ZW Data Action Technologies

Second Quarter 2018 Highlights •Total revenues increased by 114.5% to $22.5 million from $10.5 million in the corresponding period of 2017. •Revenues from search engine marketing and data service increased by 142.1% to $19.4 million from $8.0 million in the corresponding period of 2017. First half Year 2018 Highlights •Total revenues increased by 73.3% to $30.8 million from $17.8 million in the same period of 2017. •Revenues from search engine marketing and data service increased by 99.0% to $25.8 from $13.0 million in the same period of 2017. Mr. Handong Cheng, Chairman, President and Chief Executive Officer of CNET, stated, “We continued to grow our existing search engine marketing and data service business while developing a new growth engine in blockchain. During the quarter, we initially launched the beta, and later the official version of BO!News, the first blockchain-powered mobile application to improve the efficiency and transparency of marketing and advertising activities. We also formed Business Opportunity Social Ecosystem (BOSE), a blockchain-based transaction system to improve distribution fairness, enhance transaction credibility, and increase monetization opportunities for the marketing and advertising business community. Going forward, we will remain committed to introducing and integrating additional blockchain applications into our ecosystem, pave our path back to profitable growth, and solidify our leadership position in China’s rapidly expanding blockchain industry.” Mr. George Chu, Chief Operating Officer of CNET, stated, “In the second quarter of 2018, we continued our strong topline growth momentum and achieved a 114.5% year-over-year growth in total revenues. At the same time, we continued to execute our cost control initiatives. As a result, our sales and marketing, general and administrative, and research and development expenses as a percentage of total revenues decreased by 661 basis points (bps), 288 bps, and 184 bps, respectively, compared to the prior year period. As we sustain the growth trajectory of our search engine marketing and data service business, we will also increase our investments in the future development of blockchain applications.” Second Quarter 2018 Financial Results TOTAL REVENUES Total revenues increased by 114.5% to $22.5 million in the second quarter of 2018 from $10.5 million in the corresponding period of 2017, primarily driven by the increase in search engine marketing and data service revenue. Search engine marketing and data service revenue for the second quarter of 2018 increased by 142.1% to $19.4 million from $8.0 million in the corresponding period of 2017. The growth was primarily attributable to the rapid expansion of the Company’s search engine marketing client base as enterprises in China continued to migrate from other advertising and marketing channels to search engine marketing for its more direct results and higher return on investments. COST OF REVENUES AND GROSS PROFIT Cost of revenues was $21.6 million in the second quarter of 2018, compared to $8.8 million in the corresponding period of 2017. The growth was primarily attributable to a significant increase in revenue contributions from search engine marketing and data service in the second quarter of 2018, which have higher resource costs as the Company has obtained marketing access to the most popular search engines, internet portals and mobile portals in China. Gross profit in the second quarter of 2018, as a result of increased cost of revenues, was $1.0 million, compared to $1.7 million in the corresponding period of 2017. OPERATING LOSS Operating expenses in the second quarter of 2018 were $9.3 million, compared to $2.1 million in the corresponding period of 2017. As a percentage of total revenues, operating expenses increased to 41.2% from 20.2% in the corresponding period of 2017, mostly due to impairment charges related to intangible assets and goodwill. Excluding impairment charges, the Company’s operating expenses decreased by 5.8% year over year to $2.0 million. Sales and marketing expenses in the second quarter of 2018 decreased by 66.1% to $0.3 million from $0.8 million in the corresponding period of 2017. As a percentage of total revenues, sales and marketing expenses decreased to 1.2% from 7.9% in the corresponding period of 2017. The decrease was primarily attributable to the decrease in advertising expenses for brand development of approximately US$0.69 million.

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