the 14.5 Technology Innovation Project, the Ministry of Industry and Trade's announcement about the promotion and acceleration of 5G applications, the new generation of artificial intelligence development plans, etc. are extremely beneficial to all business models of the company. At the same time, it is also a GDP growth rate target for the country to carry out industrial upgrade and economic transformation to maintain 5% to 6% GDP growth rate.

The management team believes that current government policies are extremely pro-market, including the 5G messaging services. For example, the 14th Five-Year Technology Innovation Plan, the MIIT's announcement on promoting and accelerating 5G applications, and a new generation artificial intelligence development plan are all highly favorable to all business segments at DataC. Our business is highly aligned with China's key objective of five to 6% GDP growth for industrial upgrade and transformation. Government policies are no doubt the most significant driver for DataC's domestic growth.

In addition, our potential to become an international enterprise is built on our 5G and acoustic intelligence technology and their broad market applications.

to provide solutions to customers on a global scale.

基于中国在全球人口比例最高, 各类应用层需求巨大。 根据Dow Insights发布的统计数据, 到2025年中国国内5G消息, and smart digital cities will reach 4 trillion yuan, about $628.8 billion, $3 trillion, about $471.6 billion, and $1.1 trillion, about $1,729.3 billion. The annual growth rate is over 25%.

The management team is optimistic about industry outlook based on the tremendous demand generated from various types of applications driven by the largest population in the world. According to the statistics released by Dow Insight, the market size of smart cities, 5G messaging, and acoustic intelligence will reach, respectively, RMB 400 billion, approximately 62.9 billion US, RMB 300 billion, approximately 47.2 billion US, and RMB 1.1 trillion, approximately 172.9 billion US in 2025, with a total 25% plus CAGR. The growth rate outpaces the overall economy and the majority of the other industries.

Before I hand the phone to our CFO, I would like to ask our representative from the New

to introduce the company's key progresses in 5G messaging, acoustic intelligence, and other businesses during the second quarter. Thank you.

Okay. Thank you, Sunny, and thank you, Rachel. Sunny just shed light on the DataSys long-term development strategies. I'm going to dive deeper into the recent business developments in the second quarter. DTC continues to make progress in three convergent and innovative business segments, 5G messaging, acoustic intelligence, and smart saving in China. Based on our financial results in business development for the quarter ended December 31, 2021, the management team believes that our business development is on track and is supported by a strong product portfolio. These three strategic areas will establish solid foundations of DataCity's long-term goal of sustainable growth in the future. Okay, so first let me introduce the business developments in terms of 5G messaging. For the 5G messaging business, this is the fastest growing business line in DataCity. And the commonest flagship product is 5G IMMCP, integrated message marketing cloud platform, which aims to unify customer and prospect marketing signals in a single view. The company's recent business developments can be categorized in three parts. First, client expansion and diversification. Since 2021, as a leading service provider in the field of 5G messaging in China, the company has been engaged for services by over 100 institutional clients from express delivery, catering, tourism, e-commerce, financing, and technology industry to establish messaging marketing cloud platform. In terms of marketing and also sales expansion, from October 2021 to the end of December 2021, the company was engaged in various contracts that were related to SMS integrated 5G messaging marketing cloud platform, and value-added services, with an overall contract value of approximately $14.73 million, among which $9.6 million worth of services have been delivered. In terms of industry recognition, DevSea is becoming a key player in 5G messaging and initiating the industry efforts to promote 5G messaging R&D and application. In December 2021, the company assisted ZTO Express to complete the first placement order through 5G messaging services in express delivery industry. The company cooperated with the National Engineering Lab for Logistic Information Technology and continually worked to promote the formulation of 5G messaging standards in the express industry. In nutshell, DataC is one of the first movers in the 5G messaging industry and has built certain business momentum. And please remember, the market is only at its beginnings. We do not only provide 5G messaging services to a broad range of institutional customers, but also has begun to become one of the core suppliers to assist companies to reach hundreds of millions of mobile phone users in China via 5G messaging. The second strategic business segment for DataC is acoustic intelligence. The company commits to tap acoustic intelligence for business potential and wield acoustic intelligence across industries in meaningful ways. We are determined to become a leading technology and also product provider in the field of acoustic intelligence in China and worldwide. In terms of research partnerships, the company has entered into partnerships with top-notch institutions in this area, equipped itself with solid R&D capability, and released China's inaugural white papers. Industry Development and Technology Application of Acoustic Intelligence in China with co-authors Institute of Cloud Computing and Big Data, China Academy of Information and Communication Technology. When it comes to the product lineup, currently, the company has four flagship products to unfold the commercial possibilities of acoustic intelligence in the most wanted areas, such as health, security, and environmental protection. These products are, first, ultrasonic sound sterilization and antivirus equipment, which is the first ever sterilization and antivirus equipment that combines ultrasonic sound effects with optics to address the COVID-19 disinfecting needs. The second product is TNR, voice recognition alarm. which is a product processing real-time sound data necessary to conduct early warning analysis and actively respond to the emergency incidents and threats. Third, directional sound recognizer, which is a solution for noise pollution. Last but not least, sound effect refreshing directional sound device. DataC has prepared samples, completed lab tests, and also user pilot tests and entered mass production to varying degrees for these products. And these products are expected to be introduced to the market in the fiscal year of 2022. Acoustic intelligence industry is under rapid expansion. In the future, acoustic intelligence will be more mature with extensive applications. With the integration of acoustic intelligence, scenario-based solutions will be enhanced. technological progress will unlock tremendous business opportunities and potentials in real economy. The third strategic area for the company to tap into is smart city. DataC has visual intelligence algorithms such as face recognition, as well as cutting edge acoustic and non-visual intelligence algorithms. DataC combines artificial intelligence, machine learning, and also data analysis capabilities so that our solutions not only provide visibility, but also identify behavioral patterns. Based on that, we provide a digital smart city application platform that meets the needs of residential communities, schools, and commercial enterprises in the Chinese market. In terms of client expansion, From October 2021 to the end of December 2021, the company was engaged in various contracts that were related to smart community solutions and food safety supervision system of the smart canteen. In terms of product updates, the company recently laid out a series of upgrades to meet with the client's needs in different scenarios, and enhance the system's analysis efficiency and integration capability. Technology is a major differentiator between our competitors and us. During the quarter ended December 31, 2021, DataSea has eight newly registered software copyrights and patents. We will continue to focus on technology capability building value creation, and a diversified product portfolio approach to growth. We firmly believe that our strategy and execution will bring meat to long-term returns to our customers and investors. Okay, now I will turn it over to Cathy, who will walk you through the details of our financial results. Please go ahead, Cathy. Good morning, everyone. My name is Cassie Sun, and I am the CFO of DataCN. It's my pleasure to introduce the Q2 financial highlights. Firstly, the total revenue of Q2 increased rapidly compared to last quarter, which recorded a 900% growth. On top of that, blue-chip customers are accumulating. Business model is proven. and strong cash flow are generated. The net income changed positively first time ever in the most recent three-month period. Secondly, DataSea established the leadership position in the acoustic intelligence industry in terms of innovation and resource allocation. Recently, the white paper was jointly released with the partnership of versatile R&D institutions. Finally, the business segments of DataZ are policy-driven by the central government. Fourteen five-year plans, notice of the Ministry of Industry and Information Technology, made in China 2025. From July 2021, to December 2021, the company generated a revenue of $9,650,609, consisting of 5G business with an amount of $9,916,811.12, including $7,786,000 $104.56 from 5G SMS, $1,830,706.56 from 5G IMMCP mobile projects on the cloud as value added service, and $33,797.88 from smart city projects. The three major business lines started full operations while the 5G messaging segment is developing rapidly with a tremendous growth rate over 900% compared to the immediate prior quarter ended September 30, 2021. The sales amount of 8 million $979,479 for the three months ended December 31, 2021 was generated, which is a 7,016% increase from the same period of last year. It consisted of 5G SMS 7,786,000 $1.456, and 5G IMMCP and V8, $1,830,706.56. The surge is due to the expansion of the company's business towards 5G messaging in fiscal year 2021. For the three months ended December 31, 2021, revenues mainly consisted of service fee from the 5G SMS service platform. As the company proceeds into the later stage of the 5G messaging business, three factors will help equip the company with more flexibility in pricing and improving the growth measures. First, costs will be spread over a large number of products as the company keeps scaling the customers and increasing their productivity. Second, growing brand recognition and the technology capabilities to serve clients with complex needs will help strengthen the company's pricing power. Third, After the commercialization of 5G messaging in the Chinese market, expected in the first quarter of 2022, the target customers and the product forms will be expanded. For example, the company may provide the 5G IMMCP as SaaS software, customization, and value-added services to improve profit margins. No doubt, the asset management is extremely efficient and effective. Comparing to the skyrocketed revenue, the total asset of Theta Z is $11,873,723, which just increased 16.77% from last quarter. As of January 1, 2022, The total liabilities of DataC is $6,802,163, which shows a 78.86% increase from previous periods. The surge of liabilities is due to matching the accounts payable with accounts receivable. The level of working capital is optimally well positioned. As indicated in the balance sheet, DataSeq's total equity is $5,071,560, a 20.33% decrease from last quarter. It is amazing that the amount of equity is decreasing when scales are increasing. The major shareholders have better control in terms of voting rights by taking advantage of adjusting the capital structure. As shown, the total assets is $10,168,614. Besides the cash received from seasoned offerings, the total amount of assets grew constantly quarter by quarter. due to the increase in accounts receivable for the proposed of generating mold silk. The fixed assets didn't have much change because most of the patients were obtained a year ago, and the production is outsourced to third parties. As of December 31st, 2021, accounts receivable is 5 million. $223,231, and accounts payable is $5,365,756. The amount of accounts payable is approximately the same as accounts receivable, which means the weight average of cost of capital is in optimal level for financing current assets. and the maturity matching of short-term debt is perfectly achieved. For Q1 plus Q2, cash flow of operating activities is negative $3,824,622, which shows a 73.19% decrease from previous periods. Cash flow for investing activities is negative $284,124. That indicates a 2,903.15% decrease from previous periods. Cash flow from financing activities is $6,237,254, which shows 14.04% decrease from previous periods. Going forward, as the 5G messaging business getting more penetrated by customers, the acoustic intelligence products start mass production, and the digital smart city business gains more market share. The third quarter revenue of this fiscal year is predicted to be $36,435,215, which is a 300% growth rate from last three months. Before I finish my remarks, I would like to thank our chairwoman, Sammy Liu, for her outstanding leadership and the great contribution for making 2022 successful.

Thank you. Now I transfer to our holder.

Annabella, John, please. Yeah, so we already finished all of our English remarks. And going forward, we can do the Q&A session. And so if you're online and you have any questions to raise about the company, if you access by the webcast, there's a Q&A session below. And if you call, there's already instructions beforehand to give you some instructions on the Q&A session. So you can feel free to raise any questions for the company. And right now, we have some questions that have already been proposed. Okay. So this question is proposed by Scott John, which is from the Morgan Capital. And his first question is for the CEO. Does the CEO feel confident to keep the growth rate for this quarter? And what may derail you from this type of growth? So can CEO address that? Before that, can the translator please translate this question in Chinese for the CEO? Thank you.

第一个问题是给到CEO桑尼留的。 这个问题是说,作为CEO来讲, 你对于接下去下一个季度的增长是否有信心? Annabelle, you mentioned there was a second question. Could you repeat the second one? The first one is about confidence.

Yeah, the second one is what may derail you from the type of growth? Got it.

Thank you. 刚才是第一个问题。 第二个问题是在接下来的发展中 有没有任何的风险因素 让Data C做不到预期的增长? 嗯。

What is the second question?

I will repeat the question. The question is, how much confidence does the CEO have in the growth of the next quarter?

The second question is, I am extremely confident about our projected growth in the next quarter and beyond.

Yes, we have confidence in the company's business.

But due to the influence of some policies, we can't control the risk factors.

But currently, the policies of some countries are relatively clear.

There will be no risk factors.

In terms of our growth project, as I said, I'm extremely confident about our growth prospect. But in terms of potential risks out there, obviously, government policies is a factor that's beyond our control. But from what we understand, we'll have seen so far the government policies, as I mentioned earlier, extremely pro-market.

Okay, so that's everything the company wants to share in terms of the first question, right? Just want to make sure. 刘总,还有没有其他的针对刚才那个问题的答复? If that's all for the first question, we can proceed with our Q&A session. The next question is also from the analyst from the Morgan Capital. And the question is, the company delivered over 7,000% return growth. but the company is still at a loss. What's the cost, and when will the company expect to be profitable?

I think this question is better to be handled to the CFO.

I just want to add to the question asked earlier about the potential risk will impact our growth.

Just want to reiterate, we are extremely actually confident about the government policy. We are confident the policy will stay in its current direction to be really pro-market, promoting 5G services and domestic in China, really. So even though it's something beyond our control, but overall, we don't really consider that a risk factor because of a direction that the government is currently taking.

Okay, thank you.

And I will repeat the second question. This question is from the analyst from the Morgan Capital. The second question is, the company delivered over 7,000% return growth, but the company is still at a loss. So what's the cause, and when will the company expect it to be profitable?

The second question is, on DataSea, DataSea has shown a growth of 70 times. But so far, the company's net profit and income have remained the same. What is the reason? What can DataSea do for future business development? When can we have a positive profit and income?

Yeah, I think this question should be handed to CFO. Okay.

Um...

Yes, I recognize that we have negative profit, and a lot of that reason could be traced back in the beginning. We spent a significant amount in our RMD activities, and what we expect is in the coming quarter, Q3, we will be able to break even, and in Q4, we should turn profit.

Okay, CFO, is that all for this question, or you have more to add? 请问CFO还有没有其他需要补充的?

Currently, the company has completed a new strategic positioning and business layout in 2021. It has formed the main business and long-term development plan for the three major areas of life, education, intelligence, 5G, news, and smart cities. According to the plan, we will invest in the market and China 5G news business in 2022.

In 2021, we completed revamping of our strategic positioning, and we have decided it as three major segments in our business line. And we expect that in 2022, both our acoustic intelligence solutions as well as our 5G messaging services will experience exponential growth.

我们刚才在我的那个发言里也提到了,我们预计的话Q1到Q3累计的营收会达到3600万美金。 我们会在未来的12个月预计的净现金流入会达到462万美元。 所以公司的运营将会处在一个良性循环的轨道上。

I just want to quickly confirm that number. CFO, yes, or US dollar. Okay.

The total revenue from Q1 to Q3 will reach U.S. $36 million, and we also expect the 12-month cash flow will reach $4.6 million.

Okay, CFO, do you have more to add?

I speak in English. For 5G SMS and 5G IMCP and value-added services, the company formally entered the 5G messaging and its related business market last fiscal year. As the 5G messaging industry is still in an early stage to attract the initial users, undercard competitions and gain market share as early as possible, A company adopted a competitive pricing strategy to expand the first mover advantage. As the company proceeds into the later stage of the 5G messaging business, the three factors will help equip the company with more flexibility in pricing and improving the growth measures. The first is cost will be spread over a larger number of products as the company keeps scaling the customers and increasing the productivity. The second is growing brand recognition and technology capabilities to serve clients with complex needs will help strengthen the company's pricing power. The third is after the commercialization of 5G messaging in the Chinese market, expected in the first quarter of 2022, the target customers and the product forms will be expanded. That's all. Okay. Thank you, CFO, and thank you, the management team. As we're coming to the end of this call, I'd like to extend our gratitude and thanks to all the investors who are paying close attention to the data set, and I really appreciate that. And going forward, this might be some questions we will not be able to address today, but you can always reach out to our IR team and our contact info are also attached with this PPT. And going forward, if you have any questions, please feel free to reach out. And again, representing the company, I thank you for joining this call. And that's all for today's call, operator.

Thank you. This concludes today's conference. You may disconnect your lines at this time. We thank you for your participation.