ZW Data Action Technologies Inc

Previous wording

We cannot assure you that our auditor will not be determined as a register public accounting firm that the PCAOB is unable to inspect or investigate completely for two consecutive years because of positions taken by the Chinese authorities and/or any other causes in the future. If the PCAOB in the future again determines that it is unable to inspect and investigate completely auditors in China mainland and Hong Kong, we may be identified as a Commission-Identified Issuer accordingly. If this happens, Nasdaq may determine to delist our common stock, and there is no certainty that we will be able to continue listing our common stock on other non-U.S. stock exchanges or that an active market for our common stock will immediately develop outside of the U.S. The prohibiting from trading in the United States or delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

Current wording

We cannot assure you that our auditor will not be determined as a register public accounting firm that the PCAOB is unable to inspect or investigate completely for two consecutive years because of positions taken by the Chinese authorities and/or any other causes in the future. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB in the future again determines that it is unable to inspect and investigate completely auditors in China mainland and Hong Kong, we may be identified as a Commission-Identified Issuer accordingly. If this happens, Nasdaq may determine to delist our common stock, and there is no certainty that we will be able to continue listing our common stock on other non-U.S. stock exchanges or that an active market for our common stock will immediately develop outside of the U.S. The prohibiting from trading in the United States or delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

Previous wording

Total Revenues: Our total revenues decreased to US$9.95 million and US$6.42 million for the six and three months ended June 30, 2024, respectively, from US$16.14 million and US$9.82 million for the same periods last year, respectively, which was primarily due to the decrease in our main stream service revenues, i.e., distribution of the right to use search engine marketing services.

Current wording

Total Revenues: Our total revenues decreased to US$13.19 million and US$3.24 million for the nine and three months ended September 30, 2024, respectively, from US$25.32 million and US$9.18 million for the same periods last year, respectively, which was primarily due to the decrease in our main stream service revenues, i.e., distribution of the right to use search engine marketing services.

Previous wording

***Cost of revenues:***Our total cost of revenues decreased to US$9.55 million and US$6.09 million for the six and three months ended June 30, 2024, respectively, from US$16.56 million and US$9.93 million for the six and three months ended June 30, 2023, respectively. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, amortization of software platform development cost and other direct costs associated with providing our services. The decrease in our total cost of revenues for the six and three months ended June 30, 2024 was primarily due to the decrease in costs associated with distribution of the right to use search engine marketing service we purchased from key search engines during the periods, which was in line with the decrease in the related revenues as discussed above.

Current wording

***Cost of revenues:***Our total cost of revenues decreased to US$12.74 million and US$3.18 million for the nine and three months ended September 30, 2024, respectively, from US$25.75 million and US$9.19 million for the nine and three months ended September 30, 2023, respectively. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, amortization of software platform development cost and other direct costs associated with providing our services. The decrease in our total cost of revenues for the nine and three months ended September 30, 2024 was primarily due to the decrease in costs associated with distribution of the right to use search engine marketing service we purchased from key search engines during the periods, which was in line with the decrease in the related revenues as discussed above.

Previous wording

As a result of the foregoing, for the six months ended June 30, 2024, we incurred a gross profit of approximately US$0.40 million, compared with a gross loss of approximately US$0.43 million for the six months ended June 30, 2023. For the three months ended June 30, 2024, we incurred an approximately US$0.33 million gross profit, compared with a gross loss of approximately US$0.11 million for the three months ended June 30, 2023. Our overall gross margin was 4.0% and 5.1% for the six and three months ended June 30, 2024, respectively, compared with -2.6% and -1.1% for the same periods last year, respectively. For the six months ended June 30, 2024, the gross margin rate of our main stream of service revenues, i.e. distribution of the right to use search engine marketing services, improved to 0.8%, compared with -0.7% gross margin rate for the same period last year. In addition, for the six months ended June 30, 2024, the gross margin rate of our blockchain-based SaaS services was 44%, compared with -740% for the same period last year.

Current wording

As a result of the foregoing, for the nine months ended September 30, 2024, we incurred a gross profit of approximately US$0.46 million, compared with a gross loss of approximately US$0.43 million for the nine months ended September 30, 2023. For the three months ended September 30, 2024, we incurred an approximately US$0.06 million gross profit, compared with a gross loss of approximately US$0.004 million for the three months ended September 30, 2023. Our overall gross margin was 3.5% and 1.7% for the nine and three months ended September 30, 2024, respectively, compared with -1.7% and -0.04% for the same periods last year, respectively. For the nine months ended September 30, 2024, the gross margin rate of our main stream of service revenues, i.e. distribution of the right to use search engine marketing services, improved to 0.7%, compared with 0.2% gross margin rate for the same period last year. In addition, for the nine months ended September 30, 2024, the gross margin rate of our blockchain-based SaaS services was 15.9%, compared with -740% for the same period last year.

Previous wording

***Operating Expenses:***Our total operating expenses was approximately US$1.62 million and US$0.63 million for the six and three months ended June 30, 2024, respectively, compared with approximately US$2.22 million and US$1.23 million for the six and three months ended June 30, 2023, respectively.

Current wording

***Operating Expenses:***Our total operating expenses was approximately US$3.67 million and US$2.05 million for the nine and three months ended September 30, 2024, respectively, compared with approximately US$3.83 million and US$1.60 million for the nine and three months ended September 30, 2023, respectively.

Previous wording

***Loss from operations:***As a result of the foregoing, we incurred a loss from operations of approximately US$1.22 million and US$2.65 million for the six months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024 and 2023, we incurred a loss from operations of approximately US$0.30 million and US$1.34 million, respectively.

Current wording

***Loss from operations:***As a result of the foregoing, we incurred a loss from operations of approximately US$3.22 million and US$4.25 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024 and 2023, we incurred a loss from operations of approximately US$1.99 million and US$1.61 million, respectively.

Previous wording

***Interest Income:***For the six and three months ended June 30, 2024, interest income recognized were primarily related to the interest we earned from the short-term loans we provided to unrelated parties.

Current wording

***Interest Income:***For the nine and three months ended September 30, 2024, interest income recognized were primarily related to the interest we earned from the short-term loans we provided to unrelated parties.

Previous wording

***Impairment on long-term investments:For the six and three months ended June 30, 2024, we recognized approximately US$0.002 million impairment loss on long-term investments, which was related to our cash investments in one of our unconsolidated investee entities whose business activities had become dormant. ***For the six and three months ended June 30, 2023, we recognized approximately US$0.21 million impairment loss on long-term investments.

Current wording

***Impairment on long-term investments:For the nine months ended September 30, 2024, we recognized approximately US$0.002 million in impairment loss on long-term investments, which was related to our cash investments in one of our unconsolidated investee entities whose business activities had become dormant. ***For the nine months ended September 30, 2023, we recognized approximately US$0.21 million impairment loss on long-term investments.

Previous wording

Change in fair value of warrant liabilities: We issued warrants in financing activities. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency (Renminbi or Yuan). For the six and three months ended June 30, 2024, we did not recognize any change in fair value of these warrant liabilities, compared to a gain of change in fair value of approximately US$0.17 million and US$0.07 million for the six and three months ended June 30, 2023, respectively.

Current wording

Change in fair value of warrant liabilities: We issued warrants in financing activities. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency (Renminbi or Yuan). For the nine and three months ended September 30, 2024, we did not recognize any change in fair value of these warrant liabilities, compared to a gain of change in fair value of approximately US$0.19 million and US$0.01 million for the nine and three months ended September 30, 2023, respectively.

Previous wording

***Loss before income tax benefit/(expense):***As a result of the foregoing, our loss before income tax benefit was approximately US$1.09 million and US$2.55 million for the six months ended June 30, 2024 and 2023, respectively. For the three months ended June 30, 2024, we incurred an approximately US$0.23 million loss before income tax expense, compared with an approximately US$1.40 million loss before income tax expense for the three months ended June 30, 2023.

Current wording

***Loss before income tax benefit/(expense):***As a result of the foregoing, our loss before income tax benefit was approximately US$2.99 million and US$4.066 million for the nine months ended September 30, 2024 and 2023, respectively. For the three months ended September 30, 2024, we incurred an approximately US$1.91 million loss before income tax expense, compared with an approximately US$1.52 million loss before income tax expense for the three months ended September 30, 2023.

Previous wording

Income Tax benefit/(expense): For the six months ended June 30, 2024 and 2023, we recognized approximately US$0.004 million and US$0.002 million, respectively, in income tax benefits. For the three months ended June 30, 2024 and 2023, we recognized approximately US$0.001 million and US$0.001 million, respectively, in income tax benefits. These benefits were related to the net operating loss incurred by one of our operating VIEs for each respective period. We anticipate these losses will likely be utilized against future earnings of this entity.

Current wording

Income Tax benefit/(expense): For the nine months ended September 30, 2024 and 2023, we recognized approximately US$0.004 million and nil, respectively, in income tax benefits. For the three months ended September 30, 2024 and 2023, we recognized approximately nil and US$0.002 million, respectively, in income tax expenses. These benefits were related to the net operating loss incurred by one of our operating VIEs for each respective period. We anticipate these losses will likely be utilized against future earnings of this entity.

Previous wording

***Net loss:***As a result of the foregoing, for the six months ended June 30, 2024 and 2023, we incurred a total net loss of approximately US$1.08 million and US$2.55 million, respectively. For the three months ended June 30, 2024, we recognized a net loss of approximately US$0.23 million, compared with a net loss of approximately US$1.40 million for the three months ended June 30, 2023.

Current wording

***Net loss:***As a result of the foregoing, for the nine months ended September 30, 2024 and 2023, we incurred a total net loss of approximately US$2.99 million and US$4.066 million, respectively. For the three months ended September 30, 2024, we recognized a net loss of approximately US$1.91 million, compared with a net loss of approximately US$1.52 million for the three months ended September 30, 2023.

Previous wording

The PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries, the consolidated VIEs and their subsidiaries in China are also required to set aside at least 10% of their respective after-tax profit based on the PRC accounting standards and regulations each year to the statutory surplus reserve, until the balance in the reserve reaches 50% of the registered capital of the respective PRC entities. In accordance with these PRC laws and regulations, our PRC subsidiaries, the consolidated VIEs and their subsidiaries are restricted in their ability to transfer a portion of their net assets to us. As of June 30, 2024 and December 31, 2023, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of our PRC subsidiaries, the consolidated VIEs and their subsidiaries that are included in our consolidated net assets, were approximately US$13.31 million and US$13.41 million, respectively. Appropriations to the enterprise expansion fund and staff welfare and bonus fund of a foreign-invested PRC entity and appropriation to the discretionary surplus reserve of other PRC entities are at the discretion of the board of directors. To date, none of our PRC subsidiaries, the consolidated VIEs and their subsidiaries appropriated any of these non-mandatory funds and reserves. Furthermore, if these entities incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Current wording

The PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries, the consolidated VIEs and their subsidiaries in China are also required to set aside at least 10% of their respective after-tax profit based on the PRC accounting standards and regulations each year to the statutory surplus reserve, until the balance in the reserve reaches 50% of the registered capital of the respective PRC entities. In accordance with these PRC laws and regulations, our PRC subsidiaries, the consolidated VIEs and their subsidiaries are restricted in their ability to transfer a portion of their net assets to us. As of September 30, 2024 and December 31, 2023, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of our PRC subsidiaries, the consolidated VIEs and their subsidiaries that are included in our consolidated net assets, were approximately US$13.26 million and US$13.41 million, respectively. Appropriations to the enterprise expansion fund and staff welfare and bonus fund of a foreign-invested PRC entity and appropriation to the discretionary surplus reserve of other PRC entities are at the discretion of the board of directors. To date, none of our PRC subsidiaries, the consolidated VIEs and their subsidiaries appropriated any of these non-mandatory funds and reserves. Furthermore, if these entities incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Previous wording

Cash Flow Analysis for the Six Months Ended June 30, 2024 and 2023

Current wording

Cash Flow Analysis for the Nine Months Ended September 30, 2024 and 2023

Previous wording

Cash and cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of June 30, 2024, we had cash and cash equivalents of approximately US$0.51 million.

Current wording

Cash and cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2024, we had cash and cash equivalents of approximately US$1.12 million.

Previous wording

For the six months ended June 30, 2024, our net cash used in operating activities of approximately US$1.03 million were primarily attributable to:

Current wording

For the nine months ended September 30, 2024, our net cash used in operating activities of approximately US$1.23 million were primarily attributable to:

Previous wording

For the six months ended June 30, 2023, our net cash used in operating activities of approximately US$0.86 million were primarily attributable to:

Current wording

For the nine months ended September 30, 2023, our net cash used in operating activities of approximately US$1.54 million were primarily attributable to:

Previous wording

For the six months ended June 30, 2024, (1) we purchased office equipment of approximately US$0.003 million; (2) we made an additional investment of approximately US$0.002 million to one of our unconsolidated investee entities; (3) we collected US$0.49 million in short-term loan principal from short-term loans we provided to unrelated parties in previous periods; (4) we received total interest payment of approximately US$0.41 million, which was attributable to short-term loans we provided to unrelated parties in previous periods; (5) we received approximately US$0.15 million in proceeds from the disposal of long-term investments; (6) we acquired cash of approximately US$0.009 million through the acquisition of a 51% equity interest in Beijing Yi En; and (7) we made deposits on investment contracts of approximately US$0.40 million. In the aggregate, these transactions resulted in a net cash inflow from investing activities of approximately US$0.65 million for the six months ended June 30, 2024.

Current wording

For the nine months ended September 30, 2024, (1) we purchased office equipment of approximately US$0.003 million; (2) we made an additional investment of approximately US$0.002 million to one of our unconsolidated investee entities; (3) we collected US$0.49 million in short-term loan principal from short-term loans we provided to unrelated parties in previous periods; (4) we received total interest payment of approximately US$0.41 million, which was attributable to short-term loans we provided to unrelated parties in previous periods; (5) we received approximately US$0.15 million in proceeds from the disposal of long-term investments; (6) we acquired cash of approximately US$0.009 million through the acquisition of a 51% equity interest in Beijing Yi En; (7) we recognized deconsolidation of cash during the period of US$0.006 million; and (8) we made deposits on investment contracts of approximately US$0.40 million. In the aggregate, these transactions resulted in a net cash inflow from investing activities of approximately US$0.65 million for the nine months ended September 30, 2024.

Previous wording

For the six months ended June 30, 2023, (1) we provided to an unrelated party a short-term loan of US$2.0 million. The loan is unsecured and bears a fixed annualized interest rate of 12%. The original maturity date of this loan was July 17, 2023. On July 1, 2023, we extended the term of this loan for a six-month period to January 18, 2024; (2) we collected US$0.10 million in short-term loan principal, which was provided to another unrelated party in April 2022; (3) we received total interest payments of approximately US$0.05 million, which was attributable to short-term loans we provided to unrelated parties in previous periods; (4) we made an additional investment of approximately US$0.04 million to one of our unconsolidated investee entities; and (5) we received an approximately US$0.43 million proceeds from the disposal of our equity interest in another unconsolidated investee entity to an unrelated party. In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$1.46 million for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2023, (1) we provided to an unrelated party a short-term loan of US$2.0 million. The loan is unsecured and bears a fixed annualized interest rate of 12%. The original maturity date of this loan was July 17, 2023. On July 1, 2023, we extended the term of this loan for a six-month period to January 18, 2024; (2) we collected an US$0.10 million short-term loan, which was provided to another unrelated party in April 2022; (3) we received a total interest income of approximately US$0.07 million, which was attributable to short-term loans we provided to unrelated parties in previous periods; (4) we made an additional investment of approximately US$0.04 million to one of our unconsolidated investee entities; (5) we received an approximately US$0.43 million proceeds from the disposal of our equity interest in another unconsolidated investee entity to an unrelated party; and (6) we made an deposit of approximately US0.05 million for equipment purchase. In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$1.50 million for the nine months ended September 30, 2023.

Previous wording

For the six months ended June 30, 2024, capital contribution from noncontrolling interests was approximately US$0.70 million. In contrast, no cash was provided by or used in financing activities for the six months ended June 30, 2023.

Current wording

For the nine months ended September 30, 2024, (1) we received an advance from investors of approximately US$0.81 million; and (2) we recognized capital contribution from noncontrolling interests of approximately US$0.07 million. In contrast, no cash was provided by or used in financing activities for the nine months ended September 30, 2023.

Previous wording

In June 2023, we obtained a 9.9% equity interest in Wuhan Ju Liang, through subscription of a RMB0.99 million (approximately US$0.14 million) registered capital of the entity in cash, which amount was committed to be paid up before August 1, 2052.

Current wording

In June 2023, we acquired a 9.9% equity interest in Wuhan Ju Liang, through subscription of a RMB0.99 million (approximately US$0.14 million) in registered capital of the entity in cash, which amount was committed to be paid up before August 1, 2052.