ZW Data Action Technologies(CNET) - 2023 Q3 - Quarterly Report

Revenue Performance - Revenues for September 2023 reached $25,317,000, an increase of 16.5% compared to $21,813,000 in September 2022[187]. - Total revenues increased to US$25.32 million for the nine months ended September 30, 2023, up from US$21.81 million for the same period in 2022, primarily due to increased revenues from search engine marketing services[192]. - Revenue from distribution of the right to use search engine marketing service was approximately US$24.82 million for the nine months ended September 30, 2023, compared to US$18.61 million for the same period in 2022, reflecting a significant recovery post-COVID-19[195]. - Internet advertising revenues declined to approximately US$0.43 million for the nine months ended September 30, 2023, down from US$3.21 million for the same period in 2022, attributed to economic uncertainties and shifts in advertising strategies[193]. Cost and Expenses - Cost of revenues for September 2023 was $25,746,000, slightly higher than $21,811,000 in September 2022, resulting in a gross loss of $429,000[187]. - Total cost of revenues increased to US$25.75 million for the nine months ended September 30, 2023, from US$21.81 million for the same period in 2022, driven by higher costs associated with search engine marketing services[200]. - Operating expenses decreased from $5,916,000 in September 2022 to $3,807,000 in September 2023, reflecting a reduction in both sales and marketing expenses and general and administrative expenses[187]. - Total operating expenses for the nine months ended September 30, 2023, were approximately $3.83 million, a decrease of 37.1% from $6.10 million in the same period of 2022[207]. - General and administrative expenses decreased to $3,659,000 in September 2023 from $5,697,000 in September 2022, a reduction of 35.9%[187]. - Sales and marketing expenses for September 2023 were $148,000, down from $219,000 in September 2022, indicating a 32.4% decrease[187]. - Sales and marketing expenses for the nine months ended September 30, 2023, were approximately $0.15 million, a decrease from $0.22 million in the same period of 2022[209]. - Operating expenses included research and development expenses totaling US$1.78 million for the nine months ended September 30, 2023[205]. Profitability - Gross loss for the nine months ended September 30, 2023, was approximately US$0.43 million, compared to a gross profit of approximately US$0.002 million for the same period in 2022, resulting in a gross margin of -2%[204]. - The gross margin rate for the distribution of the right to use search engine marketing services improved to 0.2% for the nine months ended September 30, 2023, compared to -2% for the same period in 2022[204]. - Loss from operations for the nine months ended September 30, 2023, was approximately $4.25 million, compared to a loss of $6.10 million for the same period in 2022[213]. - Net loss for the nine months ended September 30, 2023, was approximately $4.07 million, an improvement from a net loss of $5.27 million in the same period of 2022[217]. Cash Flow and Liquidity - As of September 30, 2023, the company had cash and cash equivalents of approximately US$1.31 million[227]. - For the nine months ended September 30, 2023, net cash used in operating activities was approximately US$1.54 million, a decrease from US$4.41 million for the same period in 2022[231][234]. - Net cash used in investing activities for the nine months ended September 30, 2023, was approximately US$1.50 million, compared to US$0.48 million in 2022[235][236]. - Future liquidity needs include deposits and advance payments for search engine marketing resources and operating expenses, primarily office rentals and employee salaries[238]. - The company anticipates generating additional cash inflows from maturing short-term working capital loans within the next 12 months[241]. Strategic Initiatives - The company introduced SaaS services in early 2022, providing blockchain-powered enterprise management solutions via the BIF platform[181]. - The company operates a one-stop service for clients in omni-channel advertising, precision marketing, and data analysis management[181]. - A new majority-owned subsidiary, ChinaNet Yun Chuang, was established in July 2023 to expand into the livestream operation industry, with expectations of generating operating profits within the next 12 months[240]. - The company plans to optimize its internet resources cost investment strategy to improve gross profit margins and strengthen accounts receivable collection management[240]. - The company has not entered into any binding agreements for potential acquisitions or joint ventures but is actively seeking target companies[239]. - The company obtained a 9.9% equity interest in Guangdong Yong Fu Xiang Health Management Co., Ltd. for approximately US$0.98 million[245]. Regulatory Environment - 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[177]. - The company is subject to the Holding Foreign Companies Accountable Act, which could lead to delisting if the PCAOB cannot inspect its auditors for two consecutive years[173]. - The company’s financial statements are prepared in accordance with U.S. GAAP, requiring estimates and assumptions that could affect reported amounts[183].