ZW Data Action Technologies Inc.  an integrated online advertising, precision marketing, data analytics and other value-added services provider serving enterprise clients, announced its unaudited financial results for the three and nine months ended September 30, 2021.

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Financial Highlights

• Third quarter 2021 gross profit of $0.04 million, compared to a gross loss of $0.64 million for the third quarter 2020;
• Third quarter 2021 net income of $1.37 million, compared to a net loss of $1.33 million for the third quarter 2020;
• First nine months 2021 revenue of $34.85 million, representing a +28.6% YOY;
• Working capital of $11.84 million as of September 30, 2021, compared to $4.86 million as of December 31, 2020;
• Cash and cash equivalents of $8,73 million as of September 30, 2021, compared to $4.30 million as of December 31, 2020.

Third Quarter 2021 Financial Results

Revenues

For the third quarter of 2021, revenues decreased by $0.40 million, or 3.3%, to $11.90 million from $12.30 million for the same period of last year. The decrease in revenues was primarily attributable to the decrease in revenues from our Ecommerce O2O advertising and marketing services and technical solutions services business segments, which was partially offset by the increase in revenues from our internet advertising and related services business segment.

Cost of revenues

Total cost of revenues decreased by $1.09 million, or 8.4%, to $11.86 million for the third quarter of 2021 from $12.95 million for the same period of last year. The decrease in cost of revenues was primary attributable to the decrease in costs and the improvement of gross margin rate of our internet advertising and related services, and the decrease in cost associated with technical solutions services, which was in line with the decrease in the related revenues.

Gross profit (loss) and gross profit (loss) margin

Gross profit was $0.04 million for the third quarter of 2021, compared to gross loss of $0.64 million for the same period of last year, which was primarily attributable to the improvement of gross margin rate of our main stream of service revenues generating from the distribution of the right to use search engine marketing services. Gross profit margin was 0.4% for the third quarter of 2021, compared to gross loss margin of 5.2% for the same period of last year.

Operating expenses

Sales and marketing expenses was $0.06 million, remained unchanged for the third quarter of 2021 compared to the same period of last year. There was no significant fluctuation of our sales and marketing expenses.

General and administrative expenses increased by $0.88 million, or 148.5%, to $1.47 million for the third quarter of 2021 from $0.59 million for the same period of last year. The increase in general and administrative expenses was mainly attributable to the increase in general departmental expenses, which were primarily related to the expansion of our new office in Guangzhou.

Research and development expenses decreased by $0.02 million, or 22.1%, to $0.09 million for the third quarter of 2021 from $0.11 million for the same period of last year. The decrease in research and development expenses was mainly attributable to a reduction in headcount in our research and development department.

Operating loss

Loss from operations was $1.57 million for the third quarter of 2021, compared to $1.40 million for the same period of last year. Operating loss margin was 13.2% for the third quarter of 2021, compared to 11.4% for the same period of last year.

Other income (expense), net

Total other net income was $2.82 million for the third quarter of 2021, compared to total other net expense of $0.08 million for the same period of last year, which was primarily attributable to the increase in gain from change in fair value of warrant liabilities.

Net income (loss) attributable to CNET and earnings (loss) per share

Net income attributable to CNET was $1.38 million, or earnings per share of $0.04, for the third quarter of 2021. This compared to net loss attributable to CNET of $1.33 million, or loss per share of $0.06, for the same period of last year.

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First Nine Months 2021 Financial Results

Revenues

For the first nine months of 2021, revenues increased by $7.75 million, or 28.6%, to $34.85 million from $27.10 million for the same period of last year. The increase in revenues was primarily attributable to the increase in revenues from our Internet advertising and related services business segment, as a result of economic recovery from the COVID-19 outbreak since the second half of fiscal 2020.

Cost of revenues

For the first nine months of 2021, cost of revenues increased by $9.19 million, or 34.6%, to $35.74 million from $26.55 million for the same period of last year. The increase in cost of revenues was primary attributable to the increase in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines during the periods, which were in line with the increase in the related revenues.

Gross profit (loss) and gross profit (loss) margin

Gross loss was $0.89 million for the first nine months of 2021, compared to a gross profit of $0.56 million for the same period of last year, which was primarily due to the negative gross margin rate incurred by our main stream of service revenues.

Overall gross loss margin was 2.6% for first nine months of 2021, compared to a gross profit margin of 2.1% for the same period of last year.

Operating expenses

Sales and marketing expenses decreased by $0.13 million, or 45.7%, to $0.16 million for the first nine months of 2021 from $0.29 million for the same period of last year. The decrease in sales and marketing expenses was mainly attributable to the decrease in share-based compensation expenses related to restricted shares granted and issued to our sales staff during the first fiscal quarter of last year.

General and administrative expenses increased by $5.85 million, or 129.3%, to $10.37 million for the first nine months of 2021 from $4.52 million for the same period of last year. The increase in general and administrative expenses was mainly attributable to the increase in share-based compensation expenses and general office administrative expenses, which was partially offset by the decrease in allowance for doubtful accounts.

Research and development expenses decreased by $0.19 million, or 43.3%, to $0.25 million for the first nine months of 2021 from $0.44 million for the same period of last year. The decrease in research and development expenses was primarily due to the decrease in share-based compensation expenses related to restricted shares granted and issued to our research and development staff during the first fiscal quarter of last year.

Operating loss

Loss from operations increased by $6.97 million, or 148.3%, to $11.67 million for the first nine months of 2021 from $4.70 million for the same period of last year. Operating loss margin was 33.5% for the first nine months of 2021, compared to 17.3% for the same period of last year.

Other income (expense), net

Total other net income was $9.91 million for the first nine months of 2021, compared to $nil million for the same period of last year, which was primarily due to the increase in gain from change in fair value of warrant liabilities.

Net loss attributable to CNET and loss per share

As a result of the foregoing, net loss attributable to CNET was $1.59 million, or loss per share of $0.05, for the first nine months of 2021. This compared to net loss attributable to CNET of $4.61 million, or loss per share of $0.22, for the same period of last year.

Financial Condition

As of September 30, 2021, the Company had cash and cash equivalents of $8.73 million, compared to $4.30 million as of December 31, 2020. Accounts receivable, net was $2.67 million as of September 30, 2021, compared to $2.41 million as of December 31, 2020. Working capital was $11.84 million as of September 30, 2021, compared to $4.86 million as of December 31, 2020.

Net cash used in operating activities was $6.60 million for the first nine months of 2021, compared to net cash provided by operating activities of $0.60 million for the same period of last year. Net cash used in investing activities was $6.10 million for the first nine months of 2021, compared to $1.27 million for the same period of last year. Net cash provided by financing activities was $17.11 million for the first nine months of 2021, compared to net cash used in financing activities of $0.43 million for the same period of last year.

Recent Developments

During the third quarter of 2021, the Company finalized its blockchain infrastructure (“BIF”) platform for business applications of Non-Fungible Token (“NFT”) to provide micro, small and medium enterprises (“MSMEs”) one-stop enterprise-level blockchain network and application services. Upon test launch of its BIF automation platform, the Company cooperated with one of its strategic partners to provide digital transformations and solutions of NFT through BIF platform. The Company expects to fully launch the platform to MSMEs during the fourth fiscal quarter of 2021.

Meanwhile, the Company completed an upgrade to its official website reflecting the Company’s recent developments on its BIF platform and related business transformation. The Company is integrating its value-added blockchain service platform into its existing information services and expects to become an integrated digital operation service provider with Information + transaction + Blockchain in the near future.

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