ZW Data Action Technologies(CNET) - 2024 Q4 - Annual Report

Regulatory Risks and Compliance - The company is identified as a Commission-Identified Issuer under the HFCAA following the filing of its annual report for the fiscal year ended December 31, 2021[18]. - The company faces risks associated with its corporate structure and contractual arrangements with VIEs, which could lead to severe penalties if found non-compliant with PRC laws[26]. - The company is subject to significant regulatory risks in China, including potential changes in laws affecting its variable interest entity (VIE) structure, which could lead to severe penalties[43]. - The company faces uncertainties regarding the interpretation and enforcement of PRC laws, which could limit legal protections and adversely affect operations[46]. - The company is required to file with the CSRC for future overseas offerings under new Filing Rules effective March 31, 2023, which may impact its ability to raise capital[29]. - The PCAOB's inability to inspect auditors in China poses risks to the company's compliance and could lead to delisting under the Holding Foreign Companies Accountable Act[52]. - The company is subject to significant regulatory risks in China, including potential changes in laws affecting its ability to conduct business and offer securities[39]. VIE Structure and Operational Control - The company operates through VIEs due to PRC laws restricting foreign ownership of companies engaging in value-added telecommunication services[24]. - The contractual arrangements with VIEs may not be as effective as direct ownership, potentially incurring substantial costs to enforce[25]. - The company relies on contractual arrangements with its VIEs and their shareholders to control business operations in China[24]. - The company’s operations are primarily conducted through VIEs, which may not provide the same level of operational control as direct ownership[44]. Financial Performance and Investor Confidence - The PCAOB's ability to conduct inspections in China is subject to uncertainties and could affect the company's financial performance[22]. - The PCAOB's inspections in Hong Kong were previously hindered, affecting investor confidence in the company's financial statements[16]. - The company’s financial statements may be viewed with skepticism if the PCAOB cannot conduct inspections, potentially leading to a decline in stock value[23]. - The PCAOB's inability to inspect auditors in China may impact investor confidence and the company's ability to maintain its listing in the U.S.[52]. - The company faces competition and economic uncertainties that could adversely affect its operating results and market share[40]. Cash Transfers and Financial Management - For the year ended December 31, 2024, the company transferred US$0.48 million in cash to its operating subsidiaries, while in 2023, no cash was transferred[31]. - The consolidated VIEs transferred US$0.02 million to consolidated subsidiaries as loan repayments in 2024, while in 2023, consolidated subsidiaries transferred US$0.55 million to VIEs in the form of loans[32]. - As of December 31, 2024, the total restricted net assets of the company's PRC subsidiaries and VIEs were approximately US$13.23 million, compared to US$13.41 million in 2023[34]. - The company has not declared or paid any cash dividends, nor does it have plans to do so in the foreseeable future, intending to retain available funds for business operations and expansion[36]. Cybersecurity and Data Privacy Risks - The company has faced risks related to cybersecurity and data privacy, which could expose it to liability and impair operations[41].