ZW Data Action Technologies(CNET) - 2020 Q2 - Quarterly Report

Revenue Performance - Total revenues decreased to US$14.80 million and US$10.42 million for the six and three months ended June 30, 2020, from US$24.02 million and US$15.45 million for the same periods in 2019, primarily due to declines in Internet advertising and search engine marketing services as a result of COVID-19 [118]. - Internet advertising revenues for the six and three months ended June 30, 2020, were approximately US$3.25 million and US$2.30 million, respectively, compared to US$5.44 million and US$3.60 million for the same periods in 2019, reflecting a 40% decrease year-over-year [119]. - Revenue from distribution of the right to use search engine marketing services was approximately US$9.30 million and US$7.31 million for the six and three months ended June 30, 2020, down from US$18.58 million and US$11.86 million in 2019, indicating a 50% decrease year-over-year [120]. - Ecommerce O2O advertising and marketing service revenues were approximately US$1.01 million and US$0.50 million for the six and three months ended June 30, 2020, respectively [121]. - Total revenue for the six months ended June 30, 2020, was approximately US$14.80 million, a decrease from US$24.02 million for the same period in 2019 [131]. Profit and Loss - The net loss attributable to ChinaNet Online Holdings, Inc. was US$3.28 million for the six months ended June 30, 2020, compared to a net loss of US$1.52 million for the same period in 2019 [115]. - The company incurred a loss from operations of approximately US$3.30 million for the six months ended June 30, 2020, compared to a loss of US$1.96 million in 2019 [136]. - For the six months ended June 30, 2020, the company incurred a total net loss of approximately US$3.28 million, compared to a net loss of US$1.52 million for the same period in 2019 [141]. - The loss before income tax for the six months ended June 30, 2020, was approximately US$3.21 million, compared to a loss of US$1.52 million for the same period in 2019 [138]. - The company recognized an income tax expense of approximately US$0.06 million for the six months ended June 30, 2020, related to net income generated by one of its operating subsidiaries [139]. Operating Expenses - Operating expenses increased to US$4.49 million for the six months ended June 30, 2020, compared to US$2.77 million in 2019, with significant increases in general and administrative expenses [114]. - General and administrative expenses increased to US$3.93 million for the six months ended June 30, 2020, from US$2.06 million in 2019 [134]. - Research and development expenses rose to approximately US$0.33 million for the six months ended June 30, 2020, compared to US$0.12 million in 2019 [135]. - Sales and marketing expenses decreased to US$0.24 million for the six months ended June 30, 2020, from US$0.35 million in 2019 [133]. Cash Flow and Investments - The net cash provided by operating activities for the six months ended June 30, 2020, was approximately US$1.17 million, a significant improvement from a net cash used of US$2.33 million in the same period of 2019 [147]. - The company recorded a net cash outflow from investing activities of approximately US$1.27 million for the six months ended June 30, 2020, primarily due to investments in technology and loans to third parties [155]. - The net cash used in financing activities for the six months ended June 30, 2020, was approximately US$0.43 million, primarily for the repayment of a short-term bank loan [157]. Assets and Liabilities - As of June 30, 2020, the company had cash and cash equivalents of approximately US$1.06 million [144]. - As of June 30, 2020, net assets restricted in the aggregate were approximately US$6.34 million, which includes paid-in capital and statutory reserve funds of the company's PRC subsidiaries and VIEs [160]. - There are no off-balance sheet arrangements reported by the company [165]. Strategic Initiatives - The company incorporated a new wholly-owned subsidiary, ChinaNet Online Guangdong, in May 2020 to enhance blockchain services and optimize client proximity, officially commencing operations in July 2020 [111]. - The company made an investment of RMB0.19 million (approximately US$0.03 million) in Business Opportunity Chain Guangzhou, acquiring a 19% equity interest to integrate resources for social media-based business promotion [112]. - The company plans to gradually transfer core business activities to the new subsidiary in Guangdong and seek local partners for high-technology related business development [111]. - The company intends to improve cash flow status by enhancing gross profit margins and strengthening receivables collection management [146]. Cost of Revenues - The company reported a gross profit of US$13.60 million for the six months ended June 30, 2020, down from US$23.21 million in 2019, reflecting the impact of reduced revenues [114]. - Total cost of revenues decreased to US$13.60 million for the six months ended June 30, 2020, down from US$23.22 million for the same period in 2019 [123]. - Internet advertising and related data service costs decreased to approximately US$2.91 million for the six months ended June 30, 2020, from US$5.22 million in 2019 [124]. - The gross margin for internet advertising and data service improved to 11% for the six months ended June 30, 2020, compared to 4% in the same period last year [124]. - Gross profit for the six months ended June 30, 2020, was approximately US$1.20 million, with a gross margin of 8%, compared to US$0.81 million and 3% for the same period in 2019 [129]. Currency and Dividend Considerations - The current Exchange Rules allow conversion of Renminbi into foreign currency for current account items, but capital items require SAFE approval [164]. - Most of the company's retained earnings are generated in Renminbi, which may limit future dividend payments in U.S. dollars [164].