Full Year 2020 Financial Highlights

• Revenues decreased by 33.9% to $38.41 million for the year ended December 31, 2020, primarily due to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the COVID-19 outbreak during the first fiscal quarter of 2020, which resulted in complete shutdown of our business operations after the Chinese New Year in early February until mid-April; slow resuming of business activities afterwards due to travel restrictions and quarantine measures adopted by the local governments where we have operations; and decrease in advertising investment budgets of our small and medium-sized enterprises (SMEs) clients due to uncertainties associated with the future developments of the pandemic.
  
  
• Gross profit was $0.63 million with a gross margin of 1.6% for the year ended December 31, 2020.
  
  
• Loss from operations was $5.70 million for the year ended December 31, 2020, compared to $1.69 million for the prior year, primarily attributable to the decrease in gross profit, which was partially offset by the decrease in operating expenses.
  
  
• Net loss attributable to CNET was $5.22 million, or loss per share of $0.24, for the year ended December 31, 2020, compared to $1.26 million, or loss per share of $0.07, for the prior year.
  

“Despite the negative impact on our business brought by the COVID-19 breakout in the first fiscal quarter of 2020 and the subsequent slow recovery of the business environment. We managed to improve the gross margin of our Internet advertising and data service sector significantly from 7% last of the prior year to 21% of FY2020, with the enhancement of data analysis capabilities and optimization of cost control mechanism. We also glad to see our first live streaming platform launched officially in December and many significant progresses on our blockchain related developments. Going forward, we expect to leverage the improved COVID-19 situation in China and continue to explore viable strategic alternatives to strengthen our business,” said Mr. Handong Cheng, Chairman and Chief Executive Officer of ZW Data Action Technologies.

Recent Developments

In December 2020, we announced the official opening of our first live streaming platform in Guangzhou, China, and the completion of our Blockchain Integrated Framework, or BIF, for retail business.

In December 2020, we completed an offering of shares of our common stock together with warrants which resulted in gross proceeds of $7.0 million. In February 2021, we completed an additional offering of shares of common stock and a concurrent private placement of warrants to purchase common stock which results in gross proceeds of $18.7 million.

With further enhancement of technology on both blockchain development and internet traffic and data analytics for the implementation of BOSE, in January and February 2021, we have initiated and executed a series of partnerships and cooperation to execute our business plans on building up BOSE to capture the business opportunity with the opening of our live steaming platform. Our preliminary business plans include: connecting BOSE to Enterprise Wechat and CRM SaaS for consolidating and accumulating behavior data in social media; enhancing online branding and management service and aggregating more efficient ROI and cost-effective advertising and marketing services to our clients; offering services for the supply chain finance with the focus on the target audiences of KOLs and O2O e-commerce merchants, with options and selections of digital assets, and adopting crypto payment gateways with licensed partners; utilizing upgraded decentralized financial technology and building Defi service on BIF platform for intellectual property rights with expansion of the BIF technology on blockchain mining.

For the year ended December 31, 2020, revenues decreased by $19.67 million, or 33.9%, to $38.41 million from $58.08 million for the prior year. The decrease in revenues was primarily attributable to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the COVID-19 outbreak during the first fiscal quarter and the slow recovery in the subsequent fiscal quarters of 2020.

For the year ended December 31, 2020, cost of revenues decreased by $14.81 million, or 28.2%, to $37.78 million from $52.58 million for the prior year, which was primarily due to the decrease in costs associated with the distribution of the right to use search engine marketing service we purchased from key search engines and cost related to providing Internet advertising services on our ad portals, which was in line with the decrease in the related revenues.

Gross profit and gross margin

Gross profit decreased by $4.87 million, or 88.5%, to $0.63 million for the year ended December 31, 2020 from $5.50 million for the prior year, as a result of the gross loss of our distribution of the right to use search engine marketing service and partially offset by and the increase in gross profit generated from our Internet advertising service, Ecommerce O2O advertising and marketing services and technical solution services during the year of 2020.

Overall gross margin was 1.6% for the year ended December 31, 2020, compared to 9.5% for the prior year.

Operating expenses

Sales and marketing expenses decreased by $0.18 million, or 33.1%, to $0.36 million for the year ended December 31, 2020 from $0.54 million for the prior year. The changes in sales and marketing expenses was mainly attributable to the following reasons: (1) staff salary and benefit expenses, performance based bonus and general departmental expenses decreased by approximately US$0.30 million, due to office shutdown during the first fiscal quarter of 2020, resulted from the COVID-19 outbreak, and slow recovery of business performance after the outbreak in the following quarters of 2020; and (2) the increase in share-based compensation expenses of approximately US$0.12 million, related to restricted shares granted and issued to our sales staff in fiscal 2020.

General and administrative expenses decreased by $0.34 million, or 6.0%, to $5.43 million for the year ended December 31, 2020 from $5.78 million for the prior year. The changes in general and administrative expenses was mainly attributable to the following reasons: (1) the increase in share-based compensation expenses of approximately US$1.49 million, due to restricted shares granted and issued in fiscal 2020; (2) the decrease in allowance for doubtful accounts of approximately US$1.50 million; and (3) the decrease in general departmental expenses of approximately US$0.33 million, due to office shutdown during the first fiscal quarter of 2020, and cost reduction plan executed by management after the COVID-19 outbreak.

Research and development expenses decreased by $0.33 million, or 38.0%, to $0.54 million for the year ended December 31, 2020 from $0.87 million for the prior year. Research and development expenses accounted for 1.4% of total revenues for the year ended December 31, 2020, compared to 1.5% for the prior year.

Operating loss

Loss from operations increased by $4.01 million, or 237.7%, to $5.70 million for the year ended December 31, 2020 from $1.69 million for the prior year. Operating loss margin was 14.8% for the year ended December 31, 2020, compared to 2.9% for the prior year.

Other income (expense), net

Total other income was $0.62 for the year ended December 31, 2020, compared to $0.47 million for the prior year, which was primarily related to 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 $5.22 million, or loss per share of $0.24, for the year ended December 31, 2020. This compared to net loss attributable to CNET of $1.26 million, or loss per share of $0.07, for the prior year.

Financial Condition

As of December 31, 2020, the Company had cash and cash equivalents of $4.30 million, compared to $1.60 million as of December 31, 2019. Accounts receivable, net was $2.41 million as of December 31, 2020, compared to $3.26 million as of December 31, 2019. Working capital was $4.86 million as of December 31, 2020, compared to $4.92 million as of December 31, 2019.

Net cash provided by operating activities was $0.33 million for the year ended December 31, 2020, compared to net cash used in operating activities of $4.31 million for the prior year. Net cash used in investing activities was $3.47 million for the year ended December 31, 2020, compared to $2.16 million for the prior year. Net cash provided by financing activities was $5.82 million for the year ended December 31, 2020, compared to $4.35 million for the prior year.

About ZW Data Action Technologies Inc.

Established in 2003 and headquartered in Beijing, China, ZW Data Action Technologies Inc. (the “Company”) offers Internet advertising, precision marketing, data analytics and other value-added services for enterprise clients. Leveraging its fully integrated services platform, proprietary database, and cutting-edge algorithms, ZW Data Action Technologies delivers customized, result-driven business solutions for small and medium-sized enterprise clients in China. The Company also develops blockchain and artificial intelligence enabled web/mobile applications and software solutions for general public, enterprise clients, and government agencies. More information about the Company can be found at: http://www.zdat.com/.

Safe Harbor Statement

This release contains certain "forward-looking statements" relating to the business of ZW Data Action Technologies Inc., which can be identified by the use of forward-looking terminology such as "believes," "expects," "anticipates," "estimates" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including business uncertainties relating to government regulation of our industry, market demand, reliance on key personnel, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. These forward-looking statements are based on ZW Data Action Technologies current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting ZW Data Action Technologies will be those anticipated by ZW Data Action Technologies. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. ZW Data Action Technologies undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

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