ZW Data Action Technologies(CNET) - 2019 Q1 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements The unaudited financial statements for Q1 2019 reveal the company's performance, blockchain expansion, and going concern risks Condensed Consolidated Balance Sheets Total assets decreased to $15.08 million due to a significant drop in cash, with corresponding declines in liabilities and equity Condensed Consolidated Balance Sheet Highlights (in thousands USD) | Balance Sheet Item | March 31, 2019 (Unaudited) | December 31, 2018 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $1,483 | $3,742 | | Accounts receivable, net | $6,830 | $6,359 | | Total current assets | $10,608 | $12,500 | | Total Assets | $15,075 | $16,968 | | Liabilities & Equity | | | | Total current liabilities | $7,358 | $8,440 | | Total Liabilities | $8,444 | $9,174 | | Total equity | $6,631 | $7,794 | | Total Liabilities and Equity | $15,075 | $16,968 | Condensed Consolidated Statements of Operations and Comprehensive Loss Q1 2019 revenue slightly increased to $8.57 million, but net loss widened to $1.14 million due to warrant liability valuation changes Condensed Consolidated Statements of Operations (in thousands USD, except per share data) | Metric | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Total revenues | $8,567 | $8,260 | | Gross profit | $442 | $601 | | Loss from operations | ($738) | ($1,545) | | Change in fair value of warrant liabilities | ($350) | $1,474 | | Net loss attributable to ChinaNet | ($1,138) | ($565) | | Loss per share (Basic and diluted) | ($0.07) | ($0.04) | Condensed Consolidated Statements of Cash Flows Net cash used in operations was $2.27 million, leading to a $2.26 million net decrease in cash for Q1 2019 Condensed Consolidated Statements of Cash Flows Highlights (in thousands USD) | Cash Flow Activity | Three Months Ended March 31, 2019 | Three Months Ended March 31, 2018 | | :--- | :--- | :--- | | Net cash used in operating activities | ($2,270) | ($3,179) | | Net cash used in investing activities | ($36) | ($2,156) | | Net cash provided by financing activities | $0 | $9,770 | | Net (decrease)/increase in cash | ($2,259) | $4,551 | | Cash at end of the period | $1,483 | $7,503 | Notes to Condensed Consolidated Financial Statements Notes detail the company's business, going concern doubts, revenue sources, and capitalized blockchain development costs - The company provides advertising services and expanded into the blockchain industry in 2018, with its platform still under development[16] - Substantial doubt exists about the company's ability to continue as a going concern due to a net loss of $1.14 million and negative operating cash flow of $2.27 million in Q1 2019[22] Revenue by Service (in thousands USD) | Service | Q1 2019 | Q1 2018 | | :--- | :--- | :--- | | Distribution of search engine marketing service | $6,725 | $6,443 | | Online advertising placements | $1,831 | $1,597 | | Sales of effective sales lead information | $6 | $122 | | TV advertising service | $0 | $91 | | Others | $5 | $7 | | Total revenues | $8,567 | $8,260 | - The company capitalized approximately $3.73 million in software development costs for its blockchain platform, expected to be completed by year-end 2019[68] Management's Discussion and Analysis of Financial Condition and Results of Operations Q1 2019 revenue grew 3.7% to $8.57 million, but gross margin compressed while liquidity remains a critical concern Results of Operations Revenue increased 3.7% to $8.57 million, but gross margin fell to 5% while operating expenses were significantly reduced - Total revenues increased to $8.57 million for Q1 2019, driven by a 4% increase in search engine marketing services[134][138] - Overall gross margin decreased to 5% from 7% YoY, as investments to retain customers lowered the internet advertising margin to 6% from 14%[140][143] - Total operating expenses decreased to $1.18 million from $2.15 million, driven by lower sales, marketing, and administrative costs[145][146][147] Liquidity and Capital Resources The company's liquidity is precarious with $1.48 million in cash, substantial going concern doubt, and $12.0 million in restricted net assets - As of March 31, 2019, the company had cash and cash equivalents of approximately $1.48 million[158] - Management has identified substantial doubt about the company's ability to continue as a going concern and plans to seek financing[160] - Net cash used in operating activities was approximately $2.27 million for Q1 2019[161] - Approximately $12.0 million of net assets held by PRC subsidiaries were restricted and unavailable for transfer to the parent company[173] Quantitative and Qualitative Disclosures About Market Risk This disclosure is not required as the company qualifies as a smaller reporting company - Not applicable to smaller reporting companies[178] Controls and Procedures Management concluded that disclosure controls and procedures were effective as of March 31, 2019, with no material changes - Management concluded that the Company's disclosure controls and procedures were effective as of March 31, 2019[178] - There were no material changes in internal control over financial reporting during Q1 2019[179] PART II. OTHER INFORMATION Legal Proceedings The company is not a party to any material legal proceedings - The company is not a party to any material legal or administrative proceedings[180] Risk Factors This section is omitted as the company is a smaller reporting company - This information has been omitted based on the Company's status as a smaller reporting company[181] Other Items (Unregistered Sales, Defaults, Mine Safety, Other Info) The company reported no unregistered sales, defaults, mine safety disclosures, or other required information - The company reported 'None' for the following items: - Item 2. Unregistered Sales of Equity Securities and Use of Proceeds - Item 3. Defaults Upon Senior Securities - Item 4. Mine Safety Disclosures - Item 5. Other Information[181] Exhibits This section lists filed exhibits, including Sarbanes-Oxley certifications and Interactive Data Files - The report includes the following exhibits: - 31.1 & 31.2: Certifications of the Principal Executive Officer and Principal Accounting and Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act - 32.1: Certification pursuant to Section 906 of the Sarbanes-Oxley Act - 101: Interactive Data Files[184]