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ZW Data Action Technologies(CNET) - 2022 Q3 - Quarterly Report

PART I. FINANCIAL INFORMATION Interim Financial Statements This section presents the unaudited condensed consolidated financial statements, revealing declines in assets, revenue, and a widening net loss, alongside significant delisting risks - The company is identified as a 'Commission-Identified Issuer' under the HFCAA, risking U.S. stock delisting as early as 2024 due to its Hong Kong-based auditor being on the PCAOB's uninspectable list578 - The company is actively seeking U.S. audit firms not on the PCAOB's determination list to mitigate delisting risk9 - An agreement was signed on August 26, 2022, between the PCAOB and Chinese authorities to allow inspections of audit firms, though its final outcome and effectiveness remain uncertain10 Condensed Consolidated Balance Sheets Total assets decreased to $25.0 million from $32.6 million, driven by reduced cash, while liabilities and equity also declined Condensed Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2022 (Unaudited) | Dec 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $2,154 | $7,173 | | Total current assets | $14,384 | $19,918 | | Total Assets | $25,000 | $32,631 | | Liabilities & Equity | | | | Total current liabilities | $6,561 | $8,821 | | Total Liabilities | $8,241 | $10,856 | | Total stockholders' equity | $16,759 | $21,766 | | Total Liabilities and Equity | $25,000 | $32,631 | Condensed Consolidated Statements of Operations Revenues for the nine months fell to $21.8 million from $34.8 million, resulting in a net loss of $5.3 million, a significant increase from the prior year Statement of Operations Highlights (in thousands, except per share data) | Metric | Nine Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2021 | Three Months Ended Sep 30, 2022 | Three Months Ended Sep 30, 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $21,813 | $34,847 | $7,216 | $11,900 | | Gross Profit/(Loss) | $2 | $(892) | $(51) | $43 | | Loss from Operations | $(6,095) | $(11,668) | $(1,831) | $(1,574) | | Net (Loss)/Income | $(5,271) | $(1,585) | $(2,840) | $1,374 | | Basic and Diluted (LPS)/EPS | $(0.15) | $(0.05) | $(0.08) | $0.04 | Condensed Consolidated Statements of Cash Flows Net cash used in operating activities improved to $4.4 million, while investing activities decreased significantly, resulting in a $5.0 million net cash decrease due to no financing activities Cash Flow Summary for the Nine Months Ended September 30 (in thousands) | Cash Flow Activity | 2022 (Unaudited) | 2021 (Unaudited) | | :--- | :--- | :--- | | Net cash used in operating activities | $(4,409) | $(6,600) | | Net cash used in investing activities | $(479) | $(6,097) | | Net cash provided by financing activities | $0 | $17,111 | | Net (decrease)/increase in cash | $(5,019) | $4,434 | Notes to Condensed Consolidated Financial Statements Notes detail the company's VIE structure, significant liquidity challenges with $4.41 million net operating cash outflow, and plans for new SaaS services, alongside disclosures on concentrations and asset transfer restrictions - The company operates as a Nevada holding company through contractual arrangements with Chinese Variable Interest Entities (VIEs), holding no equity ownership in them38 - The company faces liquidity issues, with a $6.10 million loss from operations and a $4.41 million net operating cash outflow for the nine months ended September 30, 2022, relying on financing and planning new SaaS services and cost reductions for improvement434547 - Net assets of approximately $15.2 million as of September 30, 2022, are restricted from transfer to the U.S. holding company due to PRC regulations128 Supplier Concentration (Cost of Revenues) | Period | Supplier A | Supplier B | Supplier C | | :--- | :--- | :--- | :--- | | Nine Months 2022 | 53% | 27% | <10% | | Three Months 2022 | 63% | 13% | 14% | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes the 37% revenue decline to COVID-19 impacts, reports a $5.3 million net loss, and outlines strategies including new SaaS services and cost reductions to improve liquidity and performance - Total revenues decreased to $21.81 million for the nine months ended September 30, 2022, from $34.85 million in the prior year, primarily due to COVID-19 impacts on SME clients in China189190 - General and administrative expenses for the nine months decreased to $5.70 million from $10.37 million, primarily due to a $6.81 million decrease in share-based compensation expenses207 - The company is introducing new Software-as-a-Service (SaaS) offerings based on its Blockchain Integrated Framework (BIF) platform, projecting approximately $0.50 million in SaaS revenues in the next six months to improve performance and cash flow179241 - To improve liquidity, the company plans to negotiate better payment terms with suppliers, reduce operating costs, and potentially apply for revolving credit facilities from PRC banks243 Quantitative and Qualitative Disclosures About Market Risk This section is not applicable as the company qualifies as a smaller reporting company - Disclosure is not applicable to smaller reporting companies246 Controls and Procedures Management concluded that disclosure controls and procedures were effective as of September 30, 2022, with no material changes to internal control over financial reporting during the quarter - The principal executive and financial officers concluded that disclosure controls and procedures were effective as of September 30, 2022246 - No material changes occurred in the company's internal control over financial reporting during the fiscal quarter247 PART II. OTHER INFORMATION Legal Proceedings The company is not currently a party to any material legal or administrative proceedings, nor is it aware of any pending or threatened ones - The company is not currently a party to any material legal or administrative proceedings248 Risk Factors This section is omitted as the company qualifies as a smaller reporting company - Information is omitted based on the company's status as a smaller reporting company250 Unregistered Sales of Equity Securities and Use of Proceeds No unregistered sales of equity securities or use of proceeds were reported for the period - None reported for the period250 Defaults Upon Senior Securities No defaults upon senior securities were reported - None reported250 Mine Safety Disclosures This section is not applicable to the company's operations - Not applicable250 Other Information No other information was reported for the period - None reported250 Exhibits This section lists exhibits filed with the Form 10-Q, including officer certifications and Inline XBRL financial data files - Exhibits filed include Certifications of the Principal Executive Officer and Principal Accounting and Financial Officer (Exhibits 31.1, 31.2, 32.1) and Inline XBRL data (Exhibit 101)252253254255