ZW Data Action Technologies(CNET) - 2022 Q1 - Quarterly Report

Revenue Performance - Total revenues decreased to US$7.65 million for the three months ended March 31, 2022, down from US$8.40 million for the same period last year, primarily due to a decline in Internet advertising revenues [146]. - Revenues from Internet advertising and related services decreased to US$1.06 million and US$6.59 million, respectively, compared to US$1.40 million and US$6.87 million for the same period in 2021, attributed to regional COVID-19 outbreaks affecting SMEs [147]. - For the three months ended March 31, 2022, total revenues were approximately US$7.65 million, a decrease from US$8.40 million for the same period in 2021 [156]. Cost and Profitability - Cost of revenues decreased to US$7.52 million for the three months ended March 31, 2022, from US$9.11 million for the same period in 2021, reflecting a decrease in costs associated with search engine marketing services [150]. - Gross profit for the three months ended March 31, 2022, was US$134,000, compared to a gross loss of US$717,000 for the same period in 2021 [143]. - The gross margin rate for Internet advertising and related services was 8% for the three months ended March 31, 2022, compared to 9% for the same period in 2021 [151]. - The gross margin rate for the distribution of search engine marketing services improved to 1% for the three months ended March 31, 2022, from -9% in the same period last year [152]. - Gross profit for the three months ended March 31, 2022, was approximately US$0.13 million, compared to a gross loss of approximately US$0.72 million for the same period in 2021, resulting in an overall gross margin improvement to 2% from -9% [154]. Operating Expenses - Operating expenses increased to US$1.69 million for the three months ended March 31, 2022, from US$1.10 million in the same period last year, driven by higher general and administrative expenses [143]. - Total operating expenses increased to approximately US$1.69 million for the three months ended March 31, 2022, from US$1.10 million for the same period in 2021, representing 22.0% of total revenues [156]. Net Income and Loss - Net loss attributable to ZW Data Action Technologies Inc. was US$717,000 for the three months ended March 31, 2022, compared to a net income of US$685,000 for the same period in 2021 [143]. - The company incurred a loss from operations of approximately US$1.55 million for the three months ended March 31, 2022, compared to a loss of US$1.82 million for the same period in 2021 [157]. - The net loss attributable to ZW Data Action Technologies Inc. was approximately US$0.72 million for the three months ended March 31, 2022, compared to a net income of approximately US$0.69 million for the same period in 2021 [165]. Cash Flow and Investments - Net cash used in operating activities was approximately US$0.89 million for the three months ended March 31, 2022, a significant improvement from US$3.71 million for the same period in 2021 [170]. - Net cash used in investing activities resulted in an outflow of approximately US$1.46 million for the three months ended March 31, 2022, compared to US$1.87 million for the same period in 2021 [175]. - The company had cash and cash equivalents of approximately US$4.82 million as of March 31, 2022 [166]. - The company acquired a 9.09$0.79 million) and made an initial cash investment of RMB2.0 million (approximately US$0.32 million) in 2021 [184]. - The remaining investment amount of RMB3.0 million (approximately US$0.47 million) in Global Best Products is expected to be paid by December 31, 2022 [184]. Tax and Legal Matters - The company recognized an income tax benefit of approximately US$0.002 million for the three months ended March 31, 2022, compared to US$0.10 million for the same period in 2021 [163]. - The current PRC Enterprise Income Tax Law imposes a 10% withholding income tax on dividends distributed by foreign invested enterprises, which was previously exempted [180]. - The company is currently not a party to any legal or administrative proceedings, indicating a stable legal standing [189]. Internal Controls and Procedures - The company’s disclosure controls and procedures were evaluated as effective as of March 31, 2022, ensuring timely reporting of required information [186]. - There were no changes in internal control over financial reporting that materially affected the company during the first fiscal quarter of 2022 [188]. Future Expectations - The company anticipates maintaining the gross margin rate for Internet advertising services at current levels in the following quarters of fiscal 2022 [151]. - The company expects slight improvement in the gross margin rate for search engine marketing services in the upcoming quarters of fiscal 2022 [152].