ZW Data Action Technologies Inc.

Previous wording

Our company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is engaged in providing Internet advertising, precision marketing, blockchain-based SaaS services and ecommerce O2O advertising and marketing services and the related data and technical services to SMEs in the PRC.

Current wording

Our company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is primarily engaged in providing Internet advertising, precision marketing, blockchain-based SaaS services and e-commerce online to offline (“O2O”) advertising and marketing and the related data and technical services to SMEs in the PRC.

Previous wording

Through our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising, precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through this system, which primarily include distribution of the right to use search engine marketing services we purchased from key search engines, provision of online advertising placements services on our web portals, provision of ecommerce O2O advertising and marketing services as well as provision of other related value-added data and technical services to maximize market exposure and effectiveness for our clients. From early 2022, we started to introduce our new SaaS services to customers. The SaaS services were designated in providing one-stop blockchain-powered enterprise management solutions via our BIF platform in forms of unique NFT generations, data record, share and storage modules subscriptions etc.

Current wording

Through our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising, precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through this system, which primarily include distribution of the right to use search engine marketing services we purchased from key search engines, influencer marketing services, provision of online advertising placements services on our web portals, provision of ecommerce O2O advertising and marketing services as well as provision of other related value-added data and technical services to maximize market exposure and effectiveness for our clients. From early 2022, we started to introduce our new SaaS services to customers. The SaaS services were designated in providing one-stop blockchain-powered enterprise management solutions via our BIF platform in forms of unique NFT generations, data record, share and storage modules subscriptions etc.

Previous wording

For the distribution of the right to use search engine marketing service, the provision of advertising placement services, and the blockchain platform subscription service, we recognize revenues over time when we consider the services have been delivered to our customers, with the related benefits being simultaneously received and consumed by our customers. For NFT generation service provided through our BIF platform, revenues are recognized based on a fixed price per NFT generation, when a NFT is generated, delivered and accepted by customers (“point in time”).

Current wording

For the distribution of the right to use search engine marketing service, the provision of advertising placement services, and the blockchain platform subscription service, we recognize revenues over time when we consider the services have been delivered to our customers, with the related benefits being simultaneously received and consumed by our customers. Revenues related to our influencer marketing services are recognized based on when the marketing service is completed and accepted by our clients. For NFT generation service provided through our BIF platform, revenues are recognized based on a fixed price per NFT generation, when a NFT is generated, delivered and accepted by customers (“point in time”).

Previous wording

Total Revenues: Our total revenues increased to approximately US$30.59 million for the year ended December 31, 2023 from approximately US$26.24 million for the year ended December 31, 2022, which was primarily due to the increase in sales from our internet advertising and related services.

Current wording

Total Revenues: Our total revenues decreased to approximately US$15.44 million for the year ended December 31, 2024 from approximately US$30.59 million for the year ended December 31, 2023, which was primarily due to the winding down of our distribution of the right to use search engine marketing service in the PRC but increases in higher margin internet advertising and related services such as influencer marketing.

Previous wording

We derive the majority of our revenues from distribution of the right to use the search engine marketing (“SEM”) services, sale of advertising space on our internet ad portals, and provision of the related data and technical services, all of which management considers as one aggregate business operation and relies upon the consolidated results of all operations in this business unit to make decisions about allocating resources and evaluating performance.

Current wording

We derive the majority of our revenues from distribution of the right to use the search engine marketing (“SEM”) services, sale of advertising space on our internet ad portals, and provision of the related data and technical services, all of which management considers as one aggregate business operation and relies upon the consolidated results of all operations in this business unit to make decisions about allocating resources and evaluating performance. Looking forward in 2025, we will be positioning our client focus outside of the PRC with an emphasis on higher margin internet advertising services and the blockchain and digital asset business. We will also be looking to acquire and build teams with businesses with AI capabilities and proprietary intellectual properties that enable more accurate marketing solutions and cost efficient content creation.

Previous wording

***Cost of revenues:***our total cost of revenues increased to approximately US$31.02 million for the year ended December 31, 2023, compared with US$26.43 million for the year ended December 31, 2022. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, cost of outdoor advertising resources, amortization of software platform development cost and other direct costs associated with providing our services. The increase in our total cost of revenues for the year ended December 31, 2023 was primarily due to the increase in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines, which was in line with the increase in the related revenues as discussed in the revenues section above.

Current wording

***Cost of revenues:***our total cost of revenues decreased to approximately US$14.99 million for the year ended December 31, 2024, compared with US$31.02 million for the year ended December 31, 2023. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, influencer agency costs, cost of outdoor advertising resources, 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 year ended December 31, 2024 was primarily due to the decrease in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines, which was in line with the decrease in the related revenues as discussed in the revenues section above.

Previous wording

As a result of the foregoing, we incurred a gross loss of approximately US$0.44 million for the year ended December 31, 2023, compared with a gross loss of approximately US$0.19 million for the year ended December 31, 2022. Our overall gross margin rate for the years ended December 31, 2023 and 2022 was approximately -1.4% and -1%, respectively. The gross loss and the decrease in overall gross margin were primarily due to the decrease in gross margin of our blockchain-based SaaS services to -1,021%, compared with the 21% gross margin rate last year.

Current wording

As a result of the foregoing, we incurred a gross profit of approximately US$0.45 million for the year ended December 31, 2024, compared with a gross loss of approximately US$0.44 million for the year ended December 31, 2023. Our overall gross margin rate for the years ended December 31, 2024 and 2023 was approximately 2.9% and -1.4%, respectively. The gross profit and the increase in overall gross margin were primarily due to the increase in revenue of our higher margin internet advertising and related data service business.

Previous wording

Operating Expenses: Our operating expenses were approximately US$5.58 million and US$10.93 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

Operating Expenses: Our operating expenses were approximately US$4.20 million and US$5.58 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Loss from operations: As a result of the foregoing, we incurred a net loss from operations of approximately US$6.01 million and US$11.12 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

Loss from operations: As a result of the foregoing, we incurred a net loss from operations of approximately US$3.76 million and US$6.01 million for the years ended December 31, 2024 and 2023, respectively.

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). As a result, a gain of change in fair value of approximately US$0.19 million and US$1.85 million was recorded in earnings for the years ended December 31, 2023 and 2022, 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). As a result, a gain of change in fair value of approximately nil and US$0.19 million was recorded in earnings for the years ended December 31, 2024 and 2023, respectively.

Previous wording

Impairment on long-term investments: For the year ended December 31, 2023, we recognized an approximately US$0.43 million impairment loss on long-term investments, which was related to the following: 1) our cash investments in our unconsolidated investee entities whose business activities had become dormant as of the end of fiscal 2023 and 2) the reduced valuation of our equity interest in one of our unconsolidated investee entities as of the end of fiscal 2023.

Current wording

Impairment on long-term investments: For the year ended December 31, 2024, we recognized an approximately US$0.002 million impairment loss on long-term investments, which was related to the following: 1) our cash investments in our unconsolidated investee entities whose business activities had become dormant as of the end of fiscal 2024.

Previous wording

***Loss before income tax (benefit)/expense and noncontrolling interest:***As a result of the foregoing, our loss before income tax (benefit)/expense and noncontrolling interest was approximately US$5.98 million and US$9.79 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

***Loss before income tax (benefit)/expense and noncontrolling interest:***As a result of the foregoing, our loss before income tax (benefit)/expense and noncontrolling interest was approximately US$3.37 million and US$5.98 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

***Income tax (benefit)/expense:***For the year ended December 31, 2023, we recognized a deferred income tax benefit of approximately US$0.002 million in relation to the net operating loss incurred by one of our operating VIEs, which we consider likely to be utilized with future earnings of this entity. For the year ended December 31, 2022, we recognized a total deferred income tax expense of US$0.003 million in relation to the net operating loss incurred by one of our operating VIEs, which we consider likely to be utilized with future earnings of this entity

Current wording

***Income tax (benefit)/expense:***For the year ended December 31, 2024, we recognized a deferred income tax expense of approximately US$0.40 million. For the year ended December 31, 2023, we recognized a total deferred income tax benefit of US$0.002 million in relation to the net operating loss incurred by one of our operating VIEs, which we consider likely to be utilized with future earnings of this entity

Previous wording

***Net loss:***As a result of the foregoing, for the years ended December 31, 2023 and 2022, we incurred a net loss of approximately US$5.97 million and US$9.79 million, respectively.

Current wording

***Net loss:***As a result of the foregoing, for the years ended December 31, 2024 and 2023, we incurred a net loss of approximately US$3.77 million and US$5.97 million, respectively.

Previous wording

Net loss attributable to ZW Data Action Technologies Inc.: Net loss attributable to ZW Data Action Technologies Inc. was approximately US$5.97 million and US$9.79 million for the years ended December 31, 2023 and 2022, respectively.

Current wording

Net loss attributable to ZW Data Action Technologies Inc.: Net loss attributable to ZW Data Action Technologies Inc. was approximately US$3.76 million and US$5.97 million for the years ended December 31, 2024 and 2023, respectively.

Previous wording

For the year ended December 31, 2023, we did not transfer any cash to our operating subsidiaries. One of our subsidiaries paid US$0.79 million operating expenses in cash on behalf of us to the service providers, as a repayment of the shareholder loans provided by us to this subsidiary in previous years. For the year ended December 31, 2022, we did not transfer cash to our operating subsidiaries. One of our subsidiaries paid US$0.48 million operating expenses in cash on behalf of us to the service providers, as a repayment of the shareholder loans provided by us to this subsidiary in previous years.

Current wording

For the year ended December 31, 2024, we transferred US$0.48 million in cash to our operating subsidiaries. For the year ended December 31, 2023, we did not transfer any cash to our operating subsidiaries; however, one of our subsidiaries paid US$0.79 million operating expenses in cash on behalf of us to the service providers, as a repayment of the shareholder loans provided by us to this subsidiary in previous years.

Previous wording

For the years ended December 31, 2023 and 2022, our operating subsidiaries transferred US$0.55 million and US$0.34 million cash to the consolidated VIEs in form of loans, respectively.

Current wording

For the year ended December 31, 2024, our consolidated VIEs transferred US$0.02 million to our consolidated subsidiaries as repayment of loans. For the year ended December 31, 2023, our consolidated subsidiaries transferred US$0.55 million cash to the consolidated VIEs in form of loans, respectively.

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 December 31, 2023 and 2022, net assets restricted in the aggregate, were approximately US$13.41 million and US$13.31 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 December 31, 2024 and 2023, net assets restricted in the aggregate, were approximately US$13.23 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

There are no restrictions for the consolidated VIEs to settle the amounts owed under the VIE agreements to our WFOE. However, arrangements and transactions among affiliated entities may be subject to audit or challenge by the PRC tax authorities. If at any time the VIE agreements and the related fee structure between the consolidated VIEs and our WFOE is determined to be non-substantive and disallowed by Chinese tax authorities, the consolidated VIEs could, as a matter of last resort, make a non-deductible transfer to our WFOE for the amounts owed under the VIE agreements. This would result in such transfer being non-deductible expenses for the consolidated VIEs but still taxable income for our WFOE. If this happens, it may increase our tax burden and reduce our after-tax income in the PRC, and may materially and adversely affect our ability to make distributions to the holding company. Our management is of the view that the likelihood that this scenario would happen is remote.

Current wording

There are no restrictions for the consolidated VIEs to settle the amounts owed under the VIE agreements to our Rise King WFOE. However, arrangements and transactions among affiliated entities may be subject to audit or challenge by the PRC tax authorities. If at any time the VIE agreements and the related fee structure between the consolidated VIEs and our Rise King WFOE is determined to be non-substantive and disallowed by Chinese tax authorities, the consolidated VIEs could, as a matter of last resort, make a non-deductible transfer to our WFOE for the amounts owed under the VIE agreements. This would result in such transfer being non-deductible expenses for the consolidated VIEs but still taxable income for our Rise King WFOE. If this happens, it may increase our tax burden and reduce our after-tax income in the PRC, and may materially and adversely affect our ability to make distributions to the holding company. Our management is of the view that the likelihood that this scenario would happen is remote.

Previous wording

To date, the VIEs have settled to our WFOE the amount owed under the VIE agreements of RMB15.25 million (approximately US$2.27 million) in the aggregate.

Current wording

To date, the VIEs have settled to our Rise King WFOE the amount owed under the VIE agreements of RMB15.25 million (approximately US$2.27 million) in the aggregate.

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 December 31, 2023, we had cash and cash equivalents of approximately US$0.82 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 December 31, 2024, we had cash and cash equivalents of approximately US$0.81 million.

Previous wording

For the year ended December 31, 2022, our net cash used in operating activities of approximately US$3.19 million were primarily attributable to:

Current wording

For the year ended December 31, 2024, our net cash used in operating activities of approximately US$2.06 million were primarily attributable to:

Previous wording

For the year ended December 31, 2022, our cash provided by investing activities included the following transactions: (1) we provided short-term loans of US$2.60 million in the aggregate to two unrelated parties during the year. The current interest rate is 5% per annum for both loans; (2) we received an aggregate of US$2.05 million repayments of short-term loan principals, of which US$1.03 million was related to a loan provided in fiscal 2021, and a US$0.09 million loan interest income; (3) we received a deposit refund of US$1.0 million, which was paid in fiscal 2021 for a potential merge and acquisition transaction, as there was no definitive agreement reached among the contract parties by the date as agreed upon; and (4) we received an approximately US$0.01 million short-term loan repayment from one of our unconsolidated investees. In the aggregate, these transactions resulted in a net cash inflow provided by investing activities of approximately US$0.55 million for the year ended December 31, 2022.

Current wording

For the year ended December 31, 2024, our cash provided by investing activities included the following transactions: (1) we received an aggregate of US$0.90 million repayments of short-term loan principal and interest, of which US$0.49 million was related to repayment of loan principals and US$0.41 million in repayment of loan interest; (2) investment and advances to ownership investee entities of US$0.002 million; (3) proceeds from the disposal of long term investments in of US$0.15 million; (4) made payments for leasehold improvements and the purchase of vehicles, furniture and office equipment for US$0.003 million and (5) made deposits for other investing contracts of US$0.15 million. In the aggregate, these transactions resulted in a net cash inflow provided by investing activities of approximately US$0.90 million for the year ended December 31, 2024.

Previous wording

For the year ended December 31, 2023, our cash provided by investing activities included the following transactions: (1) we provided short-term loans of US$2 million in the aggregate to one unrelated party during the year. The current interest rate is 12% per annum for the loan; (2) we received an aggregate of US$0.17 million repayments of short-term loan principals, of which US$0.1 million was related to a loan provided in fiscal 2021 and US$0.7 million in loan interest income; (3) investment and advances to ownership investee entities of US$0.06 million; (4) proceeds from the disposal of subsidiaries and investee entities in aggregate of US$0.43 million; (5) made payments for leasehold improvements and the purchase of vehicles, furniture and office equipment for US$0.08 million. In the aggregate, these transactions resulted in a net cash outflow provided by investing activities of approximately US$1.54 million for the year ended December 31, 2023.

Current wording

For the year ended December 31, 2023, our cash provided by investing activities included the following transactions: (1) we provided short-term loans of US$2 million in the aggregate to one unrelated party during the year. The current interest rate is 12% per annum for the loan; (2) we received an aggregate of US$0.17 million repayments of short-term loan principals, of which US$0.1 million was related to a loan provided in fiscal 2021 and US$0.07 million in loan interest income; (3) investment and advances to ownership investee entities of US$0.06 million; (4) proceeds from the disposal of subsidiaries and investee entities in aggregate of US$0.43 million; (5) made payments for leasehold improvements and the purchase of vehicles, furniture and office equipment for US$0.08 million. In aggregate, these transactions resulted in a net cash outflow used in investing activities of approximately US$1.54 million for the year ended December 31, 2023.

Previous wording

Our future short-term liquidity needs within 12 months from the date hereof primarily include deposits and advance payments required for the purchase of search engine marketing resources and other online marketing resources to be distributed to our customers and payments for our operating expenses, which mainly consist of office rentals and employee salary and benefit.

Current wording

Our future short-term liquidity needs within 12 months from the date hereof primarily include deposits and advance payments required for the purchase of online marketing resources to be distributed to our customers and payments for our operating expenses, which mainly consist of office rentals and employee salary and benefit.

Previous wording

In order to improve operation performance, from early 2022, we started to introduce our new SaaS services to our customers. The SaaS services were designated to provide one-stop blockchain-powered enterprise management solutions via our Blockchain Integrated Framework (“BIF”) platform in forms of unique NFT generations, data record, share and storage modules subscriptions etc. However, the unexpected quarantine and business shutdown measures during the COVID-19 epidemic that occured throughout fiscal 2022 and the economic downturn in the PRC in 2023 has adversely affected our promotion of the new SaaS services to our customers. To adapt to the economic environment, we modified our short-term tactics of SaaS services into a more SMEs-friendly way, for example, we introduced a more flexible payment method of pay per generation of NFT. We generated approximately US$0.08 million of revenues from this new SaaS services in fiscal 2023. Although revenues from the new SaaS services business and its profitability have not met our expectations, it is expected to bring us positive cash flow and help to improve our liquidity, as these services are provided based on technologies of our self-developed software platform, which does not need any further material cash outflow to other third-party service providers.

Current wording

In order to improve operation performance, from early 2022, we started to introduce our new SaaS services to our customers. The SaaS services were designated to provide one-stop blockchain-powered enterprise management solutions via our Blockchain Integrated Framework (“BIF”) platform in forms of unique NFT generations, data record, share and storage modules subscriptions etc. We generated approximately US$0.80 million of revenues from this new SaaS services in fiscal 2024. Although revenues from the new SaaS services business and its profitability have not met our expectations, it is expected to bring us positive cash flow and help to improve our liquidity, as these services are provided based on technologies of our self-developed software platform, which does not need any further material cash outflow to other third-party service providers.

Previous wording

In addition, for the next 12 months from the date hereof, we anticipate to generate additional cash inflows and/or improve our liquidity through the following: (1) our short-term working capital loans provided to unrelated parties will mature within the next 12 months that we anticipate collecting these loan principals and the related interest income within the next 12 months; (2) if at any time we anticipate insufficiency of our working capital, we can apply for revolving credit facility from commercial banks in the PRC to supplement our short-term liquidity deficit. We have not experienced any difficulties in obtaining such credit facility before, and this could result in fixed obligations and incremental cost of interest; (3) in consideration of the long-term cooperation history and good track records with our major suppliers, we plan to negotiate with our suppliers for more favorable payment terms; and (4) we plan to reduce our operating costs through optimizing the personnel structure among different offices and reduce our office leasing spaces, if needed. This may incur incremental costs related to employee layoff compensation and contract termination penalty.

Current wording

In addition, for the next 12 months from the date hereof, we anticipate to generate additional cash inflows and/or improve our liquidity through the following: (1) our short-term working capital loans provided to unrelated parties will mature within the next 12 months that we anticipate collecting these loan principals and the related interest income within the next 12 months; (2) if at any time we anticipate insufficiency of our working capital, we can apply for revolving credit facility from commercial banks in the PRC to supplement our short-term liquidity deficit. We have not experienced any difficulties in obtaining such credit facility before, and this could result in fixed obligations and incremental cost of interest; (3) equity financing for which we have already entered into securities purchase agreements; (4) we plan to reduce our operating costs through optimizing the personnel structure among different offices and reduce our office leasing spaces, if needed. This may incur incremental costs related to employee layoff compensation and contract termination penalty.

Previous wording

In August 2022, we obtained a 9.9% equity interest in Guangdong Yong Fu Xiang Health Management Co., Ltd (“Yong Fu Xiang”), through subscription of a RMB6.73 million (approximately US$0.97 million) registered capital of the entity in cash, which amount was committed to be paid up before December 31, 2065.

Current wording

In August 2022, we obtained a 9.9% equity interest in Hunan Yong Fu Xiang Health Management Co., Ltd (“Yong Fu Xiang”), through subscription of a RMB6.73 million (approximately US$0.97 million) registered capital of the entity in cash, which amount was committed to be paid up before December 31, 2065.

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 mount was committed to be paid up before August 1, 2052.

Current 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.