ZW Data Action Technologies(CNET) - 2024 Q1 - Quarterly Report

Financial Performance - Revenues for Q1 2024 were $3,531,000, a decrease of 44.5% compared to $6,316,000 in Q1 2023[177] - Cost of revenues in Q1 2024 was $3,459,000, down from $6,630,000 in Q1 2023, resulting in a gross profit of $72,000 compared to a loss of $314,000 in the previous year[178] - The net loss for Q1 2024 was $850,000, compared to a net loss of $1,143,000 in Q1 2023, indicating an improvement in financial performance[179] - Interest income increased to $91,000 in Q1 2024 from $72,000 in Q1 2023, reflecting a positive trend in financial management[179] - Total revenues decreased to US$3.53 million for the three months ended March 31, 2024, from US$6.32 million for the same period last year, primarily due to a decline in Internet advertising and related data services[180] - Gross profit for the three months ended March 31, 2024, was approximately US$0.07 million, compared to a gross loss of approximately US$0.31 million for the same period in 2023, with an overall gross margin rate increasing to 2%[190] - Loss from operations was approximately US$0.92 million for the three months ended March 31, 2024, compared to US$1.31 million for the same period in 2023[196] - Net loss for the three months ended March 31, 2024, was approximately US$0.85 million, down from US$1.14 million for the same period in 2023[198] Operating Expenses - Total operating expenses for Q1 2024 were $994,000, slightly down from $998,000 in Q1 2023[178] - General and administrative expenses were US$0.92 million for the three months ended March 31, 2024, slightly down from US$0.93 million for the same period in 2023, due to a cost reduction plan[195] - Total operating expenses were approximately US$0.99 million for the three months ended March 31, 2024, compared to US$0.99 million for the same period in 2023[192] Revenue Sources - Internet advertising revenues for the three months ended March 31, 2024, were approximately US$0.006 million, down from US$0.13 million for the same period in 2023, as the company shifted focus to higher growth segments[181] - Revenues from the distribution of the right to use search engine marketing services were approximately US$3.53 million for the three months ended March 31, 2024, compared to US$6.16 million for the same period in 2023, attributed to supplier changes causing service delivery delays[181] - The company did not recognize any revenue from Blockchain-based SaaS services for the three months ended March 31, 2024, compared to approximately US$0.03 million for the same period in 2023[182] Cash Flow and Liquidity - As of March 31, 2024, the company had cash and cash equivalents of approximately US$0.47 million[207] - For the three months ended March 31, 2024, net cash used in operating activities was approximately US$0.35 million, a decrease from US$0.92 million for the same period in 2023[211] - Net cash provided by investing activities for the three months ended March 31, 2024, was approximately US$0.009 million, compared to a net cash outflow of approximately US$1.88 million for the same period in 2023[216][217] - The company anticipates generating additional cash inflows through the collection of outstanding short-term working capital loans within the next 12 months[222] - The company may enhance its liquidity position or increase cash reserves for future investments through additional equity financing in the U.S. capital market, which could lead to shareholder dilution[225] Business Strategy and Operations - The company introduced SaaS services in early 2022, providing blockchain-powered enterprise management solutions via its BIF platform[171] - The company operates a one-stop service for clients in omnichannel advertising, precision marketing, and data analysis management[171] - The company plans to optimize its internet resources cost investment strategy to improve gross profit margins and strengthen accounts receivables collection management[221] - The company is actively seeking target companies for acquisition and joint ventures to enhance its online marketing resources[220] - The company plans to broaden the application scenarios of its blockchain-based SaaS services and expand its core Internet advertising and marketing business through acquisitions[225] Regulatory and Compliance - The PCAOB secured complete access to inspect and investigate registered public accounting firms in China and Hong Kong in 2022, alleviating previous concerns regarding audit quality[167] - The company is subject to the Holding Foreign Companies Accountable Act, which could lead to delisting if the PCAOB cannot inspect its auditor for two consecutive years[163] - The company faces substantial doubt about its ability to continue as a going concern if it fails to increase gross profit margins and reduce operating losses[223] Investments and Acquisitions - The company acquired a 51% equity interest in Yi En (Beijing) Technology Co., Ltd. for a total consideration of RMB1 to expand its internet advertising business[220] - In August 2022, the company obtained a 9.9% equity interest in Guangdong Yong Fu Xiang Health Management Co., Ltd for approximately US$0.98 million[226] - In June 2023, the company acquired a 9.9% equity interest in Wuhan Ju Liang for approximately US$0.14 million[226] - In August 2023, the company obtained a 9% equity interest in Fu Meng Hui for approximately US$0.06 million[226] Credit and Allowances - The company maintains an allowance for credit losses based on various factors, including customer creditworthiness and economic conditions[175] - The company has settled amounts owed under VIE agreements totaling RMB15.25 million (approximately US$2.27 million) to its WFOE[204]