Quarterly Report for Quarter Ending September 30, 2025 (Form 10-Q)

Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words "expect," "anticipate," "intend," "believe," or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading "Risk Factors" in our Annual Report on Form 10-K for the fiscal year ended December 31, 2024. Readers are cautioned not to place undue reliance on these forward-looking statements.

The Public Company Accounting Oversight Board (the "PCAOB") had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprived our investors of the benefits of such inspections.

Our auditor, ARK Pro CPA & Co. ("ARK"), the independent registered public accounting firm that issues the audit report in our SEC filings, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States, pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. As a result, we and investors in our securities were deprived of the benefits of such PCAOB inspections. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong in 2022. However, the inability of the PCAOB to conduct inspections of auditors in Hong Kong in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm's audit procedures or quality control procedures as compared to auditors outside of China mainland and Hong Kong that have been subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by the Accelerating Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect or investigate completely auditors located in China mainland and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

On December 18, 2020, the Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law that states if the SEC determines that issuers have filed audit reports issued by a registered public accounting firm that has not been subject to PCAOB inspection for three consecutive years beginning in 2021, the SEC shall prohibit its common stock from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant's financial statements is not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as enacted in the HFCAA. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a "Commission-Identified Issuer" if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was signed into law.

On December 16, 2021, the PCAOB issued a HFCAA Determination Report (the "2021 PCAOB Determinations") to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong because of positions taken by the Chinese authorities, and our auditor was subject to this determination. On May 13, 2022, the SEC conclusively identified us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2021.

On August 26, 2022, the PCAOB signed a Statement of Protocol on agreement governing on inspections of audit firms based in mainland China and Hong Kong, with China Securities Regulatory Commission ("CSRC") and Ministry of Finance ("MOF") of the PRC, in regarding to governing inspections and investigations of audit firms headquartered in mainland China and Hong Kong (the "Agreement"). As stated in the Agreement, the Chinese authorities committed that the PCAOB has direct access to view complete audit work papers under its inspections or investigations and has sole discretion to the selected audit firms and audit engagements. The Agreement opens access for the PCAOB to inspect and investigate the registered public accounting firms in mainland China and Hong Kong completely. The PCAOB then thoroughly tested compliance with every aspect of the Agreement necessary to determine complete access. This included sending a team of PCAOB staff to conduct on-site inspections and investigations in Hong Kong over a nine-week period from September to November 2022.

On December 15, 2022, the PCAOB issued its 2022 HFCAA Determination Report to notify the SEC of its determination that the PCAOB was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong completely in 2022. The PCAOB Board vacated its 2021 PCAOB Determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of our annual report for the fiscal year ended December 31, 2022. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor's, control.

The PCAOB is continuing to demand complete access in China mainland and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB does not have to wait another year to reassess its determinations. Should the PRC authorities obstruct the PCAOB's access to inspect or investigate completely in any way and at any point, the PCAOB will act immediately to consider the need to issue new determinations consistent with the HFCAA.

We cannot assure you that our auditor will not be determined as a register public accounting firm that the PCAOB is unable to inspect or investigate completely for two consecutive years because of positions taken by the Chinese authorities and/or any other causes in the future. Each year, the PCAOB will determine whether it can inspect and investigate completely audit firms in mainland China and Hong Kong, among other jurisdictions. If the PCAOB in the future again determines that it is unable to inspect and investigate completely auditors in China mainland and Hong Kong, we may be identified as a Commission-Identified Issuer accordingly. If this happens, Nasdaq may determine to delist our common stock, and there is no certainty that we will be able to continue listing our common stock on other non-U.S. stock exchanges or that an active market for our common stock will immediately develop outside of the U.S. The prohibiting from trading in the United States or delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

Overview

Our company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is engaged in providing Internet advertising, precision marketing, influencer marketing services as well as the related data and technical services to small and medium enterprises (SMEs). The Company also develops blockchain enabled web/mobile applications and provides software solutions, i.e., Software-as-a-Service ("SaaS") services for clients and engages in IP licensing services.

Through our operating subsidiaries, we primarily operate an integrated marketing and digital solutions platform for brand partners across multiple channels. We leverage our omni-channel advertising capabilities, precision marketing tools, and data-driven management systems to help clients enhance brand awareness, optimize customer acquisition, and maximize marketing effectiveness. We provide a comprehensive suite of services, including content-driven and influencer-based digital marketing, brand-focused social media campaigns, online advertising placement, and value-added data analytics and technical services. Beginning in early 2022, we introduced our SaaS services to customers. The SaaS services were designated in providing one-stop blockchain-powered enterprise management solutions via our BIF platform in forms of unique NFT generations, data record, share and storage modules subscriptions etc.

Basis of presentation, management estimates and critical accounting policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP") and include the accounts of our company, and all of our subsidiaries and VIEs. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 4 "Summary of significant accounting policies" to our audited financial statements in our 2024 Form 10-K.

We believe that the assumptions and estimates associated with revenue recognition, estimation of current expected credit loss and fair value measurement of warrant liabilities have the greatest potential impacts on our condensed consolidated financial statements. Therefore, we consider these to be our critical accounting policies and estimates.

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Our revenues are recognized when control of the promised services is transferred to our customers, in an amount that reflects the consideration we expect to be entitled to in exchange for those services. Our revenues from distribution of the right to use search engine marketing service are recognized on a gross basis, because we determine that we are a principal in the transaction who control the services before they are transferred to our customers.

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We maintain an allowance for credit losses for accounts receivable and short-term loans provided to unrelated parties, which are recorded as valuation accounts that are deducted from the amortized cost basis of the related financial assets to present the net amount expected to be collected on the financial assets. The allowance for credit losses reflects our current estimate of credit losses expected to be incurred over the life of the related financial assets. We consider various factors in establishing, monitoring, and adjusting our allowance for credit losses, including the aging and aging trends, customer/other parties' creditworthiness and specific exposures related to particular customers/other parties. We also monitor other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer/other party's ability to pay in establishing and adjusting its allowance for credit losses. We assess collectability by reviewing the financial assets on a collective basis where similar characteristics exist and on an individual basis when we identify specific customers/other parties with known disputes or collectability issues. Accounts receivable and short-term loans to unrelated parties are written off after all collection efforts have ceased.

A. RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2025 AND 2024

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period. All amounts are presented in thousands of U.S. dollars.

		Nine Months Ended September 30,								Three Months Ended September 30,
		2025				2024				2025				2024
		(US $)				(US $)				(US $)				(US $)
		(Unaudited)				(Unaudited)				(Unaudited)				(Unaudited)
Revenues			3,917				13,190				1,717				3,239
Cost of revenues			3,612				12,735				1,619				3,184
Gross profit			305				455				98				55
Operating expenses
Sales and marketing expenses			-				208				-				75
General and administrative expenses			1,719				3,462				251				1,972
Total operating expenses			1,719				3,670				251				2,047
Loss from operations			(1,414	)			(3,215	)			(153	)			(1,992	)
Other income/(expenses)
Interest income			144				233				45				66
Other expenses, net			(4	)			(30	)			1				(2	)
Impairment of long-term investments			-				(2	)			-				-
Gain on disposal of subsidiaries			-				23				-				23
Total other income			140				224				46				87
Loss before income tax benefit/(expense)			(1,274	)			(2,991	)			(107	)			(1,905	)
Income tax benefit/(expense)			(1	)			4				(1	)			-
Net loss			(1,275	)			(2,987	)		$	(108	)		$	(1,905	)
Net loss attributable to noncontrolling interests			(1	)			7				-				(9	)
Net loss attributable to ZW Data Action Technologies Inc.		$	(1,276	)		$	(2,980	)		$	(108	)		$	(1,914	)

Revenues

The following tables set forth a breakdown of our total revenues, disaggregated by type of services for the periods indicated, with inter-company transactions eliminated:

		Nine Months Ended September 30,
		2025								2024
Revenue type		(Amounts expressed in thousands of US dollars, except percentages)
-Internet advertising and related marketing service		$	3,073				78.4	%		$	2,700				20.5	%
-Distribution of the right to use search engine marketing service			50				1.3	%			9,740				73.8	%
Internet advertising and related services			3,123				79.7	%			12,440				94.3	%
IP Services			179				4.6	%			-				-
Blockchain-based SaaS services			615				15.7	%			750				5.7	%
Total		$	3,917				100	%		$	13,190				100	%

		Three Months Ended September 30,
		2025								2024
Revenue type		(Amounts expressed in thousands of US dollars, except percentages)
-Internet advertising and related data service		$	1,634				95.2	%		$	2,700				83.4	%
-Distribution of the right to use search engine marketing service			1				0.06	%			539				16.6	%
Internet advertising and related services			1,635				95.2	%			3,239				100	%
IP Services			82				4.8	%			-				-
Blockchain-based SaaS services			-				-				-				-
Total		$	1,717				100	%		$	3,239				100	%

Total Revenues: Our total revenues decreased to US$3.92 million and US$1.72 million for the nine and three months ended September 30, 2025, respectively, from US$13.19 million and US$3.24 million for the same periods last year, respectively, which was primarily due to winding down of our main stream business segment - distribution of the right to use search engine marketing services.

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Internet advertising revenues for both the nine and three months ended September 30, 2025 was approximately US$3.07 million and US$1.63 million respectively, compared with US$2.7 million and US$2.7 million for the nine and three months ended September 30, 2024, respectively. The increase primarily resulted from the Company's shift in focus towards higher-margin business segments, including influencer marketing, marketing and branding strategy services, creative development, digital advertising management services and other related digital marketing services for Hong Kong and overseas clients.

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Revenue generated from distribution of the right to use search engine marketing service for the nine and three months ended September 30, 2025 was approximately US$0.05 million and US$0.001 million, respectively, compared with approximately US9.74 million and US$0.54 million for the nine and three months ended September 30, 2024, respectively. The decrease was mainly due to winding down of our distribution of the right to use search engine marketing service in the PRC, after experiencing low to negative margins in this business segment over the past several years.

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Revenue generated from IP licensing services for the nine and three months ended September 30, 2025 was approximately US$0.18 million and US$0.08 million, respectively, compared with nil for the same periods last year. The increase primarily resulted from the licensing of intellectual property acquired from Rahula.

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For the nine and three months ended September 30, 2025, we generated approximately US$0.62 million and nil in revenue from our blockchain-based SaaS services, respectively, compared with approximately US$0.75 million and nil for the nine and three months ended September 30, 2024, respectively.

Cost of revenues

Our cost of revenues consisted of costs directly related to the offering of our Internet advertising, precision marketing and related data and technical services, and software platform amortization cost related to our blockchain-based SaaS service. The following table sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the periods indicated, with inter-company transactions eliminated:

		Nine Months Ended September 30,
		2025												2024
		(Amounts expressed in thousands of US dollars, except percentages)
		Revenue				Cost				GP ratio				Revenue				Cost				GP ratio
-Internet advertising and related marketing service		$	3,073			$	2,881				6.2	%		$	2,700			$	2,430				10	%
-Distribution of the right to use search engine marketing service			50				40				20	%			9,740				9,674				0.7	%
Internet advertising and related services			3,123				2,921				6.5	%			12,440				12,104				2.7	%
IP Services			179				131				26.8	%			-				-				-
Blockchain-based SaaS services			615				560				8.9	%			750				631				15.9	%
Total		$	3,917			$	3,612				7.8	%		$	13,190			$	12,735				3.5	%

		Three Months Ended September 30,
		2025												2024
		(Amounts expressed in thousands of US dollars, except percentages)
		Revenue				Cost				GP ratio				Revenue				Cost				GP ratio
-Internet advertising and related marketing service		$	1,634			$	1,558				4.6	%		$	2,700			$	2,430				10	%
-Distribution of the right to use search engine marketing service			1				1				-				539				544				-0.9	%
Internet advertising and related services			1,635				1,559				4.6	%			3,239				2,974				8.2	%
IP Services			82				60				26.8	%			-				-				-
Blockchain-based SaaS services			-				-				-				-				210				-
Total		$	1,717			$	1,619				5.7	%		$	3,239			$	3,184				1.7	%

Cost of revenues: Our total cost of revenues decreased to US$3.61 million and US$1.62 million for the nine and three months ended September 30, 2025, respectively, from US$12.74 million and US$3.18 million for the nine and three months ended September 30, 2024, respectively. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, influencer agency costs, cost of marketing services, amortization of intellectual property cost, software platform amortization cost related to our blockchain-based SaaS service, costs relating to enhancing our blockchain-based SaaS services and other direct costs associated with providing our services. The decrease in our total cost of revenues for the nine and three months ended September 30, 2025 was primarily due to the reduced costs associated with distribution of the right to use search engine marketing service purchased from key search engines during the periods. This decrease was in line with the decrease in the related revenues as discussed above.

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Costs for internet advertising and marketing service primarily consist of fees paid to service providers who support delivering media planning, creative development, and digital ad management services to our Hong Kong and overseas clients. Our costs also include the cost of operating our influencer marketing services which includes the fees for collaborating with various influencer agencies. For the nine and three months ended September 30, 2025, our total cost of revenues for Internet advertising and marketing service was approximately US$2.88 million and US$1.56 million, respectively, compared with approximately US$2.43 million for the nine and three months ended September 30, 2024. The gross margin rate of our Internet advertising and data service was 6.2% and 4.6% for the nine and three months ended September 30, 2025, respectively, compared with 10% for the nine and three months ended September 30, 2024.

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Costs for distribution of the right to use search engine marketing service was direct search engine resources consumed for the right to use search engine marketing service that we purchased from key search engines and distributed to our customers. We purchased these search engine resources from well-known search engines and/or their delegated agencies in China, for example, Baidu, Qihu 360 and Sohu (Sogou) etc. We purchased the resources in relatively large amounts under our own name at a relatively lower rate compared to the market rates. We charged our clients the actual cost they consumed on search engines for the use of this service and a premium at certain percentage of that actual consumed cost. For the nine and three months ended September 30, 2024, our total cost of revenues for distribution of the right to use search engine marketing service was US$0.04 million and US$0.001 million, respectively, compared with US$9.67 million and US$0.54 million for the same periods last year, respectively. The decrease in cost of revenues for the nine and three months ended September 30, 2025 was in line with the decrease in revenues from this business category. Gross margin rate of this business category was 20% and nil for the nine and three months ended September 30, 2025, respectively, compared with 0.7% and -0.9% gross margin rate incurred for the same periods last year, respectively.

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Costs for our IP licensing services primarily consist of the amortized cost of the intellectual properties we acquired from Rahula. For the nine and three months ended September 30, 2025, cost for our IP licensing services was approximately US$0.13 million and 0.06 million compared to nil in the same period last year. Gross margin rate of this business category was 26.8% for both nine and three months ended September 30, 2025.

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For the nine and three months ended September 30, 2025, cost for our blockchain-based SaaS services was approximately US$0.56 million and nil, respectively, compared with approximately US$0.63 million and US$0.21 million for the nine and three months ended September 30, 2024, respectively. Costs for our blockchain-based SaaS services consist of the amortized cost of our self-developed BIF platform and costs relating to enhancing our blockchain-based SaaS services. Gross margin rate of this business category was 8.9% and nil for the nine and three months ended September 30, 2025, respectively, compared with 15.9% and nil for the same periods last year.

Gross profit

As a result of the foregoing, for the nine and three months ended September 30, 2025, we incurred a gross profit of approximately US$0.31 million and US$0.1 million, respectively, compared to approximately US$0.46 million and US$0.06 million for the nine and three months ended September 30, 2024. Our overall gross margin was 7.8% and 5.7% for the nine and three months ended September 30, 2025, respectively, compared with 3.5% and 1.7% for the same periods last year, respectively. The increase in overall gross margin was primarily due to the increase in revenue of our higher-margin internet advertising and related marketing service business.

Our operating expenses consist of sales and marketing expenses, general and administrative expenses and research and development expenses. The following tables set forth our operating expenses, divided into their major categories by amount and as a percentage of our total revenues for the periods indicated.

		Nine Months Ended September 30,
		2025								2024
		(Amounts expressed in thousands of US dollars, except percentages)
		Amount				% of total revenue				Amount				% of total revenue
Total revenues		$	3,917				100	%		$	13,190				100	%
Gross profit/(loss)			305				7.8	%			455				3.5	%
Sales and marketing expenses			-				-				208				1.6	%
General and administrative expenses			1,719				43.9	%			3,462				26.2	%
Total operating expenses		$	1,719				43.9	%		$	3,670				27.8	%

		Three Months Ended September 30,
		2025								2024
		(Amounts expressed in thousands of US dollars, except percentages)
		Amount				% of total revenue				Amount				% of total revenue
Total revenues		$	1,717				100	%		$	3,239				100
Gross profit/(loss)			98				5.7	%			55				1.7
Sales and marketing expenses			-				-				75				2.3
General and administrative expenses			251				14.6	%			1,972				60.9
Total operating expenses		$	251				14.6	%		$	2,047				63.2

Operating Expenses: Our total operating expenses was approximately US$1.72 million and US$0.25 million for the nine and three months ended September 30, 2025, respectively, compared with approximately US$3.67 million and US$2.05 million for the nine and three months ended September 30, 2024, respectively.

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Sales and marketing expenses: Sales and marketing expenses was nil for the nine and three months ended September 30, 2025, respectively, compared with approximately US$0.21 million and US$0.08 million for the nine and three months ended September 30, 2024, respectively. Our sales and marketing expenses primarily consist of staff salaries and benefits, performance bonuses, travel expenses, communication expenses and other general office expenses of our sales department. Due to certain aspects of our business nature, the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with the fluctuation of our net revenues.

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General and administrative expenses: General and administrative expenses was US$1.72 million and US$0.25 million for the nine and three months ended September 30, 2025, respectively, compared with US$3.46 million and US$1.97 million for the nine and three months ended September 30, 2024, respectively. Our general and administrative expenses primarily consist of salaries and benefits of management, accounting, human resources and administrative personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities and other general office expenses of our supporting and administrative departments. For the nine months ended September 30, 2025, the change in our general and administrative expenses was primarily due to the following reasons: (1) the decrease in share-based compensation expenses of approximately US$1.30 million; (2) the decrease in allowance for expected credit losses of approximately US$0.09 million; and (3) the decrease in other general administrative expenses of approximately US$0.45 million, as a result of the cost reduction plan executed by the management. For the three months ended September 30, 2025, the changes in our general and administrative expenses was primarily attributable to the following reasons: (1) the decrease in share-based compensation expenses of approximately US$1.58 million; (2) the decrease in other general administrative expenses of approximately US$0.05 million, as a result of the cost reduction plan executed by management; and (3) the decrease in allowance for expected credit losses of approximately US$0.12 million, respectively.

Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$1.41 million and US$3.22 million for the nine months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025 and 2024, we incurred a loss from operations of approximately US$0.15 million and US$1.99 million, respectively.

Interest Income: For the nine and three months ended September 30, 2025, interest income recognized were primarily related to the interest we earned from the short-term loans we provided to unrelated parties.

Impairment on long-term investments: For the nine months ended September 30, 2025, we recognized nil in impairment loss on long-term investments.For the nine months ended September 30, 2024, we recognized approximately US$0.002 million in impairment loss on long-term investments, which was related to our cash investments in one of our unconsolidated investee entities whose business activities had become dormant.

Loss before income tax benefit/(expense): As a result of the foregoing, our loss before income tax benefit was approximately US$1.27 million and US$2.99 million for the nine months ended September 30, 2025 and 2024, respectively. For the three months ended September 30, 2025, we incurred an approximately US$0.11 million loss before income tax expense, compared with an approximately US$1.91 million loss before income tax expense for the three months ended September 30, 2024.

Income Tax benefit/(expense): For the nine months ended September 30, 2025 and 2024, we recognized approximately US$0.001 million in income tax expense and US$0.004 million in income tax benefits. For the three months ended September 30, 2025 and 2024, we recognized approximately US$0.001 million and nil, respectively, in income tax expenses. These benefits were related to the net operating loss incurred by one of our operating VIEs for each respective period. We anticipate these losses will likely be utilized against future earnings of this entity.

Net loss: As a result of the foregoing, for the nine months ended September 30, 2025 and 2024, we incurred a total net loss of approximately US$1.28 million and US$2.99 million, respectively. For the three months ended September 30, 2025, we recognized a net loss of approximately US$0.11 million, compared with a net loss of approximately US$1.91 million for the three months ended September 30, 2024.

B. LIQUIDITY AND CAPITAL RESOURCES

Cash Transfer within Our Organization and the Related Restrictions

We are a Nevada holding company with operations primarily conducted in China through our PRC subsidiaries, VIEs and VIEs' subsidiaries. The intercompany flow of funds within our organization is effected through capital contributions and intercompany loans. We do not have written policies regarding intercompany cash transfer within our organization. In accordance with our current internal cash management practices, all intercompany cash transfer within our organization requires prior approval by our financial director and our chief financial officer/or our chief executive officer before execution.

As we conduct our operations primarily in China through our PRC subsidiaries, VIEs and their subsidiaries, and we intend to transfer most of our cash raised from the U.S. stock market to these operating entities to support their operations and expansions, our ability to pay dividends to U.S. investors may depend on receiving distributions from our PRC subsidiaries and settlement of the amounts owed under the VIE agreements from the consolidated VIEs. Any limitation on the ability of our PRC subsidiaries and the consolidated VIEs to make payments to us, or the tax implications of making payments to us, could have a material adverse effect on our ability to pay dividends to our U.S. investors.

The PRC regulations currently permit payment of dividends only out of accumulated profits, as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries, the consolidated VIEs and their subsidiaries in China are also required to set aside at least 10% of their respective after-tax profit based on the PRC accounting standards and regulations each year to the statutory surplus reserve, until the balance in the reserve reaches 50% of the registered capital of the respective PRC entities. In accordance with these PRC laws and regulations, our PRC subsidiaries, the consolidated VIEs and their subsidiaries are restricted in their ability to transfer a portion of their net assets to us. As of September 30, 2025 and December 31, 2024, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of our PRC subsidiaries, the consolidated VIEs and their subsidiaries that are included in our consolidated net assets, were approximately US$13.16 million and US$13.31 million, respectively. Appropriations to the enterprise expansion fund and staff welfare and bonus fund of a foreign-invested PRC entity and appropriation to the discretionary surplus reserve of other PRC entities are at the discretion of the board of directors. To date, none of our PRC subsidiaries, the consolidated VIEs and their subsidiaries appropriated any of these non-mandatory funds and reserves. Furthermore, if these entities incur debt on their own in the future, the instruments governing the debt may restrict their ability to pay dividends or make other payments.

Under the PRC Enterprise Income Tax ("EIT") Law and related regulations, dividends, interests, rent or royalties payable by a foreign-invested enterprise to its immediate holding company outside China are subject to a 10% withholding tax. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Hong Kong has a tax arrangement with China that provides for a 5% withholding tax on dividends subject to certain conditions and requirements, such as the requirements that the Hong Kong enterprise owns at least 25% of the PRC enterprise distributing the dividend at all times within the 12-month period immediately preceding the distribution of dividends and provides that the recipient can demonstrate it is a Hong Kong tax resident and it is the beneficial owner of the dividends. The PRC government adopted regulations in 2018 which stipulate that in determining whether a non-resident enterprise has the status as a beneficial owner, comprehensive analysis shall be conducted based on the factors listed therein and the actual circumstances of the specific case shall be taken into consideration. Specifically, it expressly excludes an agent or a designated payee from being considered as a "beneficial owner". We own our PRC subsidiaries through China Net HK. China Net HK currently does not hold a Hong Kong tax resident certificate from the Inland Revenue Department of Hong Kong, there is no assurance that the reduced withholding tax rate will be available for us. If China Net HK is not considered to be the "beneficial owner" of the dividends by the Chinese local tax authority, any dividends paid to it by our PRC subsidiaries would be subject to a withholding tax rate of 10%.

There are no restrictions for the consolidated VIEs to settle the amounts owed under the VIE agreements to our WFOE. However, arrangements and transactions among affiliated entities may be subject to audit or challenge by the PRC tax authorities. If at any time the VIE agreements and the related fee structure between the consolidated VIEs and our WFOE is determined to be non-substantive and disallowed by Chinese tax authorities, the consolidated VIEs could, as a matter of last resort, make a non-deductible transfer to our WFOE for the amounts owed under the VIE agreements. This would result in such transfer being non-deductible expenses for the consolidated VIEs but still taxable income for our WFOE. If this happens, it may increase our tax burden and reduce our after-tax income in the PRC, and may materially and adversely affect our ability to make distributions to the holding company. Our management is of the view that the likelihood that this scenario would happen is remote. To date, the VIEs have settled to our WFOE the amount owed under the VIE agreements of RMB15.25 million (approximately US$2.27 million) in the aggregate.

Our PRC subsidiaries generate all of their revenue in Renminbi, Renminbi is not freely convertible into other currencies. As a result, any restriction on currency exchange may limit the ability of our PRC subsidiaries to pay dividends/make distributions to us. The Chinese government imposes controls on the convertibility of Renminbi into foreign currencies and, in certain cases, the remittance of currency out of China. Shortages in availability of foreign currency may then restrict the ability of our PRC subsidiaries to remit sufficient foreign currency to us for us to pay dividends to the U.S. investors. Renminbi is currently convertible under the "current account," which includes dividends, trade and service-related foreign exchange transactions, but not under the "capital account," which includes foreign direct investment and foreign debt. Currently, our PRC subsidiaries may purchase foreign currency for settlement of current account transactions, including payment of dividends to us, without the approval of the State Administration of Foreign Exchange of China (the "SAFE") by complying with certain procedural requirements. However, the relevant Chinese governmental authorities may limit or eliminate our ability to purchase foreign currencies in the future for current account transactions. The Chinese government may continue to strengthen its capital controls, and additional restrictions and substantial vetting processes may be instituted by the SAFE for cross-border transactions falling under both the current account and the capital account. Any existing and future restrictions on currency exchange may limit our ability to utilize revenue generated in Renminbi to pay dividends in foreign currencies to holders of our securities. Foreign exchange transactions under the capital account remain subject to limitations and require approvals from, or registration with, the SAFE and other relevant Chinese governmental authorities. This could affect our ability to obtain foreign currency through debt or equity financing for our PRC subsidiaries.

To date, none of our subsidiaries has made any distribution of earnings or issued any dividends to their respective shareholder in or outside of China, or to the Nevada holding company, and the Nevada holding company has never declared or paid any cash dividends to U.S. investors.

We do not have any present plan to make any distribution of earnings/issue any dividends directly or indirectly to our Nevada holding company or pay any cash dividends on our common stock in the foreseeable future because we currently intend to retain most, if not all, of our available funds and any future earnings to operate and expand our business.

Cash Flow Analysis for the Nine Months Ended September 30, 2025 and 2024

Cash and cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2025, we had cash and cash equivalents of approximately US$1.76 million.

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to advertising resources providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and future business activities, investment to enhance the functionality of our current advertising portals for providing advertising, marketing and data services and to secure the safety of our general network, and investment to establish joint ventures with strategic partners for the development of new technologies and services. To date, we have financed our liquidity needs primarily through proceeds we generated from financing activities.

The following table provides detailed information about our net cash flow for the periods indicated:

		Nine Months Ended September 30,
		2025				2024
		Amounts in thousands of US dollars
Net cash used in operating activities		$	(781	)		$	(1,228	)
Net cash provided by investing activities			456				645
Net cash provided by financing activities			1,278				876
Effect of foreign currency exchange rate changes			(4	)			13
Net increase in cash and cash equivalents		$	949			$	306

Net cash used in operating activities

For the nine months ended September 30, 2025, our net cash used in operating activities of approximately US$0.78 million were primarily attributable to:

(1)

net loss excluding approximately US$0.16 million of non-cash expenses of depreciation and amortizations, approximately US$0.04 million amortization of operating lease right-of-use assets, approximately US$0.35 million of share-based compensation expenses, approximately US$0.69 million allowance for credit losses and approximately US$0.14 million non-operating income, yielded the non-cash, non-operating items excluded net loss of approximately US$0.19 million.

(2)

the receipt of cash from operations from changes in operating assets and liabilities such as:

-

accounts payable increased by approximately US$0.11 million;

-

accounts receivable decreased by approximately US$0.21 million;

-

other current assets decreased by approximately US$0.005 million;

-

advances from customers increased by US$0.07 million; and

-

taxes payable increased by approximately US$0.02 million.

(3)

offset by the use from operations from changes in operating assets and liabilities such as:

-

prepayment and deposit to suppliers increased by approximately US$0.55 million;

-

deferred tax liabilities decreased by approximately US$0.02 million; and

-

Accruals, other current liabilities and operating lease liabilities decreased by approximately US$0.44 million in the aggregate, due to settlement of these operating liabilities during the period.

For the nine months ended September 30, 2024, our net cash used in operating activities of approximately US$1.23 million were primarily attributable to:

(4)

net loss excluding approximately US$0.71 million of non-cash expenses of depreciation and amortizations, approximately US$0.02 million amortization of operating lease right-of-use assets, approximately US$1.64 million of share-based compensation expenses, approximately US$0.02 million of gain on disposal of subsidiaries, approximately US$0.002 million impairment on long-term investments, approximately US$0.003 million loss on disposal of fixed assets, approximately US$0.77 million allowance for credit losses, approximately US$0.004 million deferred tax benefit and approximately US$0.23 million non-operating income, yielded the non-cash, non-operating items excluded net loss of approximately US$0.10 million.

(5)

the receipt of cash from operations from changes in operating assets and liabilities such as:

-

accounts payable increased by approximately US$0.30 million; and

-

other current liabilities and taxes payable increased by approximately US$0.39 million.

(6)

offset by the use from operations from changes in operating assets and liabilities such as:

-

accounts receivable increased by approximately US$1.43 million;

-

prepayment and deposit to suppliers increased by approximately US$0.02 million;

-

advances from customers decreased by approximately US$0.09 million; and

-

accruals and operating lease liabilities decreased by approximately US$0.02 million in the aggregate, due to settlement of these operating liabilities during the period.

Net cash used in investing activities

For the nine months ended September 30, 2025, (1) we purchased office equipment and leasehold improvements of approximately US$0.07 million; (2) we received repayment of short-term loans and interest income of approximately US$1.12 million; and (3) we purchased intellectual property of approximately US$0.60 million through the acquisition of Rahula. In the aggregate, these transactions resulted in a net cash inflow from investing activities of approximately US$0.46 million for the nine months ended September 30, 2025.

For the nine months ended September 30, 2024, (1) we purchased office equipment of approximately US$0.003 million; (2) we made an additional investment of approximately US$0.002 million to one of our unconsolidated investee entities; (3) we collected US$0.49 million in short-term loan principal from short-term loans we provided to unrelated parties in previous periods; (4) we received total interest payment of approximately US$0.41 million, which was attributable to short-term loans we provided to unrelated parties in previous periods; (5) we received approximately US$0.15 million in proceeds from the disposal of long-term investments; (6) we acquired cash of approximately US$0.009 million through the acquisition of a 51% equity interest in Beijing Yi En; (7) we recognized deconsolidation of cash during the period of US$0.006 million; and (8) we made deposits on investment contracts of approximately US$0.40 million. In the aggregate, these transactions resulted in a net cash inflow from investing activities of approximately US$0.65 million for the nine months ended September 30, 2024.

Net cash provided by financing activities

For the nine months ended September 30, 2025, we received an advance from investors of approximately US$1.28 million.

For the nine months ended September 30, 2024, capital contribution from noncontrolling interests was approximately US$0.07 million and we received advances from investors of approximately US$0.81 million.

Future Liquidity, Material Cash Requirements and Capital Resources

Our future short-term liquidity needs within 12 months from the date hereof primarily include working capital for influencer marketing and digital marketing services and payments for our operating expenses, which mainly consist of office rentals and employee salary and benefit.

The Company plans to optimize its internet resources cost investment strategy to improve the gross profit margin of its core business and to further strengthen the accounts receivables collection management, and negotiate with major suppliers for more favorable payment terms, all of which will help to substantially increase the cashflows from operations. In addition, as we wind down our search engine marketing distribution service in the PRC, we are seeing an improvement in our gross margins as well as significantly reduced operating expenses that will improve our cash flow and liquidity in the next 12 months. Also, in order to further develop our core business, i.e., our Internet advertising and related marketing service business, broaden and diversify the online marketing channels for customers, reinforce our industry competitive advantage, we are actively seeking to acquire businesses and build teams with AI capabilities and proprietary intellectual properties that enable more accurate marketing solutions and cost efficient content creation. On March 7, 2025, ChinaNet Investment Holding Limited (the "Purchaser"), a British Virgin Islands company and an indirect wholly-owned subsidiary of ZW Data Action Technologies Inc. acquired the 10,000 shares of Rahula Digital Media (HK) Limited, a Hong Kong company (the "Rahula") that Vickie Chan, an individual (the "Seller") owned, pursuant to that certain Share Sale and Purchase Agreement, dated March 3, 2025, entered into by and between the Purchaser and the Seller for a total consideration of US$0.6 million. Rahula owns 100% equity interest in Shenzhen Shangye Business Consulting Services Co., Ltd., a People's Republic of China company (together as "Rahula Group"). Rahula Group is principally engaged in the development and monetization of intellectual property rights on agent management, marketing data management, targeted marketing and mass marketing systems and technologies.

In addition, for the next 12 months from the date hereof, we anticipate to generate additional cash inflows and/or improve our liquidity through the following: (1) our short-term working capital loans provided to unrelated parties will mature within the next 12 months that we anticipate collecting these loan principals and the related interest income within the next 12 months; (2) if at any time we anticipate insufficiency of our working capital, we can apply for revolving credit facility from commercial banks in the PRC to supplement our short-term liquidity deficit. We have not experienced any difficulties in obtaining such credit facility before, and this could result in fixed obligations and incremental cost of interest; (3) equity financing; (4) we plan to reduce our operating costs through optimizing the personnel structure among different offices and reduce our office leasing spaces, if needed. This may incur incremental costs related to employee layoff compensation and contract termination penalty.

Based on the above discussion, we believe that our current cash and cash equivalents, our anticipated new cash flows from operations and investing and financing activities, and our other liquidity improving measures will ensure we have sufficient cash to meet our obligations as they become due within the next 12 months.

In the long term, beyond the next 12 months, we plan to further broaden the application scenarios of our blockchain-based SaaS services to be offered to the customers, continue expanding our core Internet advertising and marketing business through acquisitions, and develop Internet advertising and marketing channels that target overseas Internet users. As such, we may decide to enhance our liquidity position or increase our cash reserve for future investments through additional equity financing in the U.S. capital market. This would result in further dilution to our shareholders. We cannot assure you that such financing will be available in amounts or on terms acceptable to us, or at all.

C. Off-Balance Sheet Arrangements

None.

D. Disclosure of Contractual Obligations

In August 2022, we obtained a 9.9% equity interest in Hunan Yong Fu Xiang Health Management Co., Ltd ("Yong Fu Xiang"), through subscription of a RMB6.73 million (approximately US$0.98 million) registered capital of the entity in cash, which amount was committed to be paid up before December 31, 2065.

In June 2023, we obtained a 9.9% equity interest in Wuhan Ju Liang, through subscription of a RMB0.99 million (approximately US$0.14 million) registered capital of the entity in cash, which amount was committed to be paid up before August 1, 2052.