ZW Data Action Technologies Inc.

Previous wording

Our auditor, ARK Pro CPA & Co. (“ARK”), the independent registered public accounting firm that issues the audit report in our SEC filings, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States, pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. As a result, we and investors in our securities were deprived of the benefits of such PCAOB inspections. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong in 2022. However, the inability of the PCAOB to conduct inspections of auditors in Hong Kong in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China mainland and Hong Kong that have been subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Current wording

Our auditor, the independent registered public accounting firm that issues the audit report in our SEC filings, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. As a result, we and investors in our securities were deprived of the benefits of such PCAOB inspections. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong in 2022. However, the inability of the PCAOB to conduct inspections of auditors in Hong Kong in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China mainland and Hong Kong that have been subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

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. 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.

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. 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

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 and our operating subsidiaries, is engaged in providing Internet advertising, precision marketing, blockchain-based SaaS services, IP services, influencer marketing services and the related data and technical services to SMEs.

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. Beginning in early 2022, we introduced our 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 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, influencer marketing services as well as provision of other related value-added data and technical services to maximize market exposure and effectiveness for our clients. Beginning in early 2022, we introduced our 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.

Previous wording

We believe that the assumptions and estimates associated with revenue recognition, estimation of current expected credit loss and fair value measurement of warrant liabilities have the greatest potential impacts on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Current wording

We believe that the assumptions and estimates associated with revenue recognition and estimation of current expected credit loss have the greatest potential impacts on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

Previous 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.

Current wording

Total Revenues: Our total revenues decreased to US$1.65 million for the three months ended March 31, 2025 from US$3.53 million for the same period last year, 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

***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.

Current wording

***Cost of revenues:***our total cost of revenues decreased to US$1.49 million for the three months ended March 31, 2025 from US$3.46 million for the three months ended March 31, 2024. 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 three months ended March 31, 2025 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

***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.

Current wording

***Operating expenses:***Our total operating expenses was approximately US$0.74 million and US$0.99 million for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

**Loss from operations:**As a result of the foregoing, we incurred a loss from operations of approximately US$0.58 million and US$0.92 million for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

**Interest income:**For the three months ended March 31, 2025 and 2024, we recognized an approximately US$0.05 million and US$0.09 million interest income, respectively, which was primarily related to the interest we earned from the short-term loans we provided to unrelated parties.

Previous 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.

Current wording

**Loss before income tax benefit/(expense):**As a result of the foregoing, our loss before income tax benefit/(expense) was approximately US$0.53 million and US$0.85 million for the three months ended March 31, 2025 and 2024, respectively.

Previous 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.

Current wording

Income Tax benefit/(expenses): For the three months ended March 31, 2025 and 2024, we recognized approximately US$0.001 million in income tax expenses and US$0.003 million in income tax benefit, respectively. 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 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.

Current wording

**Net loss:**As a result of the foregoing, for the three months ended March 31, 2025 and 2024, we incurred a net loss of approximately US$0.53 million and US$0.85 million, 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 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.

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 March 31, 2025 and December 31, 2024, 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$13.20 million and US$13.23 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 Nine Months Ended September 30, 2024 and 2023

Current wording

Cash Flow Analysis for the Three Months Ended March 31, 2025 and 2024

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 September 30, 2024, we had cash and cash equivalents of approximately US$1.12 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 March 31, 2025, we had cash and cash equivalents of approximately US$0.81 million.

Previous wording

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to search engine resources and other advertising resources providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and future business activities, investment to enhance the functionality of our current advertising portals for providing advertising, marketing and data services and to secure the safety of our general network, and investment to establish joint ventures with strategic partners for the development of new technologies and services. To date, we have financed our liquidity needs primarily through proceeds we generated from financing activities.

Current wording

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to search engine resources and other advertising resources providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and future business activities, investment to enhance the functionality of our current advertising portals for providing advertising, marketing and data services and to secure the safety of our general network, and investment to establish joint ventures with strategic partners for the development of new technologies and services. To date, we have financed our liquidity need primarily through proceeds we generated from financing activities.

Previous 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:

Current wording

For the three months ended March 31, 2025, our net cash used in operating activities of approximately US$0.98 million were primarily attributable to:

Previous 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:

Current wording

For the three months ended March 31, 2024, our net cash used in operating activities of approximately US$0.35 million were primarily attributable to:

Previous 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.

Current wording

During the three months ended March 31, 2024, we acquired cash of approximately US$0.009 million through the acquisition of a 51% equity interest in Yi En (Beijing) Technology Co., Limited. This transaction contributed to a net cash inflow from investing activities of approximately US$0.009 million for the three months ended March 31, 2024.

Previous wording

Net cash provided by financing activities

Current wording

Net cash provided by/(used in) financing activities

Previous 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.

Current wording

For the three months ended March 31, 2024, no cash was provided by or used in financing activities.

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 current outstanding 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

If we fail to achieve these goals, we may need additional financing to execute our business plan. If additional financing is required, we cannot predict whether this additional financing will be in the form of equity, debt, or another form, and we may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that we are unsuccessful in increasing our gross profit margin and reducing operating losses, we may be unable to implement our current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on our business, prospects, financial condition and results of operations. These factors raise substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued.

Current wording

If the Company fails to achieve these goals, the Company may need additional financing to execute its business plan. If additional financing is required, the Company cannot predict whether this additional financing will be in the form of equity, debt, or another form, and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that the Company is unsuccessful in increasing its gross profit margin and reducing operating losses, the Company may be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued.

Previous wording

The unaudited condensed consolidated financial statements as of September 30, 2024 have been prepared under the assumption that we will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. Our ability to continue as a going concern is dependent upon our uncertain ability to increase gross profit margin and reduce operating loss from our core business and/or obtain additional equity and/or debt financing. The accompanying financial statements as of September 30, 2024 do not include any adjustments that might result from the outcome of these uncertainties. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on the financial statements.

Current wording

The consolidated financial statements as of March 31, 2025 have been prepared under the assumption that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. The Company's ability to continue as a going concern is dependent upon its uncertain ability to increase gross profit margin and reduce operating loss from its core business and/or obtain additional equity and/or debt financing. The accompanying financial statements as of March 31, 2025 do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on the financial statements.

Previous 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.

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.