SEC Filing | ZW Data Action Technologies Inc.

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cnet20240630c_10q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2024

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ____ to _____

Commission File Number: 001-34647

ZW Data Action Technologies Inc.

(Exact name of registrant as specified in its charter)

Nevada	20-4672080
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

Room 1811, Xinghuo Keji Plaza, No. 2 Fufeng Road, Fengtai District, Beijing, PRC 100070

(Address of principal executive offices) (Zip Code)

+86-10-6084-6616

(Registrant’s telephone number, including area code)

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		CNET		Nasdaq Capital Market

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 16, 2024, the registrant had 7,204,506 shares of common stock outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION		PAGE

Item 1. Interim Financial Statements

	Condensed Consolidated Balance Sheets as of June 30, 2024 (Unaudited) and December 31, 2023	1-2

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six and Three Months Ended June 30, 2024 and 2023 (Unaudited)	3-4

	Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2024 and 2023 (Unaudited)	5-6

	Condensed Consolidated Statements of Changes in Equity for the Six and Three Months Ended June 30, 2024 and 2023 (Unaudited)	7-8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9-30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31-42

Item 3. Quantitative and Qualitative Disclosures About Market Risk		43

Item 4. Controls and Procedures		43

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		43

Item 1A. Risk Factors		43

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		43

Item 3. Defaults Upon Senior Securities		43

Item 4. Mine Safety Disclosures		43

Item 5. Other Information		43

Item 6. Exhibits		44

Signatures		45

PART I. FINANCIAL INFORMATION

Item 1. Interim Financial Statements

The Public Company Accounting Oversight Board (the “PCAOB”) had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprived our investors of the benefits of such inspections.

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.

Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by the Accelerating Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect or investigate completely auditors located in China mainland and Hong Kong. The 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.

On December 18, 2020, the Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law that states if the SEC determines that issuers have filed audit reports issued by a registered public accounting firm that has not been subject to PCAOB inspection for three consecutive years beginning in 2021, the SEC shall prohibit its common stock from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as enacted in the HFCAA. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a “Commission-Identified Issuer” if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was signed into law.

On December 16, 2021, the PCAOB issued a HFCAA Determination Report (the “2021 PCAOB Determinations”) to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong because of positions taken by the Chinese authorities, and our auditor was subject to this determination. On May 13, 2022, the SEC conclusively identified us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2021.

On August 26, 2022, the PCAOB signed a Statement of Protocol on agreement governing on inspections of audit firms based in mainland China and Hong Kong, with China Securities Regulatory Commission (“CSRC”) and Ministry of Finance (“MOF”) of the PRC, in regarding to governing inspections and investigations of audit firms headquartered in mainland China and Hong Kong (the “Agreement”). As stated in the Agreement, the Chinese authorities committed that the PCAOB has direct access to view complete audit work papers under its inspections or investigations and has sole discretion to the selected audit firms and audit engagements. The Agreement opens access for the PCAOB to inspect and investigate the registered public accounting firms in mainland China and Hong Kong completely. The PCAOB then thoroughly tested compliance with every aspect of the Agreement necessary to determine complete access. This included sending a team of PCAOB staff to conduct on-site inspections and investigations in Hong Kong over a nine-week period from September to November 2022.

On December 15, 2022, the PCAOB issued its 2022 HFCAA Determination Report to notify the SEC of its determination that the PCAOB was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong completely in 2022. The PCAOB Board vacated its 2021 PCAOB Determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of our annual report for the fiscal year ended December 31, 2022. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control.

The PCAOB is continuing to demand complete access in China mainland and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB does not have to wait another year to reassess its determinations. Should the PRC authorities obstruct the PCAOB’s access to inspect or investigate completely in any way and at any point, the PCAOB will act immediately to consider the need to issue new determinations consistent with the HFCAA.

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.

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except for number of shares and per share data)

	June 30, 2024		December 31, 2023
	(US $)		(US $)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	510	$	817
Accounts receivable, net of allowance for credit loss of $4,657 and $3,987, respectively		1,178		844
Prepayment and deposit to suppliers		5,323		4,505
Other current assets, net		2,362		2,794
Total current assets		9,373		8,960

Long-term investments		397		794
Operating lease right-of-use assets		-		22
Property and equipment, net		158		215
Intangible assets, net		435		841
Goodwill		78		-
Deferred tax assets, net		402		401
Total Assets	$	10,843	$	11,233

Liabilities and Equity
Current liabilities:
Accounts payable *	$	338	$	201
Advance from customers *		976		843
Accrued payroll and other accruals *		167		350
Taxes payable *		3,178		3,194
Operating lease liabilities *		-		24
Lease payment liability related to short-term leases *		99		99
Other current liabilities *		666		144
Warrant liabilities		-		-
Total current liabilities		5,424		4,855

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands, except for number of shares and per share data)

	June 30, 2024			December 31, 2023
	(US $)			(US $)
	(Unaudited)
Long-term liabilities:
Deferred tax liabilities *		3			-
Long-term borrowing from a related party		123			124
Total Liabilities		5,550			4,979

Commitments and contingencies

Equity:
ZW Data Action Technologies Inc.’s stockholders’ equity
Common stock (US$0.001 par value; authorized 20,000,000 shares; issued and outstanding 7,204,506 shares at June 30, 2024 and December 31, 2023)		7			7
Additional paid-in capital		62,067			62,067
Statutory reserves		2,598			2,598
Accumulated deficit		(60,756	)		(59,690	)
Accumulated other comprehensive income		1,318			1,272
Total shareholders’ equity		5,234			6,254
Noncontrolling interests		59			-
Total equity		5,293			6,254

Total Liabilities and Equity	$	10,843		$	11,233

* Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except for number of shares and per share data)

	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	9,951		$	16,136		$	6,420		$	9,820
Cost of revenues		9,551			16,561			6,092			9,931
Gross (loss)/ profit		400			(425	)		328			(111	)

Operating expenses
Sales and marketing expenses		133			93			54			45
General and administrative expenses		1,490			2,112			575			1,180
Research and development expenses		-			18			-			-
Total operating expenses		1,623			2,223			629			1,225

Loss from operations		(1,223	)		(2,648	)		(301	)		(1,336	)

Other income/(expenses)
Interest income		167			151			76			79
Other expenses, net		(28	)		(14	)		(6	)		(9	)
Impairment on long-term investment		(2	)		(209	)		(2	)		(209	)
Change in fair value of warrant liabilities		-			172			-			71
Total other income/(expenses)		137			100			68			(68	)

Loss before income tax benefit/(expense) and noncontrolling interests		(1,086	)		(2,548	)		(233	)		(1,404	)
Income tax benefit/(expenses)		4			2			1			1
Net loss	$	(1,082	)	$	(2,546	)	$	(232	)	$	(1,403	)

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS（CONTINUED）

(In thousands, except for number of shares and per share data)

	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net loss	$	(1,082	)	$	(2,546	)	$	(232	)	$	(1,403	)
Net loss attributable to noncontrolling interests		16			-			16			-
Net loss attributable to ZW Data Action Technologies Inc.		(1,066	)		(2,546	)		(216	)		(1,403	)


Net loss	$	(1,082	)	$	(2,546	)	$	(232	)	$	(1,403	)
Foreign currency translation income/(loss)		46			202			39			283
Comprehensive Loss		(1,036	)		(2,344	)		(193	)		(1,120	)
Comprehensive income attributable to noncontrolling interests		16			-			16			-
Comprehensive loss attributable to ZW Data action Technologies Inc.		(1,020	)		(2,344	)		(177	)		(1,120	)

Loss per share
Loss per common share
Basic and diluted	$	(0.15	)	$	(0.35	)	$	(0.03	)	$	(0.19	)

Weighted average number of common shares outstanding:
Basic and diluted		7,204,506			7,185,114			7,204,506			7,195,605

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2024			2023
	(US $)			(US $)
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net loss	$	(1,082	)	$	(2,546	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		476			645
Amortization of operating lease right-of-use assets		22			208
Share-based compensation expenses		-			83
Impairment on long-term investments		2			209
Loss on disposal of fixed assets		3			3
Provision for allowances for credit losses		647			455
Change in fair value of warrant liabilities		-			(172	)
Deferred Taxes		(4	)		(2	)
Other non-operating (income)/losses		(167	)		(150	)
Changes in operating assets and liabilities
Accounts receivable		(1,032	)		588
Prepayment and deposit to suppliers		(379	)		86
Other current assets		(5	)		-
Accounts payable		138			6
Advance from customers		138			208
Accrued payroll and other accruals		(186	)		(303	)
Other current liabilities		420			23
Taxes payable		3			(7	)
Operating lease liabilities		(24	)		(196	)
Net cash used in operating activities		(1,030	)		(862	)

Cash flows from investing activities
Purchases of vehicles and office equipment		(3	)		-
Investment and advance to ownership investee entities		(2	)		(43	)
Net proceeds from disposal of long-term investments		147			433
Cash acquired during the period		9			-
Deposit for other investing contracts		(401	)		-
Short-term loans to unrelated parties		-			(2,000	)
Repayment of short-term loans and interest income from unrelated parties		901			148
Net cash provided by/(used in) investing activities		651			(1,462	)

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

	Six Months Ended June 30,
	2024			2023
	(US $)			(US $)
	(Unaudited)			(Unaudited)
Cash flows from financing activities
Capital contribution from noncontrolling interest		70			-
Net cash provided by financing activities		70			-

Effect of exchange rate fluctuation on cash and cash equivalents		2			(67	)

Net decrease in cash and cash equivalents		(307	)		(2,391	)

Cash and cash equivalents at beginning of the period		817			4,391
Cash and cash equivalents at end of the period	$	510		$	2,000

Supplemental disclosure of cash flow information

Income taxes paid	$	-		$	-
Interest expense paid	$	-		$	-

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2024

(In thousands, except for number of shares)

	Common stock				Additional paid-in capital		Statutory reserves		Accumulated deficit			Accumulated other comprehensive income/(loss)		Non- controlling Interest			Total stockholders’ equity
	Number of shares		Amount
			(US $)		(US $)		(US $)		(US $)			(US $)		(US $)			(US $)

Balance, January 1, 2024		7,204,506	$	7	$	62,067	$	2,598	$	(59,690	)	$	1,272	$	-		$	6,254
Noncontrolling equity interests in an acquired VIE		-		-		-		-		-			-		5			5
Net loss for the period		-		-		-		-		(850	)		-		-			(850	)
Foreign currency translation adjustment		-		-		-		-		-			7		-			7
Balance, March 31, 2024 (unaudited)		7,204,506	$	7	$	62,067	$	2,598	$	(60,540	)	$	1,279	$	5		$	5,416
Capital contribution from noncontrolling interests		-		-		-		-		-			-		70			70
Net loss for the period		-		-		-		-		(216	)		-		(16	)		(232	)
Foreign currency translation adjustment		-		-		-		-		-			39		-			39
Balance, June 30, 2024 (unaudited)		7,204,506	$	7	$	62,067	$	2,598	$	(60,756	)	$	1,318	$	59		$	5,293

**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2023

(In thousands, except for number of shares)

	Common stock				Additional paid-in capital		Statutory reserves		Accumulated deficit			Accumulated other comprehensive income (loss)			Total equity
	Number of shares		Amount
			(US $)		(US $)		(US $)		(US $)			(US $)			(US $)

Balance, January 1, 2023		7,174,506**	$	7**	$	62,017**	$	2,598	$	(53,525	)	$	1,200		$	12,297
Cumulative effect adjustment related to adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)		-		-		-		-		(191	)		-			(191	)
Net loss for the period		-		-		-		-		(1,143	)		-			(1,143	)
Foreign currency translation adjustment		-		-		-		-		-			(81	)		(81	)
Balance, March 31, 2023 (unaudited)		7,174,506	$	7	$	62,017	$	2,598	$	(54,859	)	$	1,119		$	10,882
Share-based compensation in exchange for services from employees and directors		30,000		-		25		-		-			-			25
Net loss for the period		-		-		-		-		(1,403	)		-			(1,403	)
Foreign currency translation adjustment		-		-		-		-		-			283			283
Balance, June 30, 2023 (unaudited)		7,204,506	$	7	$	62,042	$	2,598	$	(56,262	)	$	1,402		$	9,787

**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Organization and nature of operations

ZW Data Action Technologies Inc. (the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing Internet advertising, precision marketing, e-commerce online to offline (O2O) advertising and marketing services as well as the related data and technical services to small and medium enterprises (SMEs) in the PRC. The Company also develops blockchain enabled web/mobile applications and provides software solutions, i.e., Software-as-a-Service (“SaaS”) services for clients.

Variable interest entities

The Company is not an operating company in China, but a Nevada holding company with no equity ownership in the VIEs. The Company primarily conducts its operations in China through its PRC subsidiaries, the VIEs, with which the Company has entered into contractual arrangements, and their subsidiaries in China. Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of June 30, 2024 and December 31, 2023, respectively:

	June 30, 2024		December 31, 2023
	US$(’000)		US$(’000)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	138	$	367
Accounts receivable, net		428		844
Prepayment and deposit to suppliers		2,434		2,005
Other current assets, net		6		2
Total current assets		3,006		3,218

Goodwill, net		78		-
Intangible assets, net		14		-
Property and equipment, net		110		139
Deferred tax assets, net		402		401
Total Assets	$	3,610	$	3,758

Liabilities
Current liabilities:
Accounts payable	$	338	$	201
Advance from customers		976		843
Accrued payroll and other accruals		44		37
Taxes payable		2,542		2,555
Lease payment liability related to short-term leases		99		99
Other current liabilities		720		56
Total current liabilities		4,719		3,791

Long-term liabilities:
Deferred tax liabilities		3		-
Total Liabilities	$	4,722	$	3,791

Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive loss for the six and three months ended June 30, 2024 and 2023, respectively:

	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	9,201		$	15,941		$	5,670		$	9,793
Cost of revenues		(9,131	)		(16,048	)		(5,672	)		(9,721	)
Total operating expenses		(1,112	)		(743	)		(615	)		(373	)
Net loss		(1,067	)		(1,067	)		(623	)		(517	)

Liquidity and Capital Resources

The Company incurred operating losses and may continue to incur operating losses, and as a result, to generate negative cash flows as the Company implements its future business plan. For the six months ended June 30, 2024, the Company incurred a loss from operations of US$1.22 million and a net operating cash outflow of US$1.03 million. As of June 30, 2024, the Company had cash and cash equivalents of US$0.51 million and working capital of US$3.95 million, compared with approximately US$0.82 million and US$4.11 million as of December 31, 2023, respectively.

The Company plans to optimize its internet resources cost investment strategy to improve the gross profit margin of its core business and to further strengthen the accounts receivables collection management, and negotiate with major suppliers for more favorable payment terms, all of which will help to substantially increase the cashflows from operations. In addition, to further improve its liquidity, the Company plans to reduce its operating costs through optimizing the personnel structure among different offices, and reduce its office leasing spaces, if needed. Beginning in early 2022, the Company introduced its SaaS services to customers. The Company’s SaaS services are provided based on technologies of its self-developed Blockchain Integrated Framework (“BIF”) platform. The BIF platform enables the Company’s clients to utilize the BIF platform as an enterprise management software to record, share and storage operating data on-chain, and/or to generate unique designed Non-fungible Token (“NFTs”) for their IPs and certificates. While the revenues from the new SaaS services business and its profitability have not met the Company’s expectations, the Company still expects these services to generate positive cash flow and improve liquidity since they rely on technologies of its self-developed software platform, thus reducing the need for substantial cash outflow to third-party service providers. Revenues from our new SaaS services business was $0.75 million for the six months ended June 30, 2024.

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.

The unaudited condensed consolidated financial statements as of June 30, 2024 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 June 30, 2024 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.

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summary of significant accounting policies

Basis of presentation

The unaudited condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The unaudited condensed consolidated interim financial information as of June 30, 2024 and for the six and three months ended June 30, 2024 and 2023 have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, previously filed with the SEC (the “2023 Form 10-K”) on June 28, 2024.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of June 30, 2024, its condensed consolidated results of operations for the six and three months ended June 30, 2024 and 2023, and its condensed consolidated cash flows for the six months ended June 30, 2024 and 2023, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

Principles of consolidation

The unaudited condensed consolidated interim financial statements include the accounts of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

Foreign currency translation

The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the condensed consolidated financial statements are as follows:

	June 30, 2024		December 31, 2023

Balance sheet items, except for equity accounts		7.1268		7.0827

	Six Months Ended June 30,
	2024		2023

Items in the statements of operations and comprehensive loss		7.1051		6.9291

	Three Months Ended June 30,
	2024		2023

Items in the statements of operations and comprehensive loss		7.1074		6.9806

No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Current expected credit losses

In June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments in this ASU require the measurement and recognition of expected credit losses for financial assets held at amortized cost, which replace the existing incurred loss impairment model with an expected loss methodology. The Company, as a SEC smaller reporting company, has adopted the amendments in this ASU from January 1, 2023, using a modified retrospective transition method and did not restate the related accounts in the comparable period. Instead, the Company recognized a cumulative-effect adjustment to increase the opening balance of its accumulated deficit on January 1, 2023 by US$0.19 million, of which US$0.04 million was related to the cumulative-effect adjustment to allowance for credit loss of accounts receivable, and the remaining US$0.15 million was related to the cumulative-effect adjustment to allowance for credit loss of other current assets, which primarily consisted of short-term loans the Company provided to unrelated parties.

The allowance for credit losses reflects the Company's current estimate of credit losses expected to be incurred over the life of the related financial assets. The allowance for credit losses is presented as a valuation account that is deducted from the amortized cost basis of financial asset(s) to present the net amount expected to be collected on the financial asset(s).

The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses, including the aging and aging trends, customer/other parties’ creditworthiness and specific exposures related to particular customers/other parties. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer/other party’s ability to pay in establishing and adjusting its allowance for credit losses. The Company assesses collectability by reviewing the financial assets on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers/other parties with known disputes or collectability issues. Accounts receivable and short-term loans to unrelated parties are written off after all collection efforts have ceased.

The following tables summarized the movements of the Company’s credit losses for the six and three months ended June 30, 2024 and 2023, respectively:

	Six Months Ended June 30,						Three Months Ended June 30,
	2024			2023			2024			2023
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
*Credit loss for accounts receivable:*

Balance as of beginning of the period		3,987			3,760			4,261			4,070
Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)		-			36			-			-
Provision for/(reverse of) credit loss during the period		694			40			414			(183	)
Written off during the period		-			-			-			-
Exchange translation adjustments		(24	)		(121	)		(18	)		(172	)
Balance as of end of the period		4,657			3,715			4,657			3,715

	Six Months Ended June 30,					Three Months Ended June 30,
	2024			2023		2024			2023
	US$(’000)			US$(’000)		US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)		(Unaudited)			(Unaudited)
*Credit loss for other current assets:*

Balance as of beginning of the period		1,559			617		1,580			850
Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)		-			155		-			-
Provision for/(reverse of) credit loss during the period		(47	)		415		(68	)		337
Written off during the period		-			-		-			-
Exchange translation adjustments		-			-		-			-
Balance as of end of the period		1,512			1,187		1,512			1,187

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair value measurement

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of June 30, 2024 and December 31, 2023 are as follows:

Fair value measurement at reporting date using

As of

June 30, 2024

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)

Significant
Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

US$(’000)

(Unaudited)

Warrant liabilities (Note 14)

Fair value measurement at reporting date using

As of

December 31, 2023

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)

Significant
Other
Observable Inputs
(Level 2)

Significant
Unobservable
Inputs
(Level 3)

US$(’000)

Warrant liabilities (Note 14)

Reverse stock split

The Board of Directors of the Company approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”) at a ratio of 1-for-5 (the “Reverse Stock Split”). The Reverse Stock Split became effective on January 18, 2023 (the “Effective Date”). As a result, the number of shares of the Company’s authorized Common Stock was reduced from 100,000,000 shares to 20,000,000 shares and the issued and outstanding number of shares of the Common Stock was correspondingly decreased. The Reverse Stock Split has no effect on the par value of the Company’s Common Stock or authorized shares of preferred stock.

When the Reverse Stock Split became effective, each five shares of issued and outstanding Common Stock were converted into one newly issued and outstanding share of Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest full share. No cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the Reverse Stock Split.

As a result of the Reverse Stock Split, 35,827,677 shares of Common Stock that were issued and outstanding at January 18, 2023 was reduced to 7,174,506 shares of Common Stock (taking into account the rounding of fractional shares).

ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Except where otherwise specified, all number of shares, number of warrants, share prices, exercise prices and per share data in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively restated as if the Reverse Stock Split occurred at the beginning of the periods presented.

Revenue recognition

The following table present the Company’s revenues disaggregated by products and services and timing of revenue recognition:

Six Months Ended June 30,

Three Months Ended June 30,

2024

2023

2024

2023

US$(’000)

(Unaudited)