ZW Data Action Technologies(CNET) - 2025 Q2 - Quarterly Report

PART I. FINANCIAL INFORMATION Item 1. Interim Financial Statements This section presents unaudited condensed interim financial statements, notes, and addresses PCAOB inspection and delisting risks - The PCAOB was historically unable to inspect the company's auditor in Hong Kong, depriving investors of inspection benefits. While complete access was secured in 2022, uncertainty remains regarding future inspections, which could lead to delisting under the HFCAA[8][9][13] Condensed Consolidated Balance Sheets Balance sheets show decreased total assets and liabilities, reduced equity, with increased cash and decreased accounts receivable | Metric | June 30, 2025 (US$ '000) | December 31, 2024 (US$ '000) | Change (US$ '000) | % Change | | :----------------------------------- | :------------------------ | :-------------------------- | :---------------- | :------- | | Cash and cash equivalents | 1,706 | 812 | 894 | 110.1% | | Accounts receivable, net | 185 | 1,614 | (1,429) | -88.5% | | Total current assets | 7,983 | 9,173 | (1,190) | -13.0% | | Total Assets | 9,246 | 9,686 | (440) | -4.5% | | Total current liabilities | 5,430 | 5,846 | (416) | -7.1% | | Total Liabilities | 5,673 | 5,968 | (295) | -4.9% | | Total equity | 3,573 | 3,718 | (145) | -3.9% | Condensed Consolidated Statements of Operations and Comprehensive Loss Revenues and gross profit significantly decreased, with net loss increasing for the three-month period and slightly decreasing for the six-month period | Metric (US$ '000) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :------- | | Revenues | 2,200 | 9,951 | (7,751) | -77.9% | | Cost of revenues | 1,993 | 9,551 | (7,558) | -79.1% | | Gross profit | 207 | 400 | (193) | -48.3% | | Total operating expenses | 1,468 | 1,623 | (155) | -9.6% | | Loss from operations | (1,261) | (1,223) | (38) | 3.1% | | Net loss | (1,167) | (1,082) | (85) | 7.8% | | Loss per common share (Basic & Diluted) | (0.50) | (0.55) | 0.05 | -9.1% | | Metric (US$ '000) | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------------------------- | :----------------------------- | :----------------------------- | :---------------- | :------- | | Revenues | 548 | 6,420 | (5,872) | -91.5% | | Cost of revenues | 501 | 6,092 | (5,591) | -91.8% | | Gross profit | 47 | 328 | (281) | -85.7% | | Total operating expenses | 729 | 629 | 100 | 15.9% | | Loss from operations | (682) | (301) | (381) | 126.6% | | Net loss | (637) | (232) | (405) | 174.6% | | Loss per common share (Basic & Diluted) | (0.27) | (0.11) | (0.16) | 145.5% | Condensed Consolidated Statements of Cash Flows Net cash increased due to investing and financing activities, despite operating cash usage, contrasting with a net decrease in the prior year | Cash Flow Activity (US$ '000) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | Change (US$ '000) | | :------------------------------------ | :----------------------------- | :----------------------------- | :---------------- | | Net cash used in operating activities | (299) | (1,030) | 731 | | Net cash provided by investing activities | 456 | 651 | (195) | | Net cash provided by financing activities | 750 | 70 | 680 | | Net increase/(decrease) in cash and cash equivalents | 894 | (307) | 1,201 | | Cash and cash equivalents at end of period | 1,706 | 510 | 1,196 | Condensed Consolidated Statements of Changes in Equity Total equity slightly decreased due to net losses and currency adjustments, partially offset by common stock issuance from private placement | Equity Component (US$ '000) | Balance, January 1, 2025 | Balance, June 30, 2025 | | :-------------------------- | :----------------------- | :--------------------- | | Common stock | 2 | 3 | | Additional paid-in capital | 63,102 | 64,176 | | Accumulated deficit | (63,451) | (64,619) | | Total stockholders' equity | 3,718 | 3,512 | - Issuance of common stock for private placement contributed $1,075 thousand to equity during the six months ended June 30, 2025[33] Notes to Condensed Consolidated Financial Statements These notes detail organization, VIEs, liquidity, accounting policies, and specific financial items, including asset acquisition and PRC dividend restrictions 1.5.1. Organization and Nature of Operations ZW Data Action Technologies Inc. is a Nevada holding company operating in China, providing internet advertising, marketing, data, blockchain SaaS, and IP licensing - The company operates as a Nevada holding company, conducting business in China through Hong Kong and mainland China subsidiaries and Variable Interest Entities (VIEs)[38][39] - Core services include Internet advertising, precision marketing, influencer marketing, related data and technical services, blockchain-enabled web/mobile applications, SaaS services, and intellectual property (IP) licensing[38] 1.5.2. Variable Interest Entities (VIEs) Consolidated VIEs reported total assets of $1.216 million and liabilities of $3.694 million, with a net loss of $71 thousand for six months, a significant reduction from prior year | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Total Assets | 1,216 | 1,334 | | Total Liabilities | 3,694 | 3,663 | | Metric (US$ '000) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :---------------- | :----------------------------- | :----------------------------- | | Revenues | 49 | 9,201 | | Net loss | (71) | (1,067) | 1.5.3. Liquidity and Capital Resources (Notes) Operating losses and negative cash flows raise going concern doubts; management plans to improve liquidity through resource optimization, collections, cost reduction, and AI acquisitions - The company incurred a loss from operations of US$1.26 million and a net operating cash outflow of US$0.30 million for the six months ended June 30, 2025[42] - Management plans to optimize internet resources cost, strengthen accounts receivable collection, negotiate favorable payment terms, and reduce operating costs to improve cash flows and liquidity[43] - The company is actively seeking to acquire businesses with AI capabilities and proprietary intellectual properties for more accurate marketing solutions and cost-efficient content creation[43] - These factors raise substantial doubt about the company's ability to continue as a going concern within one year[44][45] 1.5.4. Summary of Significant Accounting Policies Financial statements adhere to U.S. GAAP, covering consolidation, credit losses, revenue recognition, a 1-for-4 reverse stock split, and the Rahula asset acquisition - The company's financial statements are prepared in accordance with U.S. GAAP and include accounts of all subsidiaries and VIEs[46][49] - A 1-for-4 reverse stock split became effective on September 30, 2024, reducing authorized and outstanding common stock shares[55] - On March 7, 2025, the company acquired Rahula Digital Media (HK) Limited for US$0.6 million, primarily for its intellectual property rights on agent management, marketing data management, targeted marketing, and mass marketing systems and technologies. This was accounted for as an asset acquisition[61][62][64] 1.5.5. Accounts Receivable, Net Net accounts receivable significantly decreased to $0.185 million from $1.614 million, with a $0.309 million credit loss allowance provided for the six months | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Accounts receivable | 5,330 | 6,431 | | Allowance for credit loss | (5,145) | (4,817) | | Accounts receivable, net | 185 | 1,614 | - Provision for credit loss for accounts receivable was $309 thousand for the six months ended June 30, 2025, compared to $694 thousand for the same period in 2024[54][70] 1.5.6. Prepayments and Deposit to Suppliers Prepayments and deposits to suppliers increased to $5.254 million from $4.508 million, mainly due to higher prepayments to advertising resources providers | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :-------------------------------- | :------------ | :---------------- | | Deposits to advertising resources providers | 529 | 612 | | Prepayments to advertising resources providers | 4,221 | 2,996 | | Total | 5,254 | 4,508 | 1.5.7. Other Current Assets Net other current assets decreased to $0.838 million from $2.239 million, primarily due to reduced short-term loans and increased credit loss allowance | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Short-term loans to unrelated parties | 2,653 | 3,606 | | Allowance for credit loss | (1,890) | (1,513) | | Other current assets, net | 838 | 2,239 | - The company provided $380 thousand in credit losses on short-term loans for the six months ended June 30, 2025, compared to a reversal of $50 thousand for the same period in 2024[54][75] - One short-term loan of $0.62 million to Digital Sun Ventures Limited remains outstanding and fully allowanced, with the company pursuing legal actions for collection[76] 1.5.8. Long-term Investments Long-term investments remained stable at $0.397 million with no impairment, holding minority equity interests in three companies | Metric (US$ '000) | January 1, 2025 | June 30, 2025 | | :------------------------ | :-------------- | :------------ | | Balance | 397 | 397 | - The company holds 7.69%, 9.9%, and 9.9% equity interests in New Business Holdings Limited, Hunan Yong Fu Xiang Health Management Co., Ltd, and Wuhan Ju Liang Media Co., Ltd, respectively[78] - No impairment loss was provided against long-term investments for the six months ended June 30, 2025[80] 1.5.9. Property and Equipment, Net Net property and equipment increased to $0.161 million from $0.116 million, driven by additions in leasehold improvements and office equipment, offset by depreciation | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Property and equipment, cost | 1,911 | 1,838 | | Accumulated depreciation | (1,750) | (1,722) | | Property and equipment, net | 161 | 116 | - Depreciation expenses were approximately $0.02 million for the six months ended June 30, 2025, a decrease from $0.06 million in the prior year[81] 1.5.10. Intangible Assets, Net Net intangible assets increased to $0.635 million due to Rahula IP acquisition, with significantly decreased amortization expenses for the six months | Intangible Asset (US$ '000) | Gross Carrying Value | Accumulated Amortization | Impairment | Net Carrying Value (June 30, 2025) | | :-------------------------- | :------------------- | :----------------------- | :--------- | :--------------------------------- | | Rahula's Intellectual Property | 707 | (72) | - | 635 | - Amortization expenses for the six months ended June 30, 2025, were approximately $0.07 million, a significant decrease from $0.42 million for the same period in 2024[83] - Estimated future amortization expenses are $0.12 million for 2025, $0.24 million for 2026, $0.24 million for 2027, and $0.05 million for 2028[84] 1.5.11. Accrued Payroll and Other Accruals Accrued payroll and other accruals decreased to $0.155 million from $0.557 million, mainly due to reduced accrued operating expenses | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Accrued payroll and staff welfare | 72 | 71 | | Accrued operating expenses | 83 | 486 | | Total | 155 | 557 | 1.5.12. Taxation Total taxes payable remained stable at $3.175 million; the company has significant NOLs in the U.S. and PRC, with PRC regulations restricting dividend payments and imposing withholding taxes | Metric (US$ '000) | June 30, 2025 | December 31, 2024 | | :------------------------ | :------------ | :---------------- | | Turnover tax and surcharge payable | 1,923 | 1,247 | | Enterprise income tax payable | 1,252 | 1,905 | | Total taxes payable | 3,175 | 3,152 | - The U.S. holding company has aggregate NOLs of approximately US$34.67 million as of June 30, 2025, with a full valuation allowance due to uncertainties in future utilization[86] - PRC subsidiaries and VIEs have NOLs of approximately US$11 million as of June 30, 2025, expiring by 2028[87] - Net assets restricted in the aggregate due to PRC regulations were approximately US$13.18 million as of June 30, 2025, limiting dividend payments to the Nevada holding company[92] - Dividends from PRC subsidiaries to the Hong Kong holding company may be subject to a 10% withholding tax, or 5% if certain beneficial owner and tax resident conditions are met, which is not assured[93] 1.5.13. Long-term Borrowing from a Related Party A non-interest bearing long-term borrowing from a related party, linked to Rise King WFOE's capital contribution, is not expected to be repaid within one year - A non-interest bearing long-term loan from a related party is outstanding, linked to the original paid-in capital contribution in Rise King WFOE, with no repayment expected within one year[90] 1.5.14. Restricted Net Assets PRC regulations restrict net asset transfers from subsidiaries and VIEs, impacting dividend payments to U.S. investors, with $13.18 million restricted as of June 30, 2025 - PRC regulations require subsidiaries and VIEs to set aside at least 10% of after-tax profit to statutory surplus reserve until it reaches 50% of registered capital, restricting asset transfer[92] - As of June 30, 2025, approximately US$13.18 million of net assets were restricted, impacting the ability to pay dividends to U.S. investors[92] - The company does not currently plan to distribute earnings or pay cash dividends, intending to retain funds for business operations and expansion[97] 1.5.15. Employee Defined Contribution Plan PRC employees participate in a government-mandated defined contribution plan, with $0.03 million in employee benefits expensed for the six months - Full-time employees in the PRC participate in a government-mandated defined contribution plan[98] - Total employee benefits expensed were approximately US$0.03 million for the six months ended June 30, 2025, down from US$0.05 million in 2024[98] 1.5.16. Concentration of Risk The company faces credit risk with 90% cash in China, high customer concentration (93% from three customers), and significant supplier concentration (94% from three suppliers) - 90% of the company's cash and cash equivalents are held by major financial institutions in China[99] - For the six months ended June 30, 2025, three customers (A, B, C) accounted for 44%, 28%, and 21% of total revenues, respectively[100] - For the six months ended June 30, 2025, three suppliers (A, B, C) accounted for 44%, 28%, and 22% of total cost of revenues, respectively[102] 1.5.17. Commitments and Contingencies The company committed US$0.14 million for a 9.9% equity interest in Wuhan Ju Liang by 2052, with no material legal proceedings pending or threatened - The company committed to a RMB0.99 million (approx. US$0.14 million) cash payment for a 9.9% equity interest in Wuhan Ju Liang by August 1, 2052[104] - The company is not currently a party to any material legal or administrative proceedings and is not aware of any pending or threatened[105] 1.5.18. Segment Reporting The company reports three segments: Internet Ad, IP Services, and Blockchain technology, with Internet Ad generating highest revenue but an operating loss, while others showed income | Segment (US$ '000) | Revenues (6M 2025) | Operating Income/(Loss) (6M 2025) | Total Assets (June 30, 2025) | | :----------------- | :----------------- | :-------------------------------- | :--------------------------- | | Internet Ad and related service | 1,488 | (176) | 7,399 | | IP Services | 97 | 26 | 636 | | Blockchain technology | 615 | 55 | 55 | | Segment (US$ '000) | Revenues (6M 2024) | Operating Income/(Loss) (6M 2024) | Total Assets (June 30, 2024) | | :----------------- | :----------------- | :-------------------------------- | :--------------------------- | | Internet Ad and related service | 9,201 | (813) | 7,657 | | Blockchain technology | 750 | 330 | 1,171 | 1.5.19. Loss per Share Basic and diluted loss per share for six months was $(0.50) (improved from $(0.55)), and for three months was $(0.27) (compared to $(0.11)) | Metric | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net loss attributable to ZW Data Action Technologies Inc. (US$ '000) | (1,168) | (1,066) | | Weighted average number of common shares outstanding | 2,342,790 | 1,926,205 | | Loss per share-Basic and diluted (US$) | (0.50) | (0.55) | | Metric | Three Months Ended June 30, 2025 | Three Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net loss attributable to ZW Data Action Technologies Inc. (US$ '000) | (637) | (216) | | Weighted average number of common shares outstanding | 2,383,918 | 1,926,205 | | Loss per share-Basic and diluted (US$) | (0.27) | (0.11) | 1.5.20. Share-based Compensation Expenses The company recognized $0.287 million in share-based compensation expenses for the six months, related to common stock granted to consultants in August 2024 - Approximately 0.18 million fully-vested common shares were granted to business and financial consultants in August 2024[114] | Expense Category (US$ '000) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :--------------------------- | :----------------------------- | :----------------------------- | | General and administrative expenses | 287 | - | | Total | 287 | - | 1.5.21. Subsequent Events The company has evaluated subsequent events through the financial statement issuance date and determined there are no material events requiring disclosure - No material subsequent events were identified through the date the financial statements were issued[116] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section discusses financial condition, operations, PCAOB risks, business segments, and detailed analysis of revenues, costs, expenses, and liquidity, highlighting revenue decline and going concern risks 2.1. Forward-Looking Statements This section contains forward-looking statements subject to substantial risks and uncertainties, where actual results may differ materially from projections - The discussion contains forward-looking statements, which are subject to substantial risks and uncertainties, and actual results may differ materially from projections[118] 2.2. PCAOB Inspection and HFCAA Risk The company discusses historical PCAOB inspection inability and delisting risk under HFCAA; despite 2022 access, future inspection uncertainty poses a continued delisting threat - The PCAOB was historically unable to inspect the company's auditor in Hong Kong, leading to concerns about audit quality and investor confidence[119] - The company's common stock faces delisting risk under the HFCAA if the PCAOB is unable to inspect or investigate auditors in China mainland and Hong Kong for two consecutive years[120][121] - Although the PCAOB secured complete access in 2022 and vacated its prior determinations, the ability to conduct satisfactory inspections in the future remains uncertain and outside the company's control[124][126] 2.3. Overview of Business The company is a holding company providing internet advertising, precision marketing, blockchain SaaS, and related data/technical services to PRC SMEs through subsidiaries and VIEs - The company is a Nevada holding company providing Internet advertising, precision marketing, blockchain-based SaaS services, and related data and technical services to SMEs in the PRC[127] - Services include distribution of search engine marketing, online advertising placements, e-commerce O2O advertising, and blockchain-powered enterprise management solutions via its BIF platform[128] 2.4. Basis of Presentation, Management Estimates and Critical Accounting Policies Unaudited condensed consolidated financial statements are prepared under U.S. GAAP, requiring estimates for critical accounting policies like revenue recognition, credit loss, and warrant liabilities - Financial statements are prepared in conformity with U.S. GAAP, requiring estimates and assumptions[129] - Critical accounting policies include revenue recognition, estimation of current expected credit loss, and fair value measurement of warrant liabilities[130] 2.5. Results of Operations Total revenues and gross profit significantly declined due to winding down search engine marketing, though gross margin improved from a shift to higher-margin services, leading to increased operating and net losses 2.5.1. Revenues Total revenues significantly decreased to $2.2 million (six months) and $0.55 million (three months) due to winding down search engine marketing, partially offset by new internet advertising and IP services | Revenue Type (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :--------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Internet advertising and related marketing service | 1,439 | - | 1,439 | N/A | | Distribution of search engine marketing service | 49 | 9,201 | (9,152) | -99.5% | | IP Services | 97 | - | 97 | N/A | | Blockchain-based SaaS services | 615 | 750 | (135) | -18.0% | | Total Revenues | 2,200 | 9,951 | (7,751) | -77.9% | - The decrease in total revenues was primarily due to the winding down of the distribution of search engine marketing services[135] - Internet advertising and related marketing services revenue increased significantly due to a shift in focus towards higher-margin influencer marketing, marketing and branding strategy, creative development, and digital advertising management services for Hong Kong and overseas clients[135] 2.5.2. Cost of Revenues Total cost of revenues significantly decreased to $1.99 million (six months) and $0.50 million (three months) in line with reduced search engine marketing, improving overall gross margins | Cost Type (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :--------------------------------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Internet advertising and related marketing service | 1,323 | - | 1,323 | N/A | | Distribution of search engine marketing service | 39 | 9,131 | (9,092) | -99.6% | | IP Services | 71 | - | 71 | N/A | | Blockchain-based SaaS services | 560 | 420 | 140 | 33.3% | | Total Cost of Revenues | 1,993 | 9,551 | (7,558) | -79.1% | | Gross Margin Rate | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :---------------- | :--------------------------- | :--------------------------- | | Overall | 9.4% | 4.0% | | Internet advertising and related marketing service | 8.1% | - | | Distribution of search engine marketing service | 20.4% | 0.8% | | IP Services | 26.8% | - | | Blockchain-based SaaS services | 8.9% | 44% | - The decrease in total cost of revenues was primarily due to reduced costs associated with the winding down of search engine marketing services[136] 2.5.3. Gross Profit Gross profit decreased to $0.21 million (six months) and $0.05 million (three months), but overall gross margin improved to 9.4% and 8.6% due to a shift to higher-margin services | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :---------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Gross profit | 207 | 400 | (193) | -48.3% | | Gross margin | 9.4% | 4.0% | 5.4% pts | 135.0% | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :---------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Gross profit | 47 | 328 | (281) | -85.7% | | Gross margin | 8.6% | 5.1% | 3.5% pts | 68.6% | 2.5.4. Operating Expenses Total operating expenses decreased to $1.47 million (six months) but increased to $0.73 million (three months), with changes in G&A due to share-based compensation, credit loss allowance, and cost reductions | Expense (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Sales and marketing expenses | - | 133 | (133) | -100.0% | | General and administrative expenses | 1,468 | 1,490 | (22) | -1.5% | | Total operating expenses | 1,468 | 1,623 | (155) | -9.6% | | Expense (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Sales and marketing expenses | - | 54 | (54) | -100.0% | | General and administrative expenses | 729 | 575 | 154 | 26.8% | | Total operating expenses | 729 | 629 | 100 | 15.9% | - General and administrative expenses for the six months ended June 30, 2025, increased due to $0.29 million in share-based compensation and $0.03 million in credit loss allowance, offset by a $0.34 million decrease from cost reduction plans[147] 2.5.5. Loss from Operations Loss from operations increased to $1.26 million (six months) and significantly to $0.68 million (three months) compared to prior year periods | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Loss from operations | (1,261) | (1,223) | (38) | 3.1% | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Loss from operations | (682) | (301) | (381) | 126.6% | 2.5.6. Other Income/(Expenses) Total other income decreased for both periods due to lower interest income from short-term loans, with no impairment loss on long-term investments in 2025 | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Interest income | 99 | 167 | (68) | -40.7% | | Total other income/(expenses) | 94 | 137 | (43) | -31.4% | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Interest income | 45 | 76 | (31) | -40.8% | | Total other income/(expenses) | 44 | 68 | (24) | -35.3% | - No impairment loss on long-term investments was recognized for the six and three months ended June 30, 2025[145] 2.5.7. Loss Before Income Tax Benefit/(Expense) Loss before income tax benefit increased to $1.17 million (six months) and significantly to $0.64 million (three months) compared to prior year periods | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Loss before income tax benefit/(expense) | (1,167) | (1,086) | (81) | 7.5% | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Loss before income tax benefit/(expense) | (638) | (233) | (405) | 173.8% | 2.5.8. Income Tax Benefit/(Expense) Negligible income tax benefits were recognized for both periods, primarily related to net operating losses from an operating VIE | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | | Income tax benefit | - | 4 | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | | :----------------- | :--------------------------- | :--------------------------- | | Income tax benefit | 1 | 1 | 2.5.9. Net Loss Total net loss was $1.17 million (six months) and $0.64 million (three months), compared to $1.08 million and $0.23 million in prior year periods | Metric (US$ '000) | 6 Months Ended June 30, 2025 | 6 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Net loss | (1,167) | (1,082) | (85) | 7.8% | | Metric (US$ '000) | 3 Months Ended June 30, 2025 | 3 Months Ended June 30, 2024 | Change (US$ '000) | % Change | | :----------------- | :--------------------------- | :--------------------------- | :---------------- | :------- | | Net loss | (637) | (232) | (405) | 174.6% | 2.6. Liquidity and Capital Resources (MD&A) Liquidity is primarily from financing, facing operating losses and negative cash flows; PRC regulations restrict cash transfers and dividends, and despite plans for loan collection, equity financing, and cost reductions, going concern doubts remain 2.6.1. Cash Transfer within Our Organization and the Related Restrictions Intercompany cash transfers require approval; PRC regulations restrict dividend payments from subsidiaries and VIEs, including statutory reserves and potential 10% withholding tax, with $13.18 million restricted net assets - Intercompany cash transfers within the organization require prior approval from the financial director and CEO/CFO[150] - PRC regulations restrict dividend payments from PRC subsidiaries and VIEs, requiring 10% of after-tax profit to be set aside for statutory surplus reserve[152] - As of June 30, 2025, approximately US$13.18 million in net assets were restricted, impacting the ability to transfer funds to the Nevada holding company[152] - Dividends from PRC entities to the Hong Kong holding company may be subject to a 10% withholding tax, or 5% if beneficial owner and tax resident conditions are met, which is not assured[153] 2.6.2. Cash Flow Analysis Net cash used in operating activities decreased to $0.30 million; investing activities provided $0.46 million (from loan repayments and IP acquisition); financing activities significantly increased to $0.75 million from investor advances | Cash Flow Activity (US$ '000) | Six Months Ended June 30, 2025 | Six Months Ended June 30, 2024 | | :------------------------------------ | :----------------------------- | :----------------------------- | | Net cash used in operating activities | (299) | (1,030) | | Net cash provided by investing activities | 456 | 651 | | Net cash provided by financing activities | 750 | 70 | | Net increase/(decrease) in cash and cash equivalents | 894 | (307) | - Net cash used in operating activities decreased due to lower net loss (excluding non-cash items) and favorable changes in accounts receivable and advance from customers, offset by increased prepayments[161] - Net cash provided by investing activities in 2025 included $1.12 million from short-term loan repayments and $0.60 million for intellectual property acquisition (Rahula)[162] - Net cash provided by financing activities in 2025 was primarily from $0.75 million in advances from investors[164] 2.6.3. Future Liquidity, Material Cash Requirements and Capital Resources Future liquidity needs include working capital; plans involve AI business acquisition, loan collection, and cost reduction, but going concern uncertainty remains, potentially requiring additional financing and shareholder dilution - Future short-term liquidity needs include working capital for influencer marketing, digital marketing services, and operating expenses[165] - The company is actively seeking to acquire businesses with AI capabilities and proprietary intellectual properties to enhance marketing solutions and cost-efficient content creation[166] - Plans to improve liquidity include collecting maturing short-term loans, pursuing equity financing, and reducing operating costs through personnel optimization and office space reduction[168] - These factors raise substantial doubt about the company's ability to continue as a going concern within one year[169][170] 2.6.4. Off-Balance Sheet Arrangements The company has no off-balance sheet arrangements - The company has no off-balance sheet arrangements[172] 2.6.5. Disclosure of Contractual Obligations The company has commitments to pay US$0.98 million for Hunan Yong Fu Xiang equity by 2065 and US$0.14 million for Wuhan Ju Liang equity by 2052 - Committed to pay approximately US$0.98 million for a 9.9% equity interest in Hunan Yong Fu Xiang Health Management Co., Ltd by December 31, 2065[173] - Committed to pay approximately US$0.14 million for a 9.9% equity interest in Wuhan Ju Liang by August 1, 2052[174] Item 3. Quantitative and Qualitative Disclosures About Market Risk This item is not applicable to the company due to its status as a smaller reporting company - This disclosure is not applicable to the company as it is a smaller reporting company[175] Item 4. Controls and Procedures Management concluded disclosure controls and procedures were effective as of June 30, 2025, with no material changes in internal control over financial reporting during the quarter 4.1. Evaluation of Disclosure Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2025 - Management concluded that the company's disclosure controls and procedures were effective as of June 30, 2025[176] 4.2. Changes in Internal Control over Financial Reporting No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025 - No material changes in internal control over financial reporting occurred during the fiscal quarter ended June 30, 2025[177] PART II. OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any material legal or administrative proceedings and is unaware of any pending or threatened proceedings - The company is not currently a party to any material legal or administrative proceedings and is not aware of any pending or threatened proceedings[178] Item 1A. Risk Factors Risk factor disclosures are omitted due to the company's status as a smaller reporting company - Risk factor disclosures are omitted due to the company's status as a smaller reporting company[179] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds to report - No unregistered sales of equity securities or use of proceeds to report[180] Item 3. Defaults Upon Senior Securities No defaults upon senior securities to report - No defaults upon senior securities to report[181] Item 4. Mine Safety Disclosures Mine safety disclosures are not applicable to the company - Mine safety disclosures are not applicable to the company[182] Item 5. Other Information No directors or officers reported adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the fiscal quarter - No directors or officers reported the adoption or termination of Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter[183] Item 6. Exhibits This section lists filed exhibits, including certifications from the Principal Executive Officer and Principal Accounting and Financial Officer, and Inline XBRL data - The report includes certifications from the Principal Executive Officer and Principal Accounting and Financial Officer (Exhibits 31.1, 31.2, 32.1)[185] - Inline XBRL data files are provided as Exhibit 101 and 104[185] Signatures The report was signed by Handong Cheng, CEO and Acting CFO, on behalf of ZW Data Action Technologies Inc. on August 14, 2025 - The report was signed by Handong Cheng, Chief Executive Officer and Acting Chief Financial Officer, on August 14, 2025[189]