UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended September 30, 20172021

 

or

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____ to _____

 

Commission File Number: 001-34647

 

ChinaNet Online Holdings,ZW Data Action Technologies Inc.

(Exact name of registrant as specified in its charter)

 

Nevada

20-4672080

(State or other jurisdiction of incorporation or organization)

 (I.R.S.

(I.R.S. Employer Identification No.)

 

Room 1106, Xinghuo Keji Plaza, No. 3 Min Zhuang2 Fufeng Road, Building 6,

Yu Quan Hui Gu Tuspark, HaidianFengtai District, Beijing, PRC 100195 100070

 (Address

(Address of principal executive offices) (Zip Code)

 

+86-10-6084-6616

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $0.001

CNET

Nasdaq Capital Market

 

Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,”company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

��

Large accelerated filer ☐ Accelerated filer ☐ Non-accelerated filer (Do not check if a smaller reporting company) ☐ Smaller reporting company ☒ Emerging growth company ☐

Large accelerated filer ☐  Accelerated filer ☐
Non-accelerated filer ☒Smaller reporting company ☒
Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

As of November 14, 2017,15, 2021, the registrant had 12,340,54235,332,677 shares of common stock outstanding.

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

PAGE

   

Item 1. Interim Financial Statements

 
   
 

Condensed Consolidated Balance Sheets as of September 30, 20172021 (Unaudited) and December 31, 20162020

F1-F21-2

   
 

Condensed Consolidated Statements of Operations and Comprehensive Loss(Loss)/Income for the Nine and Three Months Ended September 30, 20172021 and 20162020 (Unaudited)

F3-F43-4

   
 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 20172021 and 20162020 (Unaudited)

F5-F65-6

   
 

Condensed Consolidated Statements of Changes in Equity for the Nine and Three Months Ended September 30, 2021 and 2020 (Unaudited)

7-8

Notes to Condensed Consolidated Financial Statements (Unaudited)

F7-F259-30

   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

26-3831-40

  

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

Item 4. Controls and Procedures40

39

   

Item 4. Controls and Procedures

40

PART II. OTHER INFORMATION

 
   

Item 1. Legal Proceedings

3941

   

Item 1A. Risk Factors

3941

  

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

3941

   

Item 3. Defaults Upon Senior Securities

3941

  

Item 4. Mine Safety Disclosures

3941

   

Item 5. Other Information

3941

   

Item 6. Exhibits

4042

   

Signatures

4143

 

 

PART I.FINANCIAL INFORMATION

 

Item 1.   Interim Financial Statements

 

ZW DATA ACTION TECHNOLOGIES INC.

CHINANET ONLINE HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

thousands, except for number of shares and per share data)

 

  

September 30,

2017

 December 31,
2016
  (US $) (US $)
  (Unaudited)  
Assets        
Current assets:        
Cash and cash equivalents $1,234  $3,035 
Term deposit  -   3,056 
Accounts receivable, net  4,653   3,322 
Other receivables, net  2,863   - 
Prepayment and deposit to suppliers  5,450   4,754 
Due from related parties, net  234   213 
Other current assets  95   95 
Total current assets  14,529   14,475 
         
Long-term investments  949   1,340 
Property and equipment, net  341   471 
Intangible assets, net  6,653   7,264 
Goodwill  5,195   4,970 
Deferred tax assets  1,473   1,522 
Total Assets $29,140  $30,042 
         
Liabilities and Equity        
Current liabilities:        
Short-term bank loan * $753  $721 
Accounts payable *  625   102 
Advances from customers *  2,267   1,420 
Accrued payroll and other accruals *  529   685 
Due to new investors related to terminated security purchase agreements  923   884 
Payable for purchasing of software technology *  429   411 
Taxes payable *  3,089   2,910 
Other payables *  715   487 
Total current liabilities  9,330   7,620 
  

September 30, 2021

  

December 31, 2020

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents *

 $8,731  $4,297 

Accounts receivable, net of allowance for doubtful accounts of $2,198 and $4,247, respectively *

  2,669   2,407 

Prepayment and deposit to suppliers *

  8,673   4,657 

Due from related parties *

  96   61 

Other current assets *

  1,658   1,462 

Total current assets

  21,827   12,884 
         

Long-term investments *

  1,911   67 

Operating lease right-of-use assets *

  2,042   48 

Property and equipment, net *

  190   60 

Intangible assets, net *

  3,275   2,557 

Blockchain platform applications development costs

  4,408   4,406 

Long-term deposits and prepayments *

  481   39 

Deferred tax assets, net *

  781   606 

Total Assets

 $34,915  $20,667 
         

Liabilities and Equity

        

Current liabilities:

        

Accounts payable *

 $750  $608 

Advance from customers *

  1,311   1,436 

Accrued payroll and other accruals *

  350   489 

Taxes payable *

  3,414   3,430 

Operating lease liabilities *

  193   18 

Lease payment liability related to short-term leases *

  150   203 

Other current liabilities *

  136   333 

Warrant liabilities

  3,686   1,505 

Total current liabilities

  9,990   8,022 

 


1

CHINANET ONLINE HOLDINGS,ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

(In thousands, except for number of shares and per share data)

 

 

September 30,

2017

 December 31,
2016		 

September 30, 2021

  

December 31, 2020

 
 (US $) (US $) 

(US $)

 

(US $)

 
 (Unaudited)   

(Unaudited)

    
Long-term liabilities:            
Long-term borrowing from a director  132   126 

Operating lease liabilities-Non current *

 1,923  32 

Long-term borrowing from a related party

  135   134 
Total Liabilities  9,462   7,746   12,048   8,188 
         
Commitments and contingencies               
         
Equity:            
ChinaNet Online Holdings, Inc.’s stockholders’ equity        
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 12,340,542 shares and 12,158,542 shares at September 30, 2017 and December 31, 2016, respectively)  12   12 

ZW Data Action Technologies Inc.’s stockholders’ equity

 

Common stock (US$0.001 par value; authorized 100,000,000 and 50,000,000 shares at September 30, 2021 and December 31, 2020, respectively; issued and outstanding 35,332,677 shares and 26,062,915 shares at September 30, 2021 and December 31, 2020, respectively)

 35  26 
Additional paid-in capital  29,769   29,285  61,761  49,772 
Statutory reserves  2,607   2,607  2,598  2,598 
Accumulated deficit  (14,325)  (10,362) (42,566) (40,980)
Accumulated other comprehensive income  1,504   700   1,104   1,129 
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity  19,567   22,242 

Total ZW Data Action Technologies Inc.’s stockholders’ equity

  22,932   12,545 
         
Noncontrolling interests  111   54   (65)  (66)
Total equity  19,678   22,296   22,867   12,479 
            
        
Total Liabilities and Equity $29,140  $30,042  $34,915  $20,667 

 

*All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).

 

See notes to unaudited condensed consolidated financial statements

F-2 

2
 

ZW DATA ACTION TECHNOLOGIES INC.

CHINANET ONLINE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands)

  Nine Months Ended September 30, Three Months Ended September 30,
  2017 2016 2017 2016
  (US $) (US $) (US $) (US $)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues                
From unrelated parties $31,171  $25,017  $13,509  $11,741 
From related parties  116   381   14   161 
Total revenues  31,287   25,398   13,523   11,902 
Cost of revenues  26,955   19,269   12,163   9,874 
Gross profit  4,332   6,129   1,360   2,028 
                 
Operating expenses                
Sales and marketing expenses  2,399   3,069   740   1,126 
General and administrative expenses  4,402   5,290   2,318   1,752 
Research and development expenses  1,012   1,530   312   514 
Total operating expenses  7,813   9,889   3,370   3,392 
                 
Loss from operations  (3,481)  (3,760)  (2,010)  (1,364)
                 
Other income (expenses)                
Interest income  39   72   2   19 
Interest expense  (109)  (4)  (36)  (4)
Other expenses  (208)  (112)  (2)  (99)
Total other expenses  (278)  (44)  (36)  (84)
                 
Loss before income tax expense, noncontrolling interests and discontinued operation  (3,759)  (3,804)  (2,046)  (1,448)
Income tax expense  (115)  (155)  (2)  (3)
Loss from continuing operations  (3,874)  (3,959)  (2,048)  (1,451)
Loss from and on disposal of discontinued operation, net of income tax  -   (60)  -   - 
Net loss  (3,874)  (4,019)  (2,048)  (1,451)
Net income attributable to noncontrolling interests from continuing operations  (89)  (144)  (39)  (21)
Net loss attributable to ChinaNet Online Holdings, Inc. $(3,963) $(4,163) $(2,087) $(1,472)

CHINANET ONLINE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED)(LOSS)/INCOME

(In thousands, except for number of shares and per share data)

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 

Revenues

                

From unrelated parties

 $34,843  $27,086  $11,896  $12,300 

From a related party

  4   18   4   4 

Total revenues

  34,847   27,104   11,900   12,304 

Cost of revenues

  35,739   26,548   11,857   12,945 

Gross (loss)/profit

  (892)  556   43   (641)
                 

Operating expenses

                

Sales and marketing expenses

  159   293   58   58 

General and administrative expenses

  10,366   4,520   1,471   592 

Research and development expenses

  251   443   88   113 

Total operating expenses

  10,776   5,256   1,617   763 
                 

Loss from operations

  (11,668)  (4,700)  (1,574)  (1,404)
                 

Other income/(expenses)

                

Interest income/(expense), net

  3   0   1   1 

Other income/(expenses), net

  265   (4)  (37)  (21)

Loss on disposal of long-term investments

  (38)  0   0   0 

Change in fair value of warrant liabilities

  9,682   4   2,853   (64)

Total other income/(expenses)

  9,912   0   2,817   (84)
                 

(Loss)/income before income tax benefit and noncontrolling interests

  (1,756)  (4,700)  1,243   (1,488)

Income tax benefit

  171   87   131   155 

Net (loss)/income

  (1,585)  (4,613)  1,374   (1,333)

Net (income)/loss attributable to noncontrolling interests

  (1)  2   1   0 

Net (loss)/income attributable to ZW Data Action Technologies Inc.

 $(1,586) $(4,611) $1,375  $(1,333)

 

  Nine Months Ended September 30, Three Months Ended September 30,
  2017 2016 2017 2016
  (US $) (US $) (US $) (US $)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Net loss $(3,874) $(4,019) $(2,048) $(1,451)
Foreign currency translation gain/(loss)  772   (630)  340   (152)
Comprehensive loss $(3,102) $(4,649) $(1,708) $(1,603)
Comprehensive income attributable to noncontrolling interests  (57)  (113)  (42)  (19)
Comprehensive loss attributable to ChinaNet Online Holdings, Inc. $(3,159) $(4,762) $(1,750) $(1,622)
                 
Loss per share                
Loss from continuing operations per common share                
Basic and diluted $(0.33) $(0.36) $(0.17) $(0.13)
Loss from discontinued operations per common share                
Basic and diluted $-  $(0.01) $-  $- 
                 
Weighted average number of common shares outstanding:                
Basic and diluted  12,019,040   11,353,657   12,074,304   11,358,971 
3

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME（CONTINUED）

(In thousands, except for number of shares and per share data)

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Net (loss)/income

 $(1,585) $(4,613) $1,374  $(1,333)

Foreign currency translation loss

  (25)  (135)  (2)  (203)

Comprehensive (loss)/income

 $(1,610) $(4,748) $1,372  $(1,536)

Comprehensive (income)/loss attributable to noncontrolling interests

  (1)  3   0   2 

Comprehensive (loss)/income attributable to ZW Data Action Technologies Inc.

 $(1,611) $(4,745) $1,372  $(1,534)
                 

(Loss)/earnings per share

                

(Loss)/earnings per common share

                

Basic and diluted

 $(0.05) $(0.22) $0.04  $(0.06)
                 

Weighted average number of common shares outstanding:

                

Basic and diluted

  32,279,304   21,271,301   35,332,220   21,720,259 

 

See notes to unaudited condensed consolidated financial statements

F-4 

4
 

ZW DATA ACTION TECHNOLOGIES INC.

CHINANET ONLINE HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 Nine Months Ended September 30, 

Nine Months Ended September 30,

 
 2017 2016 

2021

  

2020

 
 (US $) (US $) 

(US $)

 

(US $)

 
 (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 
Cash flows from operating activities                
Net loss $(3,874) $(4,019) $(1,585) $(4,613)
Adjustments to reconcile net loss to net cash used in operating activities        

Adjustments to reconcile net loss to net cash (used in)/provided by operating activities

    
Depreciation and amortization  1,067   1,170  450  622 

Amortization of operating lease right-of-use assets

 149  7 
Share-based compensation expenses  484   1,718  6,945  2,066 
Loss on disposal of fixed assets/other long-term assets  -   117 
Provision for allowances for doubtful accounts  1,254   -  0  751 
Loss on deconsolidation of VIEs  -   9 

Loss on disposal of long-term investments

 38  0 
Deferred taxes  115   155  (171) (87)

Change in fair value of warrant liabilities

 (9,682) (4)

Other losses

 24  0 
Changes in operating assets and liabilities            
Accounts receivable  (2,436)  (1,196) (257) 254 
Other receivables  67   1,416 
Prepayment and deposit to suppliers  (470)  (1,172) (1,698) 1,077 
Due from related parties  (11)  (24) 0  24 
Other current assets  (33)  16  6  (5)

Long-term deposits and prepayments

 (314) (375)
Accounts payable  506   (129) 142  137 
Advances from customers  764   (109)

Advance from customers

 (133) 754 
Accrued payroll and other accruals  (169)  (146) (126) (55)
Other payables  36   403 

Other current liabilities

 (230) (38)
Taxes payable  46   66  (31) 8 
Commitment and contingencies  -   (128)
Net cash used in operating activities  (2,654)  (1,853)

Lease payment liability related to short-term leases

 (54) 81 

Operating lease liabilities

  (73)  (9)

Net cash (used in)/provided by operating activities

  (6,600)  595 
         
Cash flows from investing activities                
Payment for office equipment and leasehold improvement  (2)  (150)
Payment for purchasing of software technology  -   (1,977)
Term-deposit matured during the period  3,118   - 
Long-term investment in and advance to cost/equity method investees  -   (787)
Withdraw long-term investment in cost/equity method investees  441   - 

Payment for leasehold improvements and purchase of vehicles, furniture and office equipment

 (306) 0 

Cash effect of deconsolidation of VIEs’ subsidiaries

 (8) 0 

Investments and advances to ownership investee entities

 (1,919) (27)
Short-term loan to an unrelated party  (2,795)  -  (1,507) (944)
Proceeds from disposal of VIEs  -   28 
Cash effect on deconsolidation of VIEs  -   (18)
Net cash provided by/(used in) investing activities  762   (2,904)

Repayment of short-term loan from an unrelated party

 1,303  0 

Payment for purchase of software technologies

 (1,160) 0 

Deposit and prepayment paid for contracts of other investing activities

 (2,500) 0 

Payment for blockchain platform applications development costs

  0   (302)

Net cash used in investing activities

  (6,097)  (1,273)

 


5

CHINANET ONLINE HOLDINGS,

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

  

Nine Months Ended September 30,

 
  

2021

  

2020

 
  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

 

Cash flows from financing activities

        

Proceeds from issuance of common stock and warrant (net of cash offering cost of US$1,600)

  17,111   - 

Repayment of short-term bank loan

  0   (429)

Net cash provided by/(used in) financing activities

  17,111   (429)
         

Effect of exchange rate fluctuation on cash and cash equivalents

  20   4 
         

Net increase/(decrease) in cash and cash equivalents

  4,434   (1,103)
         

Cash and cash equivalents at beginning of the period

  4,297   1,603 

Cash and cash equivalents at end of the period

 $8,731  $500 
         

Supplemental disclosure of cash flow information

        
         

Income taxes paid

 $0  $0 

Interest expense paid

 $0  $2 

 

  Nine Months Ended September 30,
  2017 2016
  (US $) (US $)
  (Unaudited) (Unaudited)
Cash flows from financing activities        
Proceeds from short-term bank loan  441   456 
Repayment of short-term bank loan  (441)  - 
Net cash provided by financing activities  -   456 
         
Changes in cash and cash equivalents included in assets classified as held for sale  -   132 
         
Effect of exchange rate fluctuation on cash and cash equivalents  91   (88)
         
Net decrease in cash and cash equivalents  (1,801)  (4,257)
         
  Cash and cash equivalents at beginning of the period  3,035   5,503 
  Cash and cash equivalents at end of the period $1,234  $1,246 
         
Supplemental disclosure of cash flow information        
         
Income tax paid $-  $2 
Interest expense paid $28  $4 

 

See notes to unaudited condensed consolidated financial statements

F-6 

6
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021

(In thousands, except for number of shares)

 

  

Common stock

  

Additional paid-in capital

  

Statutory reserves

  

Accumulated deficit

  

Accumulated other comprehensive income

  

Noncontrolling interests

  

Total equity

 
  

Number of shares

  

Amount

                         
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                                 

Balance, January 1, 2021

  26,062,915  $26  $49,772  $2,598  $(40,980) $1,129  $(66) $12,479 

Issuance of common stock for private placement, net of $10.48 million proceeds allocated to investor warrants labilities and $3.05 million direct offering costs (including $1.45 million proceeds allocated to placement agent warrants liabilities), respectively

  5,212,000   5   5,185   0   0   0   0   5,190 

Share-based compensation in exchange for services from employees and directors

  4,015,735   4   6,699   0   0   0   0   6,703 

Net (loss)/income for the period

  -   0   0   0   (2,961)  0   2   (2,959)

Foreign currency translation adjustment

  -   0   0   0   0   (22)  (1)  (23)

Balance, June 30, 2021 (unaudited)

  35,290,650  $35  $61,656  $2,598  $(43,941) $1,107  $(65) $21,390 

Share-based compensation in exchange for services from employees and directors

  0   0   23   0   0   0   0   23 

Cashless exercise of warrants

  42,027   0   82   0   0   0   0   82 

Net income/(loss) for the period

  -   0   0   0   1,375   0   (1)  1,374 

Foreign currency translation adjustment

  -   0   0   0   0   (3)  1   (2)

Balance, September 30, 2021 (Unaudited)

  35,332,677  $35  $61,761  $2,598  $(42,566) $1,104  $(65) $22,867 

See notes to unaudited condensed consolidated financial statements

7

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands, except for number of shares)

  

Common stock

  

Additional paid-in capital

  

Statutory reserves

  

Accumulated deficit

  

Accumulated other comprehensive income

  

Noncontrolling interests

  

Total equity

 
  

Number of shares

  

Amount

                         
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                                 

Balance, January 1, 2020

  19,629,403  $20  $43,111  $2,607  $(35,773) $1,505  $(57) $11,413 

Share-based compensation in exchange for services from nonemployees

  430,000   0   477   0   0   0   0   477 

Share-based compensation in exchange for services from employees and directors

  1,632,523   2   1,905   0   0   0   0   1,907 

Net loss for the period

  -   0   0   0   (3,278)  0   (2)  (3,280)

Foreign currency translation adjustment

  -   0   0   0   0   67   1   68 

Balance, June 30, 2020 (unaudited)

  21,691,926   22   45,493   2,607   (39,051)  1,572   (58)  10,585 

Share-based compensation in exchange for services from nonemployees

  50,000   0   76   0   0   0   0   76 

Net loss for the period

  -   0   0   0   (1,333)  0   0   (1,333)

Foreign currency translation adjustment

  -   0   0   0   0   (201)  (2)  (203)

Balance, September 30, 2020 (Unaudited)

  21,741,926  $22  $45,569  $2,607  $(40,384) $1,371  $(60) $9,125 

See notes to unaudited condensed consolidated financial statements

8

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1.

Organization and nature of operations

 

ZW Data Action Technologies Inc. (f/k/a ChinaNet Online Holdings, Inc.) (the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing Internet advertising, precision marketing, Ecommerce online to offline (O2O) sales channel expansion(O2O) advertising and marketing services as well as the related data and technical services to small and medium enterprises (“SMEs”) and entrepreneurial management and networking services for entrepreneurs(SMEs) in the PRC.

 

As of September 30, 2017, the Company operated its business primarily in China through its PRC subsidiaries and operating entities, or Variable Interest Entities (“VIEs”) as discussed in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2016, previously filed with the Securities and Exchange Commission (the “2016 Form 10-K”).

2.

Variable interest entities

 

Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of September 30, 2017 2021 and December 31, 2016, 2020, respectively:

 

 

September 30,

2017

 December 31,
2016		 

September 30,

2021

  

December 31,
2020

 
 US$(’000) US$(’000)  

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
Assets            
Current assets:            
Cash and cash equivalents $1,217  $2,915  $143  $277 
Term deposit  -   3,056 
Accounts receivable, net  4,653   3,315  2,155  1,142 
Other receivables, net  2,863   - 
Prepayment and deposit to suppliers  5,382   4,710  4,233  2,818 
Due from related parties, net  217   197 

Due from related parties

 96  61 
Other current assets  41   71   3   10 
Total current assets  14,373   14,264   6,630   4,308 
         
Long-term investments  45   43  449  67 

Operating lease right-of-use assets

 23  48 
Property and equipment, net  201   286  86  32 
Intangible assets, net  4,934   5,468  0  9 
Goodwill  5,195   4,970 
Deferred tax assets  1,180   1,241 

Long-term deposits and prepayments

 88  0 

Deferred tax assets, net

  436   536 
Total Assets $25,928  $26,272  $7,712  $5,000 
         
Liabilities            
Current liabilities:            
Short-term bank loan $753  $721 
Accounts payable  612   83  $750  $270 
Advances from customers  2,267   1,388 

Advance from customers

 1,108  1,436 
Accrued payroll and other accruals  195   256  75  168 
Due to Control Group  11   10 
Payable for purchasing of software technology  429   411 
Taxes payable  2,639   2,480  2,737  2,755 
Other payables  214 �� 162 

Operating lease liabilities

 9  18 

Lease payment liability related to short-term leases

 109  108 

Other current liabilities

  73   213 
Total current liabilities  7,120   5,511   4,861   4,968 
         
Deferred tax Liabilities        

Operating lease liabilities-Non current

  10   32 
Total Liabilities $7,120  $5,511  $4,871  $5,000 

 

F-7 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

 

9

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive loss for the nine and three months ended September 30, 2017 2021 and 2016,2020, respectively:

 

  Nine Months Ended September 30,
  2017 2016
  US$(’000) US$(’000)
     
Revenues  31,231   25,289 
Cost of revenues  (26,954)  (19,186)
Total operating expenses  (5,895)  (6,384)
Loss from discontinued operations  -   (60)
Net loss before allocation to noncontrolling interests  (1,928)  (603)

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Revenues

 $30,932  $23,683  $10,314  $11,135 

Cost of revenues

  (34,614)  (24,051)  (11,482)  (11,729)

Total operating expenses

  (1,184)  (1,515)  (472)  (123)

Net loss before allocation to noncontrolling interests

  (5,062)  (1,802)  (1,655)  (642)

 

  Three Months Ended September 30,
  2017 2016
  US$(’000) US$(’000)
     
Revenues  13,498   11,902 
Cost of revenues  (12,162)  (9,872)
Total operating expenses  (2,736)  (2,290)
Net loss before allocation to noncontrolling interests  (1,412)  (343)

3.

 

3.Summary of significant accounting policies

 

a)

Basis of presentation

 

The unaudited condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

 

The unaudited condensed consolidated interim financial information as of September 30, 2017 2021 and for the nine and three months ended September 30, 2017 2021 and 20162020 have been prepared without audit, pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in annualcomplete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the 2016Company’s Annual Report on Form 10-K.10-K for the fiscal year ended December 31, 2020, previously filed with the SEC (the “2020 Form 10-K”) on April 13, 2021.

 

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of September 30, 2017, 2021, its condensed consolidated results of operations for the nine and three months ended September 30, 2017 2021 and 2016,2020, and its condensed consolidated cash flows for the nine months ended September 30, 2017 2021 and 2016,2020, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

F-8 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

b)

Principles of consolidation

 

The unaudited condensed consolidated interim financial statements include the financial statementsaccounts of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.

 

c)

Use of estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these condensed consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes 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.

 

d)

Foreign currency translation

 

The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the condensed consolidated financial statements are as follows:

 

  September 30, 2017 December 31, 2016
         
Balance sheet items, except for equity accounts  6.6369   6.9370 
10

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  Nine Months Ended September 30,
  2017 2016
         
Items in the statements of operations and comprehensive loss, and statements of cash flows  6.7983   6.5771 
  

September 30, 2021

  

December 31, 2020

 
         

Balance sheet items, except for equity accounts

  6.4854   6.5249 

 

  Three Months Ended September 30,
  2017 2016
Items in the statements of operations and comprehensive loss, and statements of cash flows  6.6676   6.6648 
  

Nine Months Ended September 30,

 
  

2021

  

2020

 
         

Items in the statements of operations and comprehensive loss

  6.4714   6.9917 

  

Three Months Ended September 30,

 
  

2021

  

2020

 
         

Items in the statements of operations and comprehensive loss

  6.4707   6.9205 

 

No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.

 

e)

Advertising costs

Fair value measurement

 

AdvertisingLiabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2021 and December 31, 2020 are as follows:

      

Fair value measurement at reporting date using

 
  

As of

September 30, 2021

  

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)

  

Significant
Other
Observable Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

             
                 

Warrant liabilities (Note 16)

  3,686   0   0   3,686 

      

Fair value measurement at reporting date using

 
  

As of

December 31, 2020

  

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)

  

Significant
Other
Observable Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
                 

Warrant liabilities (Note 16)

  1,505   0   0   1,505 

f)

Revenue recognition

The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Internet advertising and related services

                

--distribution of the right to use search engine marketing service

  28,613   18,004   9,648   8,706 

--online advertising placements

  5,720   5,679   2,125   2,429 

--data and technical services

  0   900   0   300 

Ecommerce O2O advertising and marketing services

  514   1,276   127   269 

Technical solution services

  0   1,245   0   600 

Total revenues

 $34,847  $27,104  $11,900  $12,304 

11

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Revenue recognized over time

  34,847   25,859   11,900   11,704 

Revenue recognized at a point in time

  0   1,245   0   600 

Total revenues

 $34,847  $27,104  $11,900  $12,304 

Contract costs

For the nine and three months ended September 30, 2021 and 2020, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, which shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.

Contract liabilities

The table below summarized the movement of the Company’s contract liabilities for the Company’s own brand buildingnine months ended September 30, 2021:

  

Contract liabilities

 
  

US$(’000)

 
     

Balance as of January 1, 2021

  1,436 

Exchange translation adjustment

  9 

Revenue recognized from beginning contract liability balances

  (1,305)

Advances received from customers related to unsatisfied performance obligations

  1,171 

Balance as of September 30, 2021 (Unaudited)

 $1,311 

Advance from customers related to unsatisfied performance obligations are not includable in costgenerally refundable. Refund of revenues, they are expensed when incurred or amortized overadvance from customers were insignificant for the estimated beneficial periodnine and are included in “sales three months ended September 30, 2021 and marketing expenses” in the statements of operations and comprehensive loss. 2020.

For the nine and three months ended September 30, 2017 2021 and 2016, advertising expenses for the Company’s own brand building2020, there is 0 revenue recognized from performance obligations that were approximately US$1,583,000 and US$1,684,000, respectively. For the three months ended September 30, 2017 and 2016, advertising expenses for the Company’s own brand building were approximately US$480,000 and US$724,000, respectively.satisfied in prior periods.

 

f)

g)

Research and development expenses

 

The Company accounts for expenses for the cost of developingenhancement, maintenance and upgrading technologies andtechnical support to the Company’s Internet platforms and intellectual propertyproperties that are used in its daily operations in research and development cost.expenses. Research and development costs are charged to expense when incurred. Expenses for research and development for the nine months ended September 30, 2017 2021 and 20162020 were approximately US$1,012,0000.25 million and US$1,530,000,0.44 million, respectively. Expenses for research and development for the three months ended September 30, 2017 2021 and 20162020 were approximately US$312,0000.09 million and US$514,000,0.11 million, respectively.

 

F-9 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
12

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

g)

h)

Impact of recently issued accounting standards

Lease

 

As of September 30, 2021, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$2.04 million and US$2.12 million, respectively.

In May 2014, the Financial Accounting Standard Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” (as further amended or clarified by other

Maturity of operating lease liabilities

   

Operating leases

 
   

US$(’000)

 
   

(Unaudited)

 
      

Three months ending December 31, 2021

   73 

Year ending December 31,

     
-2022   315 
-2023   330 
-2024   336 
-2025   353 
-2026   370 

-thereafter

   866 

Total undiscounted lease payments

   2,643 

Less: imputed interest

   (527)

Total operating lease liabilities as of September 30, 2021

  $2,116 
      

Including:

     

Operating lease liabilities

   193 

Operating lease liabilities-Non current

   1,923 
   $2,116 

Operating lease expenses:

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Long-term operating lease contracts

  212   7   88   2 

Short-term operating lease contracts

  45   114   15   35 

Total

 $257  $121  $103  $37 

Supplemental information related ASUs issued subsequently in 2015, 2016 and 2017). ASU No. 2014-09 clarifies the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP and IFRS. Simultaneously, this ASU supersedes the revenue recognition requirements in ASC Topic 605-Revenue Recognition and most industry-specific guidance throughout the Industry Topics of the Codification. The core principle of this ASU requires an entity to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the five steps: (1) identify the contract(s) with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to the performance obligations in the contract; (5) recognize revenue when (or as) the entity satisfies a performance obligation. For public business entities, certain not-for-profit entities, and certain employee benefit plans, the amendments in ASU No. 2014-09 and the amendments in other related ASUs that affected the guidance in ASU 2014-09 should be applied to annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. The Company did not early adopt this ASU in fiscal 2017, and will apply the new revenue standard beginning January 1, 2018. Based on the Company’s preliminary evaluation, the Company does not currently expect the adoption of these amendments to have a material impact on its consolidated financial position and results of operations. However, adopting the new revenue standard will significantly increase the disclosure requirements of the sufficient information (qualitatively and quantitatively) to enable users of financial statements to understand the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The Company plans to continue the evaluation and analysis of its adoption of ASU 2014-09 (including those subsequently issued updates that clarify or amend ASU 2014-09’s provisions) throughout 2017 as the Company works towards the implementation and finalizes its determination of the impact that the adoption will have on its consolidated financial statements.operating leases:

Nine Months Ended September 30, 2021

(Unaudited)

Operating cash flows used for operating leases (US$’000)

136

Right-of-use assets obtained in exchange for new lease liabilities (US$’000)

2,179

Weighted-average remaining lease term (years)

7.38

Weighted-average discount rate

6%

13

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

4.

Term deposit

 

Term deposit as of December 31, 2016 represented the amount of cash placed as a term deposit by one of the Company’s operating VIEs in a major financial institution in China, which management believes is of high credit quality. The term deposit matured on July 7, 2017. The interest rate of the term deposit was 2.25% per annum.

5.Accounts receivable, net

 

 

September 30,

2017

 

December 31,

2016

 

September 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
         
Accounts receivable  8,802   6,034  4,867  6,654 
Allowance for doubtful accounts  (4,149)  (2,712)  (2,198)  (4,247)
Accounts receivable, net  4,653   3,322   2,669   2,407 

 

All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of September 30, 2017 2021 and December 31, 2016, 2020, the Company provided approximately US$4,149,0002.20 million and US$2,712,0004.25 million allowance for doubtful accounts, respectively, which were primarily related to the accounts receivable of the Company’s internetInternet advertising and TV advertising business segment.related services segment with an aging over six months. The Company evaluates its accounts receivablesreceivable with an aging over six months and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. For the nine and three months ended September 30, 2017, approximately US$1,254,000 and US$1,283,0002021, 0 allowance for doubtful accounts was provided. For the nine and three months ended September 30, 2016, no2020, approximately US$0.75 million and US$nil million allowance for doubtful accounts was provided, or reversed.

respectively. For the nine months ended September 30, 2021, the Company charged off approximately US$2.08 million accounts receivable against its related allowance, as all means of collection have been exhausted and the potential for recovery is considered remote.

 

F-10 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.

5.

Other receivables, net

 

Other receivables as of September 30, 2017 represented a short-term working capital loan to an unrelated third party, which will expire on June 30, 2018. The loan is unsecured and non-interest bearing. The Company expects to fully collect this loan by the end of 2017. As of September 30, 2017 and December 31, 2016, other receivables also included approximately RMB6.0 (US$0.9 million) overdue contractual deposits, which were related to advertising resources purchase contracts that had been completed with no further cooperation. Based on the assessment of the collectability of these overdue deposits as of September 30, 2017 and December 31, 2016, the Company had provided full allowance against these doubtful accounts.

7.Prepayments and deposit to suppliers

 

  

September 30,

2017

 

December 31,

2016

  US$(’000) US$(’000)
  (Unaudited)  
         
Deposits to internet resources providers  888   1,074 
Prepayments to internet resources providers  3,639   2,874 
Deposits to other services providers  753   721 
Other deposits and prepayments  170   85 
   5,450   4,754 
  

September 30,

2021

  

December 31,

2020

 
  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

     
         

Deposits to advertising resources providers

  620   307 

Prepayments to advertising resources providers

  5,111   3,696 

Deposit and prepayment for other investing contracts

  2,500   0 

Other deposits and prepayments

  442   654 
   8,673   4,657 

 

The Company purchases internet resources from large internet search enginesAs of September 30, 2021, deposit and technical services from suppliers to attract more internet traffic to its advertising portalsprepayment for other investing contracts consisted of a US$1.0 million refundable deposit paid for a potential merge and provide value-added services to its clients.

According to the contracts signed between the Company and its suppliers, the Company is normally required to pay the contract amounts in advance. These prepaymentsacquisition transaction, which will be transferred to cost of revenues whenrefunded if no definitive agreement is reached among the related services are provided. As of September 30, 2017 and parties before the expected closing date, i.e. December 31, 2016, prepayments to internet resources providers primarily consisted of advance payments2021, and a US$1.5 million prepayment paid for purchasing internet resources from two of the Company’s largest internet resources suppliers.in accordance with a cryptocurrency mining machine purchase agreement, respectively.

 

As of September 30, 2017 and December 31, 2016, deposits to other service provider represented the deposit for an advisory contract related to finding new investorsdate hereof, the Company is in the due diligence process for the potential merge and acquisition transaction.

Due to the recent policies promulgated by the Chinese government which ban cryptocurrency mining business commencing in May 2021, the Company which will expire on December 31, 2017.

cancelled its cryptocurrency mining machine purchase agreement with the supplier and expects to be refunded with the prepayment of US$1.5 million before the end of fiscal 2021.

 

8.

6.

Due from related parties net

 

  

September 30,

2021

  

December 31,

2020

 
  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

     
         

Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)

  61   61 

Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”)

  8   0 

Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”)

  27   0 

Due from related parties

  96   61 

  

September 30,

2017

 

December 31,

2016

  US$(’000) US$(’000)
  (Unaudited)  
     
Beijing Saimeiwei Food Equipment Technology Co., Ltd.  33   31 
Chuangshi Meiwei (Beijing) International Investment Management Co., Ltd.  156   150 
ChinaNet Chuang Tou (Shenzhen) Co., Ltd.  14   - 
Guohua Shiji (Beijing) Communication Co., Ltd.  181   175 
Beijing Saturday Education Technology Co., Ltd.  1   1 
   385   357 
Allowance for doubtful accounts  (151)  (144)
Due from related parties, net  234   213 
14

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Related parties of the Company represented the Company’s direct or indirect unconsolidated investee companies. companies and entities that the Company’s officers or directors can exercise significant influence.

As of September 30, 2017 2021 and December 31, 2016, 2020, due from Zhongwang Xiyue represented the outstanding receivable for advertising and marketing service that the Company provided to this related parties primarily includedparty in its normal course of business, which is on the same terms as those provided to its unrelated clients.

As of September 30, 2021, due from Gong Xiang Technology and Business Opportunity Chain Guangzhou were short-term working capital loans of RMB1.0 million (approximately US$0.15 million) and RMB1.2 million (approximately US$0.18 million)provided to Chuangshi Meiwei and Guohua Shiji, respectively. The working capital loansthese investee entities, which are lent to supplement the short-term operational needs of these related parties to assist certain of their business developing projects. The working capital loans are non-interest bearing and needsexpected to be repaid to the Company within one year. Based onfor the assessment of the collectability, the Company provided approximately US$151,000 and US$144,000 allowance for doubtful accounts against its amounts due from related parties as of September 30, 2017 and year ending December 31, 2016, respectively, which was related to the working capital loan lent to Chuangshi Meiwei.

2021.

 

F-11 

CHINANET ONLINE HOLDINGS, INC.

7.

  Other current assets

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9.Long-term investments

 

  

September 30,

2017

 

December 31,

2016

  US$(’000) US$(’000)
  (Unaudited)  
     
Equity method investments:        
Investment in equity method investees  741   709 
Advance to equity method investees  78   75 
Impairment on equity method investments  (819)  (784)
Total equity method investments  -   - 
         
Cost method investments:        
Investment in cost method investees  1,108   1,492 
Impairment on cost method investments  (159)  (152)
Total cost method investments  949   1,340 
         
Total long-term investments  949   1,340 

Equity method investments

  

September 30, 2021

  

December 31,2020

 
  

Gross

  

Allowance for doubtful accounts

  

Net

  

Gross

  

Allowance for doubtful accounts

  

Net

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

             
                         

Staff advances for business operations

  10   0   10   18   0   18 

Short-term loan to an unrelated party

  1,648   0   1,648   1,444   0   1,444 

Total

  1,658   0   1,658   1,462   0   1,462 

 

As of September 30, 2017,2021, other current assets primarily include a temporary working capital loan that the Company beneficially owned 23.18%provided to an unrelated party. This loan is unsecured, interest free, and 25.5% equity interest in Shenzhen Mingshan and Zhao Shang Ke Hubei, respectively. The Company accounts for its investments in these companies under equity method of accounting. Based on the facts of the significant decline in level of business activities from 2015, insufficient amount of working capital and the lack of commitment from majority shareholders, these two investment affiliates had become dormant and the possibility of the business recovery is remote. As a result,expected to be fully repaid to the Company reduced the carrying value of these investments to zero as of the end of 2015.in March 2022.

 

8.

  Long-term investments

Cost method investments

Amount

US$(’000)

Balance as of January 1, 2021

67

Cash investments during the year

1,882

Disposed during the year

(38)

Balance as of September 30, 2021 (Unaudited)

1,911

 

As of September 30, 2017,2021, except for long-term investments which were fully impaired, the Company beneficially owned a 15.38%, 10%, 15%, 17% and 19% equity interest in ChinaNet Chuang Toueach New Business Holdings Limited (“New Business”), Guang Dong WeFriend Co., Ltd. (“Guangdong WeFriend”), Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”), Xiao Peng Education Technology (Hubei) Co., Ltd. (“Xiao Peng Education”) and Guohua Shiji, respectively,Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), respectively.

The Company measures these investments which do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a 10%similar investment of the Company.

15

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine months ended September 30, 2021, the Company made a cash investment of approximately US$1.0 million, US$0.46 million, US$0.23 million, US$0.11 million and US$0.08 million to each New Business, Guangdong WeFriend, Gong Xiang Technology, Business Opportunity Chain Guangzhou and Xiao Peng Education, respectively.

In May 2021, the Company disposed the 4.9% equity interest it owned in Chuangshi MeiweiLocal Chain Xi’an Information Technology Co., Ltd. (“Local Chain Xi’an”) to an unrelated party and Beijing Saturday, respectively, and a 15% equity interest in ChinaNet Korea. The Company accounts for its investments in these companies under cost method of accounting. As the business plan of ChinaNet Korea and Chuangshi Meiwei were not implemented smoothly and based on the facts of the significant decline in level of business activities, insufficient amount of working capital and the lack of commitment from majority shareholders, the possibility of the business recovery of these two companies is remote. As a result, the Company reduced the carrying value of these investments to zero as of the end of 2016. The following table summarizes the movement of the investments in cost method investeesrecorded an approximately US$0.04 million disposal loss for the nine months ended September 30, 2017:2021.

 

  Beijing
Saturday		 Guohua Shiji 

ChinaNet

Chuang Tou

 Total
  US$(’000) US$(’000) US$(’000) US$(’000)
         
Balance as of December 31, 2016  16   27   1,297   1,340 
Withdraw of cash investment  -   -   (452)  (452)
Exchange translation adjustment  1   1   59   61 
Balance as of September 30, 2017 (Unaudited)  17   28   904   949 

9.

 

F-12 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company contributed RMB9,000,000 (approximately US$1.35 million) in cash upon incorporation of ChinaNet Chuang Tou in November 2015. During the three months ended September 30, 2017, as approved by the shareholders of ChinaNet Chuang Tou, the Company withdrew RMB3,000,000 (approximately US$0.45 million) cash investment from ChinaNet Chuang Tou. This transaction does not have any impact on the shareholding and other shareholders’ rights of the Company in ChinaNet Chuang Tou.

10.Property and equipment, net

 

 

September 30,

2017

 

December 31,

2016

 

September 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
     
Leasehold improvement  332   317 
Vehicles  797   763  918  811 
Office equipment  1,434   1,371  928  894 
Electronic devices  1,146   1,096   618   615 
Property and equipment, cost  3,709   3,547   2,464   2,320 
Less: accumulated depreciation  (3,207)  (2,922)  (2,274)  (2,260)
Less: impairment loss on abandoned fixed assets  (161)  (154)
Property and equipment, net  341   471   190   60 

 

Depreciation expenses in the aggregate for the nine months ended September 30, 2017 2021 and 20162020 were approximately US$149,0000.009 million and US$193,000,0.006 million, respectively. Depreciation expenses in the aggregate for the three months ended September 30, 2017 2021 and 20162020 were approximately US$49,0000.005 million and US$56,000,0.002 million, respectively.

10.

  Intangible assets, net

  

As of September 30, 2021 (Unaudited)

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 

Intangible assets subject to amortization:

                

Cloud compute software technology

  1,431   (992)  (439)  0 

Internet Ad tracking system

  1,161   (116)  0   1,045 

Live streaming technology

  1,500   (250)  0   1,250 

Licensed products use right

  1,206   (226)  0   980 

Other computer software

  121   (121)  0   0 

Total

 $5,419  $(1,705) $(439) $3,275 

  

As of December 31, 2020

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 

Intangible assets subject to amortization:

                

Cloud compute software technology

  1,423   (978)  (436)  9 

Live streaming technology

  1,500   (25)  0   1,475 

Licensed products use right

  1,208   (135)  0   1,073 

Other computer software

  120   (120)  0   0 

Total

 $4,251  $(1,258) $(436) $2,557 

16

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

11.Intangible assets, net

  

September 30,

2017

 

December 31,

2016

  US$(’000) US$(’000)
  (Unaudited)  
Intangible assets not subject to amortization:        
Domain name  1,455   1,393 
Intangible assets subject to amortization:        
Customer relationship  2,007   1,920 
Non-compete agreements  1,104   1,057 
Software technologies  310   295 
Cloud compute software technology  1,399   1,338 
Intelligent marketing data service platform  4,865   4,655 
Internet safety, information exchange security and data encryption software  1,959   1,874 
Cloud video management system  1,431   1,369 
Other computer software  118   113 
Intangible assets, cost  14,648   14,014 
Less: accumulated amortization  (6,035)  (4,875)
Less: accumulated impairment losses  (1,960)  (1,875)
Intangible assets, net  6,653   7,264 

F-13 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Amortization expenses in aggregate for the nine months ended September 30, 2017 2021 and 20162020 were approximately US$917,0000.44 million and US$977,000,0.62 million, respectively. Amortization expenses in aggregate for the three months ended September 30, 2017 2021 and 20162020 were approximately US$310,0000.16 million and US$354,000,0.21 million, respectively.

 

Based on the currentadjusted carrying value of the finite-lived intangible assets recorded,after the deduction of the impairment losses, which has a weighted average remaining useful life was 5.85of 5.45 years as of September 30, 2017, 2021, and assuming no further subsequent impairment of the underlying intangible assets, the estimated future amortization expenses is  approximately US$308,0000.16 million for the three monthsyear ending December 31, 2017, 2021, approximately US$1,232,000US$0.65 million each year for the yearsyear ending December 31, 2018 2022 through 2020, and2024, approximately US$1,161,0000.63 million for the year ending December 31, 2021.

2025, and approximately US$0.18 million for the year ending December 31, 2026.

 

12.Goodwill

 

11.

Amount

  Blockchain software application platform development costs

In 2018, the Company entered into technical development contracts with two unrelated entities for the development of two blockchain technology-based platform applications with a contract amount of US$4.50 million and RMB3.0 million (approximately US$0.46 million), respectively. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of September 30, 2021, in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company capitalized approximately US$4.41 million development costs in the aggregate under these two contracts. During 2020, the Company further developed its Blockchain Integrated Framework (“BIF”) for retail business, which provides a framework platform for more accessible and efficient integration of small and medium sized retail business users. As of September 30, 2021, the Company had finalized the upgrade and integration of the Bo!News application, which provides a digitalized franchise management system for the SMEs, and the BIF for the SMEs’ smart retail business, which provides blockchain Software-as-a-Service (“SaaS”) services, including: OMG membership card management, trusted and decentralized payment management and Non-Fungible Token (“NFT”) management services. The Company expects to fully launch these applications during the fourth fiscal quarter of 2021, after completing the test run processes.

 

12.

US$(’000)

  Long-term deposits and prepayments

Balance as of December 31, 20164,970
Exchange translation adjustment225
Balance as of September 30, 2017 (unaudited)5,195

13.Short-term bank loan

 

As of December 31, 2016, oneSeptember 30, 2021, long-term deposits and prepayments consisted of an approximately US$0.31 million of the Company’s VIEs borrowed two short-term bank loansoperating deposits and prepayments that were not expected to be refunded or consumed within one year of RMB5.0September 30, 2021, and an approximately US$0.17 million (approximately US$0.7 million), inprepayment for the aggregate, from a major financial institution in China to supplement its short-term working capital needs. The short-term bank loan of RMB3.0 million (approximately US$0.4 million) matured and was repaid on July 18, 2017, and was re-borrowed on August 16, 2017, which will mature on August 15, 2018. The remaining short-term bank loan of RMB 2.0 million (approximately US$0.3 million) matured and was repaid on October 18, 2017, and was re-borrowed on October 23, 2017, which will mature on October 22, 2018. The current interest rate of these short-term bank loan is 5.655% per annum, which is 30% over the benchmark rateleasehold improvement project of the People’s BankCompany’s Guangzhou office, which has been completed by the end of China (the “PBOC”).

October 2021.

 

14.

13.

Accrued payroll and other accruals

 

 

September 30,

2017

 

December 31,

2016

 

September 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
     
Accrued payroll and staff welfare  241   319  174  229 
Accrued operating expenses  288   366   176   260 
  529   685   350   489 

 

17

15.Due to new investors related to terminated security purchase agreements

ZW DATA ACTION TECHNOLOGIES INC.

In May 2015, the Company entered into securities purchase agreements with Beijing Jinrun Fangzhou Science & Technology Co, Ltd. (“Jinrun Fangzhou”) and Dongsys Innovation (Beijing) Technology Development Co., Ltd. (“Dongsys Innovation”), public companies listed on the National Equities Exchange and Quotations of the PRC (the “NEEQ”), respectively, pursuant to which these companies agreed to purchase a certain number of shares of common stock of the Company. The Company had received the 10% guarantee payment and 15% prepayment in an aggregate amount equal to US$806,000 from Jinrun Fangzhou, and the 10% guarantee payment in an amount equal to US$117,000 from Dongsys Innovation, respectively.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Due to certain restriction stipulated in the “Measures for Overseas Investment Management” issued by the Ministry of Commerce of the PRC (the “MOFCOM”), the Company and its investors experienced difficulties in obtaining approval for the transactions from the MOFCOM. As a result, on May 12, 2016, the Company terminated the security purchase agreements with the two investors, respectively. The Company did not make any repayment to these investors afterwards during 2016 and the first nine months of 2017. As agreed by the parties, beginning on January 1, 2017, the Company will bear a 12% annualized interest rate for the unpaid amounts and the amounts shall be refunded to the investors no later than December 31, 2017. The Company expects to settle the balances with the two investors within 2017. Interest expense for the unpaid amounts accrued for the nine and three months ended September 30, 2017 was approximately US$0.08 million and US$0.03 million, which has been recorded in other payables account.

 

F-14 

CHINANET ONLINE HOLDINGS, INC.

14.

  Taxation

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

16.Payable for purchasing of software technology

Payable for purchasing of software technology as of September 30, 2017 and December 31, 2016 represented the remaining outstanding payment balance of approximately RMB2.85 million (approximately US$0.4 million) for purchasing of software technology, which transaction consummated in the fourth fiscal quarter of 2016. The Company expects to settle the balance with the counter party within 2017.

17.Taxation

1)Income tax

The entities within the Company file separate tax returns in the respective tax jurisdictions in which they operate.

i). The Company is incorporated in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. Following the Share Exchange, the Company became a holding company and does not conduct any substantial operations of its own. No provision for federal corporate income tax has been made in the financial statements as the Company has no assessable profits for the nine and three months ended September 30, 2017, or any prior periods. The Company does not provide for U.S. taxes or foreign withholding taxes on undistributed earnings from its non-U.S. subsidiaries because such earnings are intended to be reinvested indefinitely. If undistributed earnings were distributed, foreign tax credits could become available under current law to reduce the resulting U.S. income tax liability.

ii). China Net BVI was incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, China Net BVI is not subject to tax on income or capital gains. Additionally, upon payments of dividends by China Net BVI to its shareholders, no BVI withholding tax will be imposed.

iii). China Net HK was incorporated in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in the financial statements as China Net HK has no assessable profits for the nine and three months ended September 30, 2017 or any prior periods. Additionally, upon payments of dividends by China Net HK to its shareholders, no Hong Kong withholding tax will be imposed.

iv). The Company’s PRC operating subsidiaries and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises.

In November 2015, Business Opportunity Online was re-approved by the related PRC governmental authorities as a High and New Technology Enterprise, which enabled the entity, as approved by the local tax authorities of Beijing, the PRC, to continue enjoying the favorable statutory tax rate of 15% until November 2018. Therefore, for the nine and three months ended September 30, 2017 and 2016, the applicable income tax rate of Business Opportunity Online was 15%.

The applicable income tax rate for other PRC operating entities of the Company was 25% for the nine and three months ended September 30, 2017 and 2016.

The current EIT law also imposed a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. 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. Holding companies in Hong Kong, for example, will be subject to a 5% withholding tax rate.

F-15 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine and three months ended September 30, 2017 and 2016, the preferential income tax treatment enjoyed by the Company’s PRC VIE, Business Opportunity Online was based on the current applicable laws and regulations of the PRC and approved by the related government regulatory authorities and local tax authorities where Business Opportunity Online operates in. The preferential income tax treatment is subject to change in accordance with the PRC government economic development policies and regulations. The preferential income tax treatment is primarily determined by the regulation and policies of the PRC government in the context of the overall economic policy and strategy. As a result, the uncertainty of the preferential income tax treatment is subject to, but not limited to, the PRC government policy on supporting any specific industry’s development under the outlook and strategy of overall macroeconomic development.

2)Turnover taxes and the relevant surcharges

Service revenues provided by the Company’s PRC operating subsidiaries and VIEs were subject to Value Added Tax (“VAT”). VAT rate for provision of modern services (other than lease of corporeal movables) is 6% and for small scale taxpayer, 3%. Therefore, for the nine and three months ended September 30, 2017 and 2016, the Company’s service revenues are subject to VAT at a rate of 6%, after deducting the VAT paid for the services purchased from suppliers, or at a rate of 3% without any deduction of VAT paid for the services purchased from suppliers. The surcharges of the VAT is 12%-14% of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and VIE operate in.

 

As of September 30, 2017 2021 and December 31, 2016, 2020, taxes payable consists of:

 

 

September 30,

2017

 

December 31,

2016

 

September 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
     
Turnover tax and surcharge payable  1,246   1,147  1,326  1,353 
Enterprise income tax payable  1,843   1,763   2,088   2,077 
Total taxes payable  3,089   2,910   3,414   3,430 

 

For the nine and three months ended September 30, 2017 2021 and 2016,2020, the Company’s income tax expensebenefit consisted of:

 

  Nine Months Ended September 30, Three Months Ended September 30,
  2017 2016 2017 2016
  US$(’000) US$(’000) US$(’000) US$(’000)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
                 
Current-PRC  -   -   -   - 
Deferred-PRC  (115)  (155)  (2)  (3)
Income tax expenses  (115)  (155)  (2)  (3)
  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Current

  0   0   0   57 

Deferred

  171   87   131   98 

Income tax benefit

  171   87   131   155 

 

The Company’s deferred tax assets at as of September 30, 2017 2021 and December 31, 2016 2020 were as follows:

 

 

September 30,

2017

 

December 31,

2016

 

September 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(’000)

 

US$(’000)

 
 (Unaudited)   

(Unaudited)

    
     
Tax effect of net operating losses carried forward  10,252   9,345  12,457  10,123 

Operating lease cost

 20  0 
Bad debts provision  1,180   931  330  728 
Valuation allowance  (9,959)  (8,754)  (12,026)  (10,245)
Total deferred tax assets  1,473   1,522 

Deferred tax assets, net

  781   606 

 

F-16 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The net operating losses carried forwardU.S. holding company has incurred by the Company (excluding its PRC operating subsidiariesaggregate NOLs of approximately US$30.7 million and VIEs) were approximately US$18,168,000 and US$17,544,000 at 23.3 million as of September 30, 2017 2021 and December 31, 2016, respectively, which loss is applicable to the Company’s U.S. income tax return and carry forwards 2020, respectively. The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. A NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely, subject to an annual limit of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company maintains a full valuation allowance has been recorded because it is considered more likely than not that theagainst its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be realized through sufficient future earnings of the entity to which the operating losses relate.utilize its U.S. deferred tax assets.

 

The net operating lossesNOLs carried forward (excluding bad debts provision and non-deductible expenses) incurred by the Company’s PRC subsidiaries and VIEs were approximately US$19,945,00024.9 million and US$17,939,000 at 22.5 million as of September 30, 2017 2021 and December 31, 2016, respectively, which loss is applicable to the Company’s PRC income tax return and carry forwards2020, respectively. The losses carryforwards gradually expire over time, the last of which expires in 2022.2031 due to certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred tax assets were calculated based on the respective net operating lossesNOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.

The Company recorded approximately US$645,00012.0 million and US$446,000 net10.2 million valuation allowance for the nine months ended as of September 30, 2017 2021 and 2016, respectively, and approximately US$142,000 and US$149,000 net valuation allowance for the three months ended September 30, 2017 and 2016, December 31, 2020, respectively, because it is considered more likely than not that thisa portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses relate. Therelated.

18

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine and three months ended September 30, 2021, the Company also utilizedrecorded approximately US$119,0002.15 million and US$267,000 previously recognized0.19 million deferred tax assets forvaluation allowance, respectively. For the nine and three months ended September 30, 20172020, the Company recorded approximately US$0.90 million and 2016, respectively, and approximately US$8,000 and US$74,000 previously recognized0.14 million deferred tax assets for the three months ended September 30, 2017 and 2016, respectively, due to earnings generated during the respective periods.valuation allowance, respectively.

 

Full valuation allowance to bad debts provision related deferred tax assets were recorded because it is considered more likely than not that this portion of deferred tax assets will not be realized through bad debts verification by the local tax authorities where the PRC subsidiaries and VIEs operate in.

15.

 

The tax authority of the PRC government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional tax liabilities.

18.Long-term borrowing from a directorrelated party

 

Long-term borrowing from a directorrelated party is a non-interest bearing loan from a directorrelated party of the Company relating to the original paid-in capital contribution in the Company’s wholly-owned subsidiary Rise King WFOE,Century Technology Development (Beijing) Co., Ltd. (“Rise King WFOE”), which is not expected to be repaid within one year.

16.

  The Financing and warrant liabilities

The February 2021 Financing:

On February 18, 2021 (the “Closing Date”), the Company consummated a registered direct offering of 5,212,000 shares of the Company’s common stock to certain institutional investors at a purchase price of US$3.59 per share (the “February 2021 Financing”). As part of the transaction, the Company also issued to the investors warrants to purchase up to 2,606,000 shares of the Company’s common stock at an exercise price of US$3.59 per share (the “2021 Investor Warrants”). The 2021 Investor Warrants are exercisable at any time on or after February 18, 2021 and on or prior to the close of business on August 18, 2024 (the third and one-half years anniversary of the Closing Date). The Company received gross proceeds of approximately US$18.7 million from the February 2021 Financing.

The placement agent of the February 2021 Financing received (i) a placement fee in the amount equal to 7% of the gross proceeds and (ii) warrants to purchase up to 364,840 shares of the Company’s common stock at an exercise price of US$4.4875 per share. (the “2021 Placement Agent Warrants” and together with the 2021 Investor Warrants, the “2021 Warrants”). The 2021 Placement Agent Warrants are exercisable at any time on or after August 18, 2021 (the six-month anniversary of the Closing Date) and on or prior to the close of business on August 18, 2024 (the third and one-half years anniversary of the Closing Date).

The initial exercise prices of the 2021 Warrants are subject to anti-dilution provisions that require adjustment of the number of shares of common stock that may be acquired upon exercise of the 2021 Warrants, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights offerings, pro-rata distributions, and certain fundamental transactions. The 2021 Warrants also contain “full ratchet” price protection in the event of subsequent issuances below the applicable exercise price (the “Down round feature”).

The 2021 Warrants may not be exercised if it would result in the holder beneficially owning more than 4.99% of the Company’s outstanding common shares (the “Beneficial Ownership Limitation”). The holder of the 2021 Warrants, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the Company’s outstanding common shares. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company.

Accounting for securities issued in the February 2021 Financing

The Company determined that the Company’s common stock issued in the February 2021 Financing should be classified as permanent equity as there was no redemption provision at the option of the holders that is not within the control the Company on or after an agreed upon date.

The Company analyzed the 2021 Warrants issued in the February 2021 Financing in accordance with ASC Topic 815 “Derivatives and Hedging”. In accordance with ASC Topic 815, the Company determined that the 2021 Warrants should not be considered index to its own stock, as the strike price of the 2021 Warrants is dominated in a currency (U.S. dollar) other than the functional currency of the Company (Renminbi or Yuan). As a result, the 2021 Warrants does not meet the scope exception of ASC Topic 815, therefore, should be accounted for as derivative liabilities and measure at fair value with changes in fair value be recorded in earnings in each reporting period.

19

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair value of the warrants

The Company used Binomial model to determine the fair value of the 2021 Warrants based on the assumptions summarized as below:

  

As of February 18, 2021

 
         
  

2021 Investor
Warrants

  

2021 Placement Agent
Warrants

 
         

Stock price

 $4.48  $4.48 

Years to maturity

  3.50   3.50 

Risk-free interest rate

  0.26%  0.26%

Dividend yield

  0   0 

Expected volatility

  168%  168%

Exercise Price

 $3.59  $4.4875 
         

Fair value of the warrant

 $4.02  $3.96 
         

Warrant liabilities (US$’000)

 $10,476  $1,445 

Stock price is the closing bid price of the Company’s common stock at the respective valuation date. Years to maturity is the respective remaining contract life of the warrants. Yield-to-maturities in continuous compounding of the United States Government Bonds with the time-to-maturities same as the respective warrant are adopted as the risk-free rate. Annualized historical stock price volatility of the Company at the respective valuation date is deemed to be appropriate to serve as the expected volatility of the stock price of the Company. The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. Exercise price is the contractual exercise price of the 2021 Warrants.

Allocation of gross proceeds from the February 2021 Financing

The Company allocated the total proceeds from the February 2021 Financing as summarized below:

Initial measurement

(USD’000)

Investor Warrants

10,476

Common Stock (par value and additional paid in capital)

8,235

Total proceeds from the Financing

18,711

The 2021 Investor Warrants issued in the February 2021 Financing was initially measurement at fair value. The residual amount, representing difference between the total proceeds and the fair value of the 2021 Investor Warrants as of the Closing Date was assigned as the carrying value of the common stock issued in the February 2021 Financing.

Offering costs

Offering costs in the amount of approximately US$3.05 million consisting of cash payment of approximately US$1.31 million placement fee, approximately US$0.29 million other direct offering cost of professional service fees and fair value of the 2021 Placement Agent Warrants of approximately US$1.45 million, which were charged to additional paid-in-capital.

Subsequent measurement and changes in fair value of the warrant liabilities

The Company issued warrants to certain institutional investors and the Company’s placement agent in the registered direct offerings consummated in February 2021, December 2020 and January 2018, which warrants were accounted for as derivative liabilities and measured at fair value with changes in fair value be recorded in earnings in each reporting period.

20

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine and three months ended September 30, 2021:

Warrants issued in the February 2021 Financing:

  

2021 Investor Warrants

  

2021 Placement Agent Warrants

 
  

September 30, 2021

  

June 30, 2021

  

September 30, 2021

  

June 30, 2021

 
                 

Stock price

 $1.26  $2.00  $1.26  $2.00 

Years to maturity

  2.88   3.14   2.88   3.14 

Risk-free interest rate

  0.50%  0.48%  0.50%  0.48%

Dividend yield

  0   0   0   0 

Expected volatility

  115%  114%  115%  114%

Exercise Price

 $3.59  $3.59  $4.4875  $4.4875 
                 

Fair value of the warrant

 $0.70  $1.25  $0.65  $1.18 
                 

Warrant liabilities (US$’000)

 $1,824  $3,257  $237  $431 

Warrants issued in the 2020 Financing:

On December 14, 2020, the Company consummated a registered direct offering of 4,320,989 shares of the Company’s common stock to certain institutional investors at a purchase price of US$1.62 per share (the “2020 Financing”). As part of the transaction, the Company also issued, to the investors warrants to purchase up to 1,728,396 shares of the Company’s common stock at an exercise price of U$$2.03 per share (the “2020 Investor Warrants”), and to the placement agent, warrants to purchase up to 302,469 shares of the Company’s common stock on substantially the same terms as the 2020 Investor Warrants (the “2020 Placement Agent Warrants” and together with the 2020 Investor Warrants, the “2020 Warrants”). The 2020 Warrants are exercisable at any time on or after June 14, 2021 and on or prior to the close of business on December 14, 2023.

  

2020 Investor Warrants and 2020 Placement Agent Warrants

 
  

September 30, 2021

  

June 30, 2021

  

December 31, 2020

 
             

Stock price

 $1.26  $2.00  $1.35 

Years to maturity

  2.20   2.45   2.95 

Risk-free interest rate

  0.34%  0.34%  0.17%

Dividend yield

  0   0   0 

Expected volatility

  122%  120%  102%

Exercise Price

 $2.03  $2.03  $2.03 
             

Fair value of the warrant

 $0.80  $1.40  $0.74 
             

Investor warrants liabilities (US$’000)

 $1,383  $2,420  $1,279 
             

Placement agent warrants liabilities (US$’000)

 $242  $423  $224 

Warrants issued in the 2018 Financing:

On January 17, 2018, the Company consummated a registered direct offering of 2,150,001 shares of the Company’s common stock to certain institutional investors at a purchase price of US$5.15 per share (“the 2018 Financing”). As part of the transaction, the Company also issued, to the investors warrants (the “2018 Investor Warrants”) to purchase up to 645,000 shares of the Company’s common stock at an exercise price of $6.60 per share. The 2018 Investors Warrants expired on July 18, 2020. The placement agent of the 2018 Financing received warrants to purchase up to 129,000 shares of the Company’s common stock at an exercise price of US$6.60 per share, with a three-year term (the “2018 Placement Agent Warrants” and together with the 2018 Investor Warrants, the “2018 Warrants”). On September 25, 2019, the exercise price of the 2018 Warrants was adjusted to US$1.4927. On January 18, 2021, the expiration date of the 2018 Placement Agent Warrants was extended to July 18, 2021.

21

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  

2018 Placement Agent Warrants

 
  

July 2, 2021*

  

June 30, 2021

  

December 31, 2020

 
             

Stock price

 $1.94  $2.00  $1.35 

Years to maturity

  0.04   0.05   0.05 

Risk-free interest rate

  0.05%  0.04%  0.08%

Dividend yield

  0   0   0 

Expected volatility

  75%  74%  59%

Exercise Price

 $1.4927  $1.4927  $1.4927 
             

Fair value of the warrant

 $0.45  $0.51  $0.02 
             

Warrant liabilities (US$’000)

 $58  $66  $2 

* The 2018 Placement Agent Warrants were cashless exercised on July 2, 2021. As a result, the Company issued approximately 0.04 million shares of the Company’s restricted common stock, with a loss of approximately US$0.02 million recognized in other income/(loss) account, which represented the difference between the fair value of these warrants on the date of the exercise and the cost of the Company’s restricted common stock issued, based on the close bid price of the Company’s common stock on the same date.

For the nine and three months ended September 30, 2020:

Warrants issued in the 2018 Financing:

  

2018 Investors warrants

  

2018 Placement agent warrants

 
  

September 30,

2020 #

  

June 30,

2020

  

December 31,

2019

  

September 30,

2020

  

June 30,

2020

  

December 31,

2019

 
                         

Stock price

  0  $1.00  $1.17  $2.02  $1.00  $1.17 

Years to maturity

  0   0.05   0.55   0.30   0.55   1.05 

Risk-free interest rate

  0   0.19%  1.58%  0.13%  0.18%  1.57%

Dividend yield

  0   0   0   0   0   0 

Expected volatility

  0   143%  60%  133%  112%  80%

Exercise Price

  0  $1.4927  $1.4927  $1.4927  $1.4927  $1.4927 
                         

Fair value of the warrant

 $0  $0.02  $0.11  $0.80  $0.20  $0.28 
                         

Warrant Liabilities (US$’000)

 $0  $13  $71  $103  $26  $36 

# The 2018 investors warrants had expired during the three months ended September 30, 2020.

Changes in fair value of warrant liabilities

Nine and Three Months Ended September 30, 2021 (Unaudited)

                      

Change in Fair Value

(gain)/loss

 
  

As of

September 30, 2021

  

As of

July 2, 2021

  

As of

June 30, 2021

  

As of

February 18, 2021

  

As of

December 31, 2020

  

Nine Months Ended

September 30, 2021

  

Three Months Ended

September 30, 2021

 
  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

 
                             

Warrants issued in the February 2021 Financing:

 

--Investor Warrants

  1,824  

*

   3,257   10,476  

*

   (8,652)  (1,433)

--Placement Agent Warrants

  237  

*

   431   1,445  

*

   (1,208)  (194)

Warrants issued in the 2020 Financing:

 

--Investor Warrants

  1,383  

*

   2,420  

*

   1,279   104   (1,037)

--Placement Agent Warrants

  242  

*

   423  

*

   224   18   (181)

Warrants issued in the 2018 Financing:

 

--Placement Agent Warrants

  0   58   66  

*

   2   56   (8)
   3,686   58   6,597   11,921   1,505   (9,682)  (2,853)

22

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine and Three Months Ended September 30, 2020 (Unaudited)

  

 

  

 

  

 

  

Change in Fair Value (gain)/loss

 
    

As of

September 30, 2020

    

As of

June 30, 2020

    

As of

December 31, 2019

  

Nine Months Ended

September 30, 2020

  

Three Months Ended

September 30, 2020

 
  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

  

(US$’000)

 
                     

Warrants issued in the 2018 Financing:

 

--Investor Warrants

  0   13   71   (71)  (13)

--Placement Agent Warrants

  103   26   36   67   77 
   103   39   107   (4)  64 

Warrants issued and outstanding as of September 30, 2021 and their movements during the nine months then ended are as follows:

  

Warrant Outstanding

  

Warrant Exercisable

 
  

 

Number of underlying shares  

Weighted
Average
Remaining
Contractual
Life (Years)

  

Weighted
Average
Exercise
Price

  

Number of underlying shares

  

Weighted
Average
Remaining
Contractual
Life (Years)

  

Weighted
Average
Exercise
Price

 
                         

Balance, January 1, 2021

  2,159,865   2.78  $2.00   129,000   0.05  $1.4927 

Granted/Vested

  2,970,840   2.88  $3.70   5,001,705   2.61  $3.02 

Forfeited

  0           -         

Exercised

  (129,000)     $1.4927   (129,000)     $1.4927 

Balance, September 30, 2021 (Unaudited)

  5,001,705   2.61  $3.02   5,001,705   2.61  $3.02 

19.

17.

Restricted net assets

 

As mostsubstantially all of the Company’s operations are conducted through its PRC subsidiarysubsidiaries and VIEs, the Company’s ability to pay dividends is primarily dependent on receiving distributions of funds from its PRC subsidiarysubsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by its PRC subsidiarysubsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiarysubsidiaries and VIEs included in the Company’s consolidated net assets are also non-distributable for dividend purposes.

 

In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of the Company’s other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.

 

F-17 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As a result ofIn accordance with these PRC laws and regulations, the Company’s PRC subsidiarysubsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. As of September 30, 2017 2021 and December 31, 2016, 2020, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of the Company’s PRC subsidiarysubsidiaries and VIEs that are included in the Company’s consolidated net assets, waswere approximately US$8.113.2 million and US$7.88.2 million, respectively.

 

23

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The current PRC Enterprise Income Tax (“EIT”) Law also imposedimposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. 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. Holding companies in Hong Kong, for example, will be subject to a 5% rate.

 

The ability of the Company’s PRC subsidiarysubsidiaries and VIEs to make dividends and other payments to the Company may also be restricted by changes in applicable foreign exchange and other laws and regulations.

 

Foreign currency exchange regulation in China is primarily governed by the following rules:

 

Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

   ●

   Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

   ●

   Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.

 

Although the current Exchange Rules allow the convertibilityconverting of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company’s retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company’s ability to use its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

 

As of September 30, 2017 and December 31, 2016, there was approximately US$14.8 million and US$17.6 million retained earnings in the aggregate, respectively, which was generated by the Company’s PRC subsidiary and VIEs in Renminbi included in the Company’s consolidated net assets, aside from US$2.6 million and US$2.5 million of statutory reserve funds as of September 30, 2017 and December 31, 2016, respectively, that may be affected by increased restrictions on currency exchanges in the future, and accordingly, may further limit the Company’s PRC subsidiary’s and VIEs’ ability to make dividends or other payments in U.S. dollars to the Company, in addition to the approximately US$8.1 million and US$7.8 million of restricted net assets as of September 30, 2017 and December 31, 2016, as discussed above.

18.

 

F-18 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

20.Employee defined contribution plan

 

Full time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The employee benefits were expensed as incurred. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits were approximately US$318,0000.17 million and US$456,0000.08 million for the nine months ended September 30, 2017 2021 and 2016,2020, respectively. The total amounts for such employee benefits were approximately US$92,0000.07 million and US$158,0000.03 million for the three months ended September 30, 2017 2021 and 2016,2020, respectively.

 

21.

19.

Concentration of risk

Credit risk

 

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, term depositaccounts receivable, and accounts receivable.deposits and loans to unrelated parties. As of September 30, 2017 and December 31, 2016, substantially all2021, 15% of the Company’s cash and cash equivalents and term deposit were held by major financial institutions located in Mainland and Hong Kong, China, which managementthe remaining 85% was held by financial institutions located in the United States of America. The Company believes that these financial institutions located in China and the United States of America are of high credit quality. For accounts receivables,receivable and deposits and loans to unrelated parties, the Company extends credit based on an evaluation of the customer’s or other parties’ financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the Company delegated a team responsible for credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Company reviews the recoverable amount of each individual trade debtreceivable at each balance sheet date to ensure that adequate allowances are made for doubtful accounts. In this regard, the Company considers that the Company’s credit risk for accounts receivables isreceivable and deposits and loans to unrelated parties are significantly reduced.

 

24

Risk arising from operations in foreign countriesZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

All of the Company’s operations are conducted within the PRC. The Company’s operations in the PRC are subject to various political, economic, and other risks and uncertainties inherent in the PRC. Among other risks, the Company’s operations in the PRC are subject to the risks of restrictions on transfer of funds, changing taxation policies, foreign exchange restrictions and political conditions and governmental regulations.

Currency convertibility risk

Significant part of the Company’s businesses is transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed contracts. These exchange control measures imposed by the PRC government authorities may restrict the ability of the Company’s PRC subsidiaries and VIEs to transfer its net assets, which to the Company through loans, advances or cash dividends.

Concentration of customers

For the nine months ended September 30, 2017, three customers individually accounted for 14%, 11% and 11% of the Company’s revenues. For the three months ended September 30, 2017, two of the three customers individually accounted for 25% and 16% of the Company’s revenues. Except for the aforementioned customer, there was no other single customer who accounted for more than 10% of the Company’s revenues for the nine or three months ended September 30, 2017.

For the three months ended September 30, 2016, two customers individually accounted for 14% and 12% of the Company’s revenues. Except for the aforementioned customers, there was no other single customer who accounted for more than 10% of the Company’s revenues for the nine or three months ended September 30, 2016.

As of September 30, 2017, three customers individually accounted for 15%, 14% and 13% of the Company’s accounts receivable. As of December 31, 2016, two customers individually accounted for 22% and 14% of the Company’s accounts receivable. Except for the aforementioned, there was no other single customer who accounted for more than 10% of the Company’s accounts receivable as of September 30, 2017 or December 31, 2016.

F-19 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Concentration of suppliers

For the nine months ended September 30, 2017, two suppliers individually accounted for 68% and 22% of the Company’s cost of revenues. For the three months ended September 30, 2017, the same two suppliers individually accounted for 58% and 29% of the Company’s cost of revenues. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company’s cost of revenues for the nine or three months ended September 30, 2017.

For the nine months ended September 30, 2016, two suppliers individually accounted for 28% and 37% of the Company’s cost of revenues. For the three months ended September 30, 2016, the same two suppliers individually accounted for 52% and 16% of the Company’s cost of revenues. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company’s cost of revenues for the nine or three months ended September 30, 2016.

22.Commitments and contingencies

 

The following table sets forthtables summarized the information about the Company’s operating lease commitmentconcentration of customers for the nine and three months ended September 30, 2021 and 2020, respectively:

 

Customer A

 

Customer B

 

Customer C

 

Customer D

 

Customer E

 

Customer F

 

Customer G

              

Nine Months Ended September 30, 2021

             

Revenues, customer concentration risk

13%

 

11%

 

*

 

*

 

*

 

-

 

-

              

Three Months Ended September 30, 2021

             

Revenues, customer concentration risk

26%

 

*

 

*

 

*

 

*

 

-

 

-

              

Nine Months Ended September 30, 2020

             

Revenues, customer concentration risk

16%

 

-

 

*

 

-

 

*

 

*

 

*

              

Three Months Ended September 30, 2020

             

Revenues, customer concentration risk

21%

 

-

 

*

 

-

 

*

 

*

 

*

              

As of September 30, 2021

             

Accounts receivable, customer concentration risk

*

 

-

 

24%

 

36%

 

19%

 

-

 

-

              

As of December 31, 2020

             

Accounts receivable, customer concentration risk

*

 

-

 

28%

 0

-

 0

-

 

27%

 

21%

* Less than 10%.

- No transaction incurred for the reporting period/no balance existed as of the reporting date.

Concentration of suppliers

The following tables summarized the information about the Company’s concentration of suppliers for the nine and three months ended September 30, 2017:2021 and 2020, respectively:

Supplier A

Supplier B

Nine Months Ended September 30, 2021

Cost of revenues, supplier concentration risk

77%

*

Three Months Ended September 30, 2021

Cost of revenues, supplier concentration risk

85%

*

Nine Months Ended September 30, 2020

Cost of revenues, supplier concentration risk

-

78%

Three Months Ended September 30, 2020

Cost of revenues, supplier concentration risk

-

78%

* Less than 10%.

- No transaction incurred for the reporting period.

 

  Office Rental
  US$(’000)
  (Unaudited)
Three months ending December 31,    
-2017  111 
Year ending December 31,    
-2018  445 
-2019  111 
Total $667 
25

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Excluding rental expenses included in discontinued operation for the nine months ended September 30, 2016, rental expenses under operating leases for the nine months ended September 30, 2017 and 2016 were approximately US$304,000 and US$447,000, respectively. For the three months ended September 30, 2017 and 2016, rental expenses under operating leases were approximately US$113,000 and US$137,000, respectively.

 

23.

20.

  Commitments and contingencies

In September 2021, in accordance with an investment contract entered into among the Company, Shenzhen Global Best Products Import & Export Co., Ltd., (“Global Best Products”), and its shareholders, the Company obtained a 9.09% equity interest in Global Best Products through the subscription of a RMB5.0 million (approximately US$0.77 million) new share capital issued by the entity. In November 2021, the Company made its first cash investment of RMB2.0 million (approximately US$0.31 million) to Global Best Products, the remaining amount is expected to be invested before June 30, 2022.

In 2018, the Company entered into contracts with two unrelated third parties in relation to the development of the Company’s blockchain technology-powered platform applications. Total contract amount of these two contracts was approximately US$4.96 million. As of September 30, 2021, the Company had paid approximately US$4.41 million in the aggregate. The remaining unpaid contract amount is expected to be paid during the year ending December 31, 2021.

The Company is currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings arising in its ordinary course of business.

21.

Segment reporting

 

The Company follows ASC Topic 280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.

 

Nine Months Ended September 30, 2017 (Unaudited)2021 (Unaudited)

 

 Internet Ad.
and data service		 TV &
Bank kiosks
Ad.		 Others Inter-
segment
and
reconciling
item		 Total 

Internet Ad

and related service

  

Ecommerce
O2O Ad and
marketing
services

  

Blockchain technology

  

Corporate

  

Inter-segment and reconciling item

  

Total

 
 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 
           
Revenues  31,287   -   -   -   31,287  34,333  514  -  -  -  34,847 
Cost of revenues  26,955       -   -   26,955  34,614  1,125  -  -  -  35,739 
Total operating expenses  5,828   47   1,938(1)  -   7,813  1,129  1,113  1  8,533(1) -  10,776 
Depreciation and amortization expense included in total operating expenses  996   1   70   -   1,067   223   225   1   1   -   450 
Operating loss  (1,496)  (47)  (1,938)  -   (3,481) (1,410) (1,724) (1) (8,533) -  (11,668)
                     

Change in fair value of warrant liabilities

 -  -  -  9,682  -  9,682 
 

Net (loss)/income

 (1,230) (1,724) (2) 1,371  -  (1,585)
 
Expenditure for long-term assets  -   -   2   -   2  1,220  -  -  246  -  1,466 
                     
Net loss from continuing operations  (1,887)  (47)  (1,940)  -   (3,874)
                    
Total assets – September 30, 2017  28,982   476   11,170   (11,488)  29,140 
Total assets – December 31, 2016  29,520   348   11,882   (11,708)  30,042 

Total assets-September 30, 2021

 11,146  3,890  4,408  46,409  (30,938) 34,915 

Total assets-December 31, 2020

 8,310  3,206  4,409  27,766  (23,024) 20,667 

 

(1)

(1)

Including approximately US$484,0006.95 million share-based compensation expenses.

F-20 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
26

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended September 30, 2017 (Unaudited)2021 (Unaudited)

 

 Internet Ad.
and data service		 TV &
Bank kiosks
Ad.		 Others Inter-
segment
and
reconciling
item		 Total 

Internet Ad.

and related service

  

Ecommerce
O2O Ad and
marketing
services

  

Blockchain technology

  

Corporate

  

Inter-segment and reconciling item

  

Total

 
 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 
           
Revenues  13,523   -   -   -   13,523  11,773  127  -  -  -  11,900 
Cost of revenues  12,163   -   -   -   12,163  11,482  375  -  -  -  11,857 
Total operating expenses  2,646   (9)  733(1)  -   3,370  539  455  0  623(1) -  1,617 
Depreciation and amortization expense included in total operating expenses  338   -   22   -   360   93   75   0   -   -   168 
Operating income/(loss)  (1,286)  9   (733)  -   (2,010)

Operating loss

 (248) (703) -  (623) -  (1,574)
 

Change in fair value of warrant liabilities

 -  -  -  2,853  -  2,853 
 

Net (loss)/income

 (264) (703) -  2,341  -  1,374 
                     
Expenditure for long-term assets  -   -   -   -   -  -  -  -  85  0  85 
                    
Net (loss)/income from continuing operations  (1,324)  9   (733)  -   (2,048)

 

(1)

(1)

Including approximately US$136,0000.09 million share-based compensation expenses.

 

Nine Months Ended September 30, 2016 (Unaudited)2020 (Unaudited)

 

 Internet Ad.
and data service		 TV &
Bank kiosks
Ad.		 Others Inter-
segment
and
reconciling
item		 Total 

Internet Ad

and related service

  

Ecommerce
O2O Ad and
marketing
services

  

Blockchain technology

  

Corporate

  

Inter-segment and reconciling item

  

Total

 
 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 
           
Revenues  25,398   -   -   -   25,398  24,583  1,276  -  1,245  -  27,104 
Cost of revenues  19,269   -   -   -   19,269  24,847  1,125  -  576  -  26,548 
Total operating expenses  6,625   106   3,158(1)  -   9,889  2,361  15  5  2,875(1) -  5,256 
Depreciation and amortization expense included in total operating expenses  1,079   15   76   -   1,170   617   -   2   3   -   622 
Operating loss  (496)  (106)  (3,158)  -   (3,760)

Operating (loss)/income

 (2,625) 136  (5) (2,206) -  (4,700)
 

Change in fair value of warrant liabilities

 -  -  -  4  -  4 
                     
Expenditure for long-term assets  2,036   -   103   -   2,139  -  -  302  -  -  302 
                     
Net loss from continuing operations  (758)  (105)  (3,096)  -   (3,959)

Net (loss)/income

 (2,543) 110  (5) (2,175) -  (4,613)

 

(1)

(1)

Including approximately US$1,718,0002.07 million share-based compensation expenses.

F-21 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
27

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended September 30, 2016 (Unaudited)2020 (Unaudited)

 

 Internet Ad.
and data service		 TV &
Bank kiosks
Ad.		 Others Inter-
segment
and
reconciling
item		 Total 

Internet Ad.

and related service

  

Ecommerce
O2O Ad and
marketing
services

  

Blockchain technology

  

Corporate

  

Inter-segment and reconciling item

  

Total

 
 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 US$
(‘000)		 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 
           
Revenues  11,902   -   -   -   11,902  11,435  269  -  600  -  12,304 
Cost of revenues  9,874   -   -   -   9,874  11,994  375  -  576  -  12,945 
Total operating expenses  2,418   30   944(1)  -   3,392  409  6  1  347(1) -  763 
Depreciation and amortization expense included in total operating expenses  367   14   29   -   410   205   -   1   1   -   207 
Operating loss  (390)  (30)  (944)  -   (1,364) (968) (112) (1) (323) -  (1,404)
                     
Expenditure for long-term assets  -   -   -   -   - 

Change in fair value of warrant liabilities

 -  -  -  (64) -  (64)
                     
Net loss from continuing operations  (474)  (29)  (948)  -   (1,451)

Net loss

 (893) (94) (1) (345) -  (1,333)

 

(1)

(1)

Including approximately US$583,0000.08 million share-based compensation expenses.

 

24.

22.

Loss

(Loss)/earnings per share

 

Basic and diluted loss(loss)/earnings per share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are presented in thousands of U.S. dollars):

 

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Net (loss)/income attributable to ZW Data Action Technologies Inc. (numerator for basic and diluted loss per share)

 $(1,586) $(4,611) $1,375  $(1,333)
                 
                 

Weighted average number of common shares outstanding -Basic and diluted

  32,279,304   21,271,301   35,332,220   21,720,259 
                 

(Loss)/earnings per share-Basic and diluted

 $(0.05) $(0.22) $0.04  $(0.06)

  

Nine Months Ended

September 30,

 

Three Months Ended

September 30,

  2017 2016 2017 2016
  US$(’000) US$(’000) US$(’000) US$(’000)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Net loss attributable to ChinaNet Online Holdings, Inc. from continuing operations (numerator for basic and diluted loss per share from continuing operations) $(3,963) $(4,103) $(2,087) $(1,472)
                 
Net loss attributable to ChinaNet Online Holdings, Inc. from discontinued operation (numerator for basic and diluted loss per share from discontinued operation) $-  $(60) $-  $- 
                 
Weighted average number of common shares outstanding -Basic and diluted  12,019,040   11,353,657   12,074,304   11,358,971 
                 
Loss per share-Basic and diluted from continuing operations $(0.33) $(0.36) $(0.17) $(0.13)
Loss per share-Basic and diluted from discontinued operations $-  $(0.01) $-  $- 
28

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

F-22 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the nine and three months ended September 30, 2017,2021 and 2020, the diluted loss(loss)/earnings per share calculation for continuing operations did not include any outstanding warrants and options to purchase up to 835,216 shares of the Company’s common stock, because they were out of the money, and did not include 266,238 shares of unvested restricted common stock, because their effect was anti-dilutive, asanti-dilutive.

23.

  Share-based compensation expenses

In May 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company incurred a loss for the periods from continuing operations.

For the ninegranted and three months ended September 30, 2016, the diluted loss per share calculation for continuing and discontinued operations did not include options to purchase up to 835,216 shares of the Company’s common stock, because they were out of the money, and did not include 799,571 shares of unvested restricted common stock, because their effect was anti-dilutive, as the Company incurred a loss for the periods from both continuing and discontinued operations.

25.Share-based compensation expenses

The Company granted 75,000 and 20,000issued 3.99 million fully-vested shares of the Company’s restricted common stock to its investor relations services provider, in exchangemanagement and employees for its services to the Company for the year ended December 31, 2017 and 2016, respectively. These shares were valued at US$1.02 and US$3.00 per share, the closing bid price of the Company’s common stock on the earlier of the performance commitment date or the date service was completed, respectively. Total compensation expense recognized for the service was US$57,380 and US$19,130 for the nine and three months ended September 30, 2017, respectively. Total compensation expense recognized for the service was US$45,000 and US$15,000 for the nine and three months ended September 30, 2016, respectively.

In July 2017, the Company issued 75,000 shares of the Company’s restricted common stock to two management consulting service providers in exchange for its services to the Company for a 12-month period commencing on July 1, 2017. These shares were valued at US$1.00 per share, the closing bid price of the Company’s common stock on the earlier of the performance commitment date or the date service was completed. Total compensation expense recognized for the nine and three months ended September 30, 2017 was approximately US$18,750, respectively.

F-23 

CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In February 2017, the Company granted 20,000 shares of the Company’s restricted common stock to one of its independent directors in exchange for histheir services provided to the Company. These shares were valued at US$1.12 per share, the closing bid price of the Company’s common stock on the date of grant.grant, which was US$1.67 per share. Total compensation expenseexpenses recognized was approximately US$6.66 million for the nine and three months ended September 30, 2017 was US$22,400 and US$nil, respectively.2021.

 

On April 1, 2016, the Company granted 16,000 shares of the Company’s restricted common stock in aggregate to two marketing service providers in exchange for their services to the Company for a 12-month period commencing on April 1, 2016. These shares were valued at US$1.73 per share, the closing bid price of the Company’s common stock on the earlier of the performance commitment date or the date service was completed. Total compensation expense recognized for the nine and three months ended September 30, 2017 was approximately US$6,900 and US$nil, respectively. Total compensation expense recognized for the nine and three months ended September 30, 2016 was approximately US$13,800 and US$6,900, respectively.

On September 14, 2015, In March 2021, under its 20152020 Omnibus Securities and Incentive Plan, the Company granted its employees in the aggregate of 266,238and issued 0.03 million fully-vested shares of the Company’s restricted common stock which will be vested on the third anniversaryto one of the date ofCompany’s independent directors for his service to the grant. Company for the year ending December 31, 2021. These shares were valued at US$2.10 per share, the closing bid price of the Company’s common stock on the date of grant. The Company adopted a 5% forfeiture rate for recognition of the related compensation expenses of these unvested shares.grant, which was US$3.13 per share. Total compensation expenses recognizedamortized for the nine and three months ended September 30, 2017 2021 was approximately US$132,3000.07 million and US$44,600 respectively. Total compensation expenses recognized for the nine and three months ended September 30, 2016 was approximately US$132,790 and US$44,600,0.02 million, respectively.

 

On For the nine and three months ended September 14, 2015,30, 2021, the Company also amortized an approximately US$0.22 million and US$0.07 million compensation expense in the aggregate, respectively, which was related to fully-vested and nonforfeitable restricted common stock granted and issued to two of its service providers in March 2020 and August 2020, respectively.

During the firstnine months of 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company also granted 5-year common stock purchase options to its employees,and issued in the aggregate to purchase up to 477,240 shares of the Company’s restricted common stock at an exercise price of US$2.10 per share, of which 159,080 options vested upon the date of grant, 159,080 options vested on September 14, 2016 and the remaining 159,080 options vested on September 14, 2017. These options were valuated at US$1.03-US$1.39 per option. Total compensation expenses recognized for these options for the nine and three months ended September 30, 2017 was approximately US$155,000 and US$53,100, respectively. Total compensation expenses recognized for these options for the nine and three months ended September 30, 2016 was approximately US$150,000 and US$57,500, respectively.

The Company granted 140,0001.63 million fully-vested shares of the Company’s restricted common stock to aits management, consulting service provider in exchange for its services to the Company for a 24-month period commencing on May 1, 2015.employees and directors. These shares were valued at US$3.93 per share, the closing bid price of the Company’s common stock on the earlierrespective date of the performance commitment date or the date service was completed.grant. Total compensation expense recognizedexpenses of approximately US$1.92 million and US$0.01 million was recorded for the nine and three months ended September 30, 2017 was approximately US$91,580 and US$nil, respectively. Total compensation expense recognized for the nine and three months ended September 30, 2016 was approximately US$206,100 and US$68,700, 2020, respectively.

 

On December 30, 2014,During the firstnine months of 2020, the Company granted and issued 1,680,0000.48 million shares of the Company’sCompany restricted common stock in the aggregate to its executive officers, of which 613,334 restrictedtwo consulting and advisory service providers in exchange for their respective services. According to the service agreements, these shares vestedare fully-vested upon issuance 533,333 restrictedat the contract inception and shall not be subject to forfeiture upon termination of the agreement. The Company valued these shares vested on December 30, 2015 and the remaining 533,333 restricted shares vested on December 30, 2016. The restricted stock was valued at $2.93 per share, the closing bid price of the Company’s common stock on the respective date of grant.grant and recorded the related total costs as prepayment assets in prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total compensation expenses recognizedamortized for the nine and three months ended September 30, 2016 2020 was approximately US$1,170,0000.15 million and US$390,000,0.07 million, respectively.

 

**The number of restricted common stocks, common stock purchase optionstable below summarized share-based compensation expenses recorded for the nine and the related stock price discussed in the above paragraphs, which related transactions occurred before August 19, 2016, have been retroactively restated to reflect the Company’s 1 for 2.5 reverse stock split, which was effective on August 19, 2016.three months ended September 30, 2021 and 2020, respectively:

 

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(’000)

  

US$(’000)

  

US$(’000)

  

US$(’000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Sales and marketing expenses

  0   122   0   0 

General and administrative expenses

  6,945   1,798   88   79 

Research and development expenses

  0   146   0   0 

Total

  6,945   2,066   88   79 

F-24 

CHINANET ONLINE HOLDINGS, INC.
29

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Options issued and outstanding at September 30, 2017 and their movements during the nine months then ended are as follows:

 

  Option Outstanding Option Exercisable
  Number of
underlying
shares		 Weighted
Average
Remaining
Contractual
Life (Years)		 Weighted
Average
Exercise
Price		 Number of
underlying
shares		 Weighted
Average
Remaining
Contractual
Life (Years)		 Weighted
Average
Exercise
Price
             
Balance, December 31, 2016  835,216   4.04  $2.49   676,136   4.11  $2.59 
Granted/Vested  -           159,080   2.95  $2.10 
Forfeited  -           -         
Exercised  -           -         
Balance, September 30, 2017 (unaudited)  835,216   3.29  $2.49   835,216   3.29  $2.49 

The aggregate unrecognized share-based compensation expenses as of September 30, 2017 2021 was approximately US$0.12 million, of which approximately US$0.08 million will be recognized for the year ending December 31, 2021 and 2016 is approximately US$233,000 and US$1,111,000, respectively.

0.04 million will be recognized for the year ending December 31, 2022.

 

Options issued and outstanding as of September 30, 2021 and their movements during the nine months then ended are as follows:

  

Option Outstanding

  

Option Exercisable

 
  

 

Number of underlying shares  

Weighted
Average
Remaining
Contractual
Life (Years)

  

Weighted
Average
Exercise
Price

  

Number of underlying shares

  

Weighted
Average
Remaining
Contractual
Life (Years)

  

Weighted
Average
Exercise
Price

 
                         

Balance, January 1, 2021

  277,976   0.91  $3.00   277,976   0.91  $3.00 

Granted/Vested

  0           -         

Expired

  0           -         

Exercised

  0           -         

Balance, September 30, 2021 (Unaudited)

  277,976   0.16  $3.00   277,976   0.16  $3.00 

26.

24.

Subsequent eventevents

 

The Company has performed primarily conducts its operations in the PRC. In January 2020, an evaluationoutbreak of subsequent events througha novel coronavirus (COVID-19) surfaced in Wuhan City, Hubei province of the PRC, and spread all over the country during the first fiscal quarter of 2020. The spread of COVID-19 resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. The Company’s principal business activity is to provide advertising and marketing services to small and medium enterprises in the PRC, which is particularly sensitive to changes in general economic conditions. The pandemic of COVID-19 in the PRC had caused and may continue to cause decreases in or delays in advertising spending, and had negatively impacted and may continue to negatively impact the Company’s short-term ability to grow revenues. Although the Chinese government had declared the COVID-19 outbreak largely under control within its border since the second fiscal quarter of 2020, the Company will continue to assess its financial impacts for the future periods. There can be no assurance that this assessment will enable the Company to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in the Company’s sector in particular.

Except for the above mentioned matters, no other material event which are required to be adjusted or disclosed as of the date the financial statements were issued, and has determined that there are no such events that are material to theof this consolidated financial statements.

 

F-25

30

Item 2 Management’s2. 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,“expect,” “anticipate,“anticipate,” “intend,“intend,” “believe,“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”“Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2016.2020. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

 

We wereOur company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, we consummatedAs a result of a share exchange transaction we consummated with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of us andin June 2009, we are now a holding company, which through certain contractual arrangements with operating entitiescompanies in the PRC, is engaged in providing Internet advertising, precision marketing, online-to-offline (O2O) sales channel expansionother ecommerce O2O advertising and marketing services and the related data and technical services to SMEs in China and entrepreneurial management and networking services for entrepreneurs in the PRC.

 

Through our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our integrated service platform, primarily including omni-channelOmni-channel advertising, precision advertisingmarketing and marketing system platform, CloudX, and its data analysis management system. Our omni-channel precision advertising and marketing system platform consists primarily of all major digital advertising and marketing portals, include internet and mobile, and our other non-digital advertising units, such as TV and paper ads. We provide and monitor varietiesoffer variety channels of advertising and marketing campaignsservices through CloudX and generates effective sales leads through the combination effectsthis system, which primarily include distribution of the Internet, mobile, content and others, including TV and offline medias. We also provideright to use search engine marketing services we purchased from key search engines, provision of online advertising placements on our web portals, provision of Ecommerce O2O advertising and marketing services as well as provision of other related value-added data and technical services through CloudX to maximize market exposure and effectiveness for our clients.  Our data analysis management system

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 information and data analysis portal for SMEs or entrepreneurs who plans to start their own business, helping them for a higher survival and faster deal closing rate. It is built based on the cores of CloudX to further expand ourintegrated digital operation service and data-link to assist our clients in developing their sales both online and offline, which establishes a traceable and looped online to offline (O2O) ecosystem for our clients in their ground sales expansion throughout the citiesprovider with Information + transaction + Blockchain in the PRC. During the past few years, we have been cooperating with third parties to develop our SMEs intelligent operation and marketing data service platform and applications, which consists of several online cloud technology based tools on digital advertising and marketing, sales lead management, elite store management, client membership management and other administrative operational management tools. These are specifically designed for small business in China to match their simplicity. We are intending to utilize these applications to create a social community-based consumption ecosystem, sustained by our in-process developing Big Data and artificial intelligent technologies, and analyzing data from operation, prediction and prescription which lead the SMEs improving their marketing efficiency with better return on investment (ROI) and sales effectiveness with their target customers.near future.

 

Basis of presentation, management estimates and critical accounting policies

 

Our unaudited condensed consolidated interim financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X, as promulgated by the SEC,GAAP”) and include the accounts of our Company,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, youreaders should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial statements in our 20162020 Form 10-K.

26

 

A.RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 20172021 AND 20162020

 

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, except number of shares and per share data, are presented in thousands of U.S. dollars.

 

  Nine Months Ended
September 30,		 Three Months Ended
September 30,
  2017 2016 2017 2016
  US$ US$ US$ US$
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Revenues                
From unrelated parties $31,171  $25,017  $13,509  $11,741 
From related parties  116   381   14   161 
Total revenues  31,287   25,398   13,523   11,902 
Cost of revenues  26,955   19,269   12,163   9,874 
Gross profit  4,332   6,129   1,360   2,028 
                 
Operating expenses                
Sales and marketing expenses  2,399   3,069   740   1,126 
General and administrative expenses  4,402   5,290   2,318   1,752 
Research and development expenses  1,012   1,530   312   514 
Total operating expenses  7,813   9,889   3,370   3,392 
                 
Loss from operations  (3,481)  (3,760)  (2,010)  (1,364)
                 
Other income (expenses)                
Interest income  39   72   2   19 
Interest expense  (109)  (4)  (36)  (4)
Other expenses  (208)  (112)  (2)  (99)
Total other expenses  (278)  (44)  (36)  (84)
                 
Loss before income tax expense, noncontrolling interests and discontinued operation  (3,759)  (3,804)  (2,046)  (1,448)
Income tax expense  (115)  (155)  (2)  (3)
Loss from continuing operations  (3,874)  (3,959)  (2,048)  (1,451)
Loss from and on disposal of discontinued operation, net of income tax  -   (60)  -   - 
Net loss  (3,874)  (4,019)  (2,048)  (1,451)
Net income attributable to noncontrolling interests from continuing operations  (89)  (144)  (39)  (21)
Net loss attributable to ChinaNet Online Holdings, Inc. $(3,963) $(4,163) $(2,087) $(1,472)
31

 

27

  

Nine Months Ended September 30,

  

Three Months Ended September 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 

Revenues

                

From unrelated parties

 $34,843  $27,086  $11,896  $12,300 

From a related party

  4   18   4   4 

Total revenues

  34,847   27,104   11,900   12,304 

Cost of revenues

  35,739   26,548   11,857   12,945 

Gross (loss)/profit

  (892)  556   43   (641)
                 

Operating expenses

                

Sales and marketing expenses

  159   293   58   58 

General and administrative expenses

  10,366   4,520   1,471   592 

Research and development expenses

  251   443   88   113 

Total operating expenses

  10,776   5,256   1,617   763 
                 

Loss from operations

  (11,668)  (4,700)  (1,574)  (1,404)
                 

Other income (expenses)

                
                 

Interest income/(expense), net

  3   -   1   1 

Other income/(expense), net

  265   (4)  (37)  (21)

Loss on disposal of long-term investments

  (38)  -   -   - 

Change in fair value of warrant liabilities

  9,682   4   2,853   (64)

Total other income/expenses)

  9,912   -   2,817   (84)
                 

(Loss)/income before income tax benefit and noncontrolling interests

  (1,756)  (4,700)  1,243   (1,488)

Income tax benefit

  171   87   131   155 

Net (loss)/income

  (1,585)  (4,613)  1,374   (1,333)

Net (income)/loss attributable to noncontrolling interests

  (1)  2   1   - 

Net (loss)/income attributable to ZW Data Action Technologies Inc.

 $(1,586) $(4,611) $1,375  $(1,333)

 

Revenues

 

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

 

  Nine Months Ended September 30,
  2017 2016
Revenue type (Amounts expressed in thousands of US dollars, except percentages)
         
-Internet advertising and data service $6,978   22.3% $13,676   53.8%
-Search engine marketing and data service  24,253   77.5%  11,701   46.1%
-Technical services  56   0.2%  21   0.1%
Internet advertising and related data services $31,287   100% $25,398   100%
  

Nine Months Ended September 30,

 
  

2021

  

2020

 

Revenue type

 

(Amounts expressed in thousands of US dollars, except percentages)

 
                 

-Internet advertising and related data service

 $5,720   16.4% $5,679   21.0%

-Distribution of the right to use search engine marketing service

  28,613   82.1%  18,004   66.4%

-Data and technical services

  -   -   900   3.3%

Internet advertising and related services

  34,333   98.5%  24,583   90.7%

Ecommerce O2O advertising and marketing services

  514   1.5%  1,276   4.7%

Technical solution services

  -   -   1,245   4.6%

Total

 $34,847   100% $27,104   100%

 

  Three Months Ended September 30,
  2017 2016
Revenue type (Amounts expressed in thousands of US dollars, except percentages)
         
-Internet advertising and data service $2,232   16.5% $4,387   36.9%
-Search engine marketing and data service  11,266   83.3%  7,515   63.1%
-Technical services  25   0.2%  -   - 
Internet advertising and related data services $13,523   100% $11,902   100%
32

  

Three Months Ended September 30,

 
  

2021

  

2020

 

Revenue type

 

(Amounts expressed in thousands of US dollars, except percentages)

 
                 

-Internet advertising and related data service

 $2,125   17.8% $2,429   19.7%

-Distribution of the right to use search engine marketing service

  9,648   81.1%  8,706   70.8%

-Data and technical services

  -   -   300   2.4%

Internet advertising and related services

  11,773   98.9%  11,435   92.9%

Ecommerce O2O advertising and marketing services

  127   1.1%  269   2.2%

Technical solution services

  -   -   600   4.9%

Total

 $11,900   100% $12,304   100%

Total Revenues: Our total revenues increased towere US$31.334.85 million and US$13.511.90 million respectively, for the nine and three months ended September 30, 2017 from2021, respectively, compared with US$25.427.10 million and US$11.912.30 million respectively, for the same periodperiods last year, which was primarily due to the increase in revenues from search engine marketing and data service during the periods.

We derive the majority of our internet advertising and related data service revenues from the sales of effective sales leads and advertising space from our internet portals, sales of omni-channel and search engine marketing and data service and other related value added services, including content management services, to unrelated third parties and to certain related parties. Our internet advertising and related data services to related parties were provided in the ordinary course of business on the same terms as those provided to our unrelated customers. For the nine and three months ended September 30, 2017 and 2016, our service revenues from related parties in the aggregate was less than 1.5% of the total revenues for each respective reporting period.

The tables below summarize the revenues, cost of revenues, gross profit and net loss generated from each of our VIEs and subsidiaries for the nine and three months ended September 30, 2017 and 2016, respectively, with inter-company transactions eliminated:

For the nine months ended September 30, 2017:

Name of subsidiary or VIE Revenue from
unrelated parties		 Revenue from
related parties		 Total
  ($’000) ($’000) ($’000)
       
Rise King WFOE and subsidiaries  56   -   56 
Business Opportunity Online and subsidiaries  31,115   116   31,231 
Total revenues  31,171   116   31,287 

For the three months ended September 30, 2017:

Name of subsidiary or VIE Revenue from
unrelated parties		 Revenue from
related parties		 Total
  ($’000) ($’000) ($’000)
       
Rise King WFOE and subsidiaries  25   -   25 
Business Opportunity Online and subsidiaries  13,484   14   13,498 
Total revenues  13,509   14   13,523 

28

For the nine months ended September 30, 2017:

Name of subsidiary or VIE Cost of Revenues Gross Profit
  ($’000) ($’000)
     
Rise King WFOE and subsidiaries  1   55 
Business Opportunity Online and subsidiaries  26,954   4,277 
Total  26,955   4,332 

For the three months ended September 30, 2017:

Name of subsidiary or VIE Cost of Revenues Gross Profit
  ($’000) ($’000)
     
Rise King WFOE and subsidiaries  1   24 
Business Opportunity Online and subsidiaries  12,162   1,336 
Total  12,163   1,360 

For the nine months ended September 30, 2017:respectively.

 

Name of subsidiary or VIENet Loss
 

    ●    

($’000)

Internet advertising revenues for the nine and three months ended September 30, 2021 was approximately US$5.72 million and US$2.13 million, respectively, compared with US$5.68 million and US$2.43 million for the nine and three months ended September 30, 2020, respectively. Management expects no significant fluctuation on service revenues from this business category in fiscal 2021, compared with that in last fiscal year.

   
Rise King WFOE

    ●

Revenue generated from distribution of the right to use search engine marketing service for the nine and subsidiaries

(1,322)
Business Opportunity Onlinethree months ended September 30, 2021 was approximately US$28.61 million and subsidiaries(1,865)
Beijing CNET OnlineUS$9.65 million, respectively, compared with approximately US$18.00 million and subsidiaries(63)
ChinaNet Online Holdings, Inc.(624)
Total net loss before allocationUS$8.71 million for the nine and three months ended September 30, 2020, respectively. The increase in revenues from this business category for both the nine and three months ended September 30, 2021 were directly attributable to the noncontrolling interest(3,874)

For the three months ended September 30, 2017:

Namesuccessful containment of subsidiary or VIENet Loss
($’000)the COVID-19 epidemic in China within the first half year of fiscal 2020, which resulted in the gradually recovery of business activities and economy since the second half of fiscal 2020. Although there are COVID-19 cases rebound in several provinces in China since July 2021 and uncertainties associated with the future developments of the pandemic still exist, management expects that revenues from this business will continue to grow in the fourth fiscal quarter of 2021, compared with that in the same period last year.

   
Rise King WFOE

    ●

For the nine and subsidiaries

(373)three months ended September 30, 2021, we generated an approximately US$0.51 million and US$0.13 million Ecommerce O2O advertising and marketing service revenues, respectively, compared with an approximately US$1.28 million and US$0.27 million service revenues generated for the nine and three months ended September 30, 2020, respectively. We generated these revenues from distribution of the advertising spaces in outdoor billboards we purchased from a third party for the reporting periods.

Business Opportunity Online and subsidiaries(1,395)
Beijing CNET Online and subsidiaries(17)
ChinaNet Online Holdings, Inc.(263)
Total net loss before allocation to the noncontrolling interest(2,048)

For the nine months ended September 30, 2016:

Name of subsidiary or VIE Revenue from
unrelated parties		 Revenue from
related parties		 Total
  ($’000) ($’000) ($’000)
       
Rise King WFOE and subsidiaries  109   -   109 
Business Opportunity Online and subsidiaries  24,908   381   25,289 
Total revenues  25,017   381   25,398 

29

For the three months ended September 30, 2016:

Name of subsidiary or VIE Revenue from
unrelated parties		 Revenue from
related parties		 Total
  ($’000) ($’000) ($’000)
       
Rise King WFOE and subsidiaries  -   -   - 
Business Opportunity Online and subsidiaries  11,741   161   11,902 
Total revenues  11,741   161   11,902 

For the nine months ended September 30, 2016:

Name of subsidiary or VIE Cost of Revenues Gross Profit
  ($’000) ($’000)
     
Rise King WFOE and subsidiaries  83   26 
Business Opportunity Online and subsidiaries  19,186   6,103 
Total  19,269   6,129 

For the three months ended September 30, 2016:

Name of subsidiary or VIE Cost of Revenues Gross Profit/(Loss)
  ($’000) ($’000)
     
Rise King WFOE and subsidiaries  2   (2)
Business Opportunity Online and subsidiaries  9,872   2,030 
Total  9,874   2,028 

For the nine months ended September 30, 2016:

Name of subsidiary or VIENet Loss
($’000)
Rise King WFOE and subsidiaries(1,595)
Business Opportunity Online and subsidiaries(437)
Beijing CNET Online and subsidiaries(105)
ChinaNet Online Holdings, Inc.(1,822)
Total net loss from continuing operations before allocation to the noncontrolling interest(3,959)
Loss from discontinued operations(60)
Total net loss before allocation to the noncontrolling interest(4,019)

For the three months ended September 30, 2016:

Name of subsidiary or VIENet Loss
($’000)
Rise King WFOE and subsidiaries(444)
Business Opportunity Online and subsidiaries(304)
Beijing CNET Online and subsidiaries(39)
ChinaNet Online Holdings, Inc.(664)
Total net loss from continuing operations before allocation to the noncontrolling interest(1,451)
Loss from discontinued operations-
Total net loss before allocation to the noncontrolling interest(1,451)

30

Management considers revenues generated from internet advertising and data service, search engine marketing and data service and other related technical services as one aggregate business operation and relies upon the consolidated results of all the operations in this business unit to make decisions about allocating resources and evaluating performance.

Internet advertising and data service revenues for the nine and three months ended September 30, 2017 decreased to approximately US$6.99 million and US$2.23 million, respectively, compared with US$13.68 million and US$4.39 million for the same periods in 2016, respectively. The decrease in our internet advertising and data service revenues during the period responded our strategy to further upgrading our internet advertising, omni-channel marketing and data services to our larger SME clients and eliminating smaller and non-profitable clients, and due to the overall economy slowdown in China, which resulted in lower consumer and business spending, our clients continued tightening their advertising and marketing investment budget on omni-channel advertising and marketing, and focused more on singular ad. cheaper advertising channel, e.g. search engine marketing and data service. The decrease in our internet advertising and data service revenues is considered temporary during our business transition and technology development. During the past few years, we have optimized our internet marketing analytics and cost control system to provide more accurate result and more spontaneous feedback to our clients, which is especially helpful to our larger clients, we also optimized our online promotion tactics to improve cost efficiency, which lead to the foundation of the framework of CloudX. The process of developing self-learning mechanism for our internet marketing tactics have helped the Company and our clients achieved more accurate advertising and marketing results with more acceptable and lower costs, and have led to increasing sales lead conversion rate. The technical improvement and potential advertising and marketing technology breakthrough will further help increasing our market penetration in the SME segment and potentially expand our customer segments, thereby continuing to increase our recurring revenues in future periods.

Revenue generated from search engine marketing and data services for the nine and three months ended September 30, 2017 increased to approximately US$24.25 million and US$11.27 million, respectively, compared with US$11.70 million and US$7.52 million for the same periods in 2016, respectively. This enhanced third-party search engine marketing and data service is to help our clients select and prioritize effective key words from analyzed keywords database for different search engines, combinations of key-words or combinations of sentences to achieve higher sales lead conversion rate with CloudX on both mobile and PC searches. As discussed in the above paragraph, due to the overall economy slowdown in China, our clients also tightened their advertising and marketing investment budget and turn to choose more economic and singular marketing channel with more direct feedback and results, e.g. search engine marketing and data service etc. Therefore, there was a significant increase in search engine market and data service during the nine and three months ended September 30, 2017, compared with the same periods last year.

 

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 technical services.cost related to our Ecommerce O2O advertising and marketing service. The following table sets forth our cost of revenues, divided into three segments,disaggregated by type of services, by amount and gross profit ratio for the periods indicated, with inter-segmentinter-company transactions eliminated:

 

  Nine Months Ended September 30,
  2017 2016
  (Amounts expressed in thousands of US dollars, except percentages)
  Revenue Cost GP ratio Revenue Cost GP ratio
             
-Internet advertisement and data service $6,978  $3,864   45% $13,676  $7,863   43%
-Search engine marketing and data service  24,253   23,090   5%  11,701   11,402   3%
-Technical services  56   1   98%  21   4   81%
Internet advertising and related data services $31,287  $26,955   14% $25,398  $19,269   24%
  

Nine Months Ended September 30,

 
  

2021

  

2020

 
  

(Amounts expressed in thousands of US dollars, except percentages)

 
  

Revenue

  

Cost

  

GP ratio

  

Revenue

  

Cost

  

GP ratio

 
                         

-Internet advertising and related data service

 $5,720  $5,112   11% $5,679  $4,904   14%

-Distribution of the right to use search engine marketing service

  28,613   29,502   -3%  18,004   19,147   -6%

-Data and technical services

  -   -   -   900   796   12%

Internet advertising and related services

  34,333   34,614   -1%  24,583   24,847   -1%

Ecommerce O2O advertising and marketing services

  514   1,125   -119%  1,276   1,125   12%

Technical solution services

  -   -   -   1,245   576   54%

Total

 $34,847  $35,739   -3% $27,104  $26,548   2%

 

  Three Months Ended September 30,
  2017 2016
  (Amounts expressed in thousands of US dollars, except percentages)
  Revenue Cost GP ratio Revenue Cost GP ratio
             
-Internet advertisement and data service $2,232  $1,291   42% $4,387  $2,534   42%
-Search engine marketing and data service  11,266   10,871   4%  7,515   7,338   2%
-Technical services  25   1   96%  -   2   - 
Internet advertising and related data services $13,523  $12,163   10% $11,902  $9,874   17%

31

33

 

  

Three Months Ended September 30,

 
  

2021

  

2020

 
  

(Amounts expressed in thousands of US dollars, except percentages)

 
  

Revenue

  

Cost

  

GP ratio

  

Revenue

  

Cost

  

GP ratio

 
                         

-Internet advertising and related data service

 $2,125  $1,867   12% $2,429  $1,998   18%

-Distribution of the right to use search engine marketing service

  9,648   9,615   0.3%  8,706   9,731   -12%

-Data and technical services

  -   -   -   300   265   12%

Internet advertising and related services

  11,773   11,482   2%  11,435   11,994   -5%

Ecommerce O2O advertising and marketing services

  127   375   -195%  269   375   -39%

Technical solution services

  -   -   -   600   576   4%

Total

 $11,900  $11,857   0.4% $12,304  $12,945   -5%

Cost of revenuesrevenues: : Ourour total cost of revenues increased towas US$26.9635.74 million and US$12.1611.86 million for the nine and three months ended September 30, 2017, respectively, from US$19.27 million and US$9.87 million for the same periods in 2016, respectively, which was primarily due to the increase in costs associated with search engine marketing and data service and was in line with the increase in the related revenues as discussed above. Our cost of revenues related to our advertising, marketing and data services primarily consists of internet resources purchased from key search engines and technical services providers related to lead generation, sponsored search and other direct cost associated with providing services.

For internet advertising and data service, cost associated with obtaining internet resources was the largest component of our cost of revenues, accounting for over 80% of our total internet advertising and data service cost of revenues. We purchased these internet resources from other well-known search engines, internet portals and mobile portals in China, for example, Baidu, Qihu 360, Sohu (Sogou), WeChat, Toutiao and others. The purchase of these internet resources in large amounts allowed us to negotiate discounts with our suppliers. For the nine and three months ended September 30, 2017, our total cost of revenues for internet advertising and data service was US$3.86 million and US$1.29 million,2021, respectively, compared with US$7.8626.55 million and US$2.5312.95 million for the same periods last year, respectively. The decrease in our total cost of revenues associated with internet advertising and data service was in line with the decrease in internet advertising and data service revenues as discussed in the above section. During the past few years, we continued developing our precision advertising and marketing system, CloudX, which optimized our digital marketing tactics by conglomerating different marketing channel for a single large customer and relatively increasing our classified segment and industry level marketing scheme with improved cost efficiency. These helped us and our clients achieve better lead results and effects with more acceptable and lower costs, and better ROI. Despite of temporarily decreasing in revenue, the gross margin rate for our internet advertising and data service remained at the level of 45% and 42% for the nine and three months ended September 30, 2017,2020, respectively. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, cost of outdoor advertising resources and other direct costs associated with providing our services.

    ●

Costs for Internet advertising and data service primarily consist of cost of internet traffic flow and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to promote business opportunity advertisements placed on our own ad portals. For the nine and three months ended September 30, 2021, our total cost of revenues for Internet advertising and data service was approximately US$5.11 million and US$1.87 million, respectively, compared with approximately US$4.90 million and US$2.00 million for the nine and three months ended September 30, 2020, respectively. The gross margin rate of our Internet advertising and data service was 11% and 12% for the nine and three months ended September 30, 2021, compared with 14% and 18% for the nine and three months ended September 30, 2020, respectively. We anticipate the gross margin rate will continue to improve in the fourth fiscal quarter of 2021.

    ●

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 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, 2021, our total cost of revenues for distribution of the right to use search engine marketing service was US$29.50 million and US$9.62 million, respectively, compared with US$19.15 million and US$9.73 million for the same periods last year, respectively. Gross margin rate of this business category was -3% and 0.3% for the nine and three months ended September 30, 2021, respectively, significantly improved from -6% and -12% gross margin rate incurred for the same periods last year, respectively. We anticipate the gross margin rate will continue to improve in the fourth fiscal quarter of 2021, as we anticipate continuous increase in service revenues and the related cost consumption from this business category, which may put us in a better position to negotiate a lower rate with the suppliers in future periods.

    ●

For the nine months ended September 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service was both approximately US$1.13 million, and for the three months ended September 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service was both approximately US$0.38 million, which costs represented the amortized cost of the related outdoor billboards ad spaces we pre-purchased during the periods.

Gross (loss)/profit

As a result of the foregoing, for the nine months ended September 30, 2021, we incurred a gross loss of approximately US$0.89 million, compared with 43%a gross profit of approximately US$0.56 million for the nine months ended September 30, 2020. For the three months ended September 30, 2021, we recognized an approximately US$0.04 million gross profit, compared with a gross loss of approximately US$0.64 million for the three months ended September 30, 2020. Our overall gross margin was -3% and 42%0.4% for the nine and three months ended September 30, 2016, respectively.

Costs for search engine marketing and data service was direct internet resource costs consumed for search engine marketing and data service provided to clients as described above. We normally charge our clients a service fee for this service on the certain percentage of the related direct cost consumed. Due to further implementation of the CloudX system in this service, which optimized our internet advertising and marketing tactics and improved the cost efficiency in providing search engine marketing and data service, i.e. less cost consumed for the similar results or ROI achieved. As a result, our gross margin rate for this service increased to 5% and 4% for the nine and three months ended September 30, 2017,2021, respectively, compared with 3%2% and 2%-5% for the same periods last year, respectively.

Gross Profit

As a result The improvement of the foregoing, our overall gross profit was US$4.33 million and US$1.36 million, respectively,margin rate for the nine and three months ended September 30, 2017,2021, as compared with US$6.13 million and US$2.03 million, respectively,those for the ninefirst and three months ended September 30, 2016. Our overall gross margin decreasedsecond fiscal quarters of 2021, was directly attributable to 14% and 10% for the nine and three months ended September 30, 2017, respectively, compared with 24% and 17% for the nine and three months ended September 30, 2016. The decrease in our overall gross margin rate was a direct resultimprovement of our main stream of service revenues, i.e. distribution of the increase in revenues from the relative lower marginright to use search engine marketing services, which accounted for approximately 82.1% and data service for the nine and three months ended September 30, 2017, compared with that in the same periods last year, which constituted approximately 77.5% and 83.3%81.1% of our total revenues for the nine and three months ended September 30, 2017, respectively, compared with 46.1% and 63.1%2021, respectively. Our gross margin for distribution of the total revenues inright to use search engine marketing services improved to 0.3% for the same periods last year, respectively.three months ended September 30, 2021 from -9% and -3% for the first and second fiscal quarter of 2021, respectively, as a result of better discount rate obtained from suppliers.

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34

Operating Expenses and Net Loss

 

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, 

Nine Months Ended September 30,

 
 2017 2016 

2021

  

2020

 
 (Amounts expressed in thousands of US dollars, except percentages) 

(Amounts expressed in thousands of US dollars, except percentages)

 
 Amount % of total
revenue		 Amount % of total
revenue		 

Amount

  

% of total revenue

  

Amount

  

% of total revenue

 
                 
Total Revenues $31,287   100% $25,398   100%
Gross Profit  4,332   14%  6,129   24%

Total revenues

 $34,847  100% $27,104  100%

Gross (loss)/profit

 (892) -3% 556  2%
Sales and marketing expenses  2,399   8%  3,069   12% 159  -  293  1%
General and administrative expenses  4,402   14%  5,290   21% 10,366  30% 4,520  17%
Research and development expenses  1,012   3%  1,530   6%  251   1%  443   2%
Total operating expenses $7,813   25% $9,889   39% $10,776   31% $5,256   19%

 

 Three Months Ended September 30, 

Three Months Ended September 30,

 
 2017 2016 

2021

  

2020

 
 (Amounts expressed in thousands of US dollars, except percentages) 

(Amounts expressed in thousands of US dollars, except percentages)

 
 Amount % of total
revenue		 Amount % of total
revenue		 

Amount

  

% of total revenue

  

Amount

  

% of total revenue

 
         
Total Revenues $13,523   100% $11,902   100%
Gross Profit  1,360   10%  2,028   17%

Total revenues

 $11,900  100% $12,304  100%

Gross profit/(loss)

 43  0.4% (641) -5%
Sales and marketing expenses  740   6%  1,126   9% 58  -  58  - 
General and administrative expenses  2,318   17%  1,752   15% 1,471  13% 592  5%
Research and development expenses  312   2%  514   4%  88   1%  113   1%
Total operating expenses $3,370   25% $3,392   28% $1,617   14% $763   6%

 

Operating Expenses: Our total operating expenses decreased to US$7.81 million for the nine months ended September 30, 2017 from US$9.89 million for the same period of 2016. For the three months ended September 30, 2017, our total operating expenses decreased slightly to US$3.37 million from US$3.39 million for the same period of 2016.

Sales and marketing expenses: Sales and marketing expenses decreased to US$2.40 million for the nine months ended September 30, 2017 from US$3.07 million for the same period of 2016. For the three months ended September 30, 2017, sales and marketing expenses decreased to US$0.74 million from US$1.13 million for the same period of 2016. Our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals, other advertising and promotional expenses, staff salaries, staff benefits, performance bonuses, travelling expenses, communication expenses and other general office expenses of our sales department. For the nine months ended September 30, 2017, the change in our sales and marketing expenses was primarily due to the following reasons: (1) the decrease in advertising expenses for brand development of approximately US$0.10 million; and (2) the decrease in staff salaries and benefit and other general expenses of our sales department of approximately US$0.57 million, due to the cost reduction plan executed by management and decrease in headcount in our sales department. For the three months ended September 30, 2017, the reasons for the change in our sales and marketing expenses were similar to those for the nine months ended September 30, 2017, as discussed above.

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General and administrative expenses: General and administrative expenses decreased to US$4.40 million for the nine months ended September 30, 2017 from US$5.29 million for the same period in 2016. For the three months ended September 30, 2017, general and administrative expenses increased to US$2.32 million from US$1.75 million for the same period of 2016. Our general and administrative expenses primarily consist of salaries and benefits for management, accounting and administrative personnel, office rentals, depreciation and amortization, professional service fees, maintenance, utilities and other office expenses. For the nine months ended September 30, 2017, the change in our general and administrative expenses was primarily due to the following reasons: (1) the decrease in general administrative expenses, such as: professional service expenses, salary and benefit expenses and other general office expenses of approximately US$0.77 million, due to cost reduction plan executed by management; (2) the decrease in rental expenses of approximately US$0.14 million, due to less office space rented during the nine months ended September 30, 2017, compared with the same period in 2016; (3) the provision of allowance for doubtful accounts for the nine months ended September 30, 2017 of approximately US$1.25 million; and (4) the decrease in share-based compensation expenses of approximately US$1.23 million, primarily related to restricted shares awarded to management in 2014, which had been fully vested by the end of 2016. For the three months ended September 30, 2017, the increase in our general and administrative expenses was primarily due to the provision of allowance for doubtful accounts of approximately US$1.28 million during the period, which was partially offset by the decrease in general administrative expenses, rental expense, and share-based compensation expense during the period, similar to those discussed for the nine months ended September 30, 2017.

Research and development expenses: Research and development expenses were US$1.0110.78 million and US$0.311.62 million for the nine and three months ended September 30, 2017,2021, respectively, compared towith approximately US$1.535.26 million and US$0.510.76 million for the nine and three months ended September 30, 2016,2020, respectively. Our research and development expenses primarily consist of salaries and benefits for the research and development staff, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department. The decrease in research and development expenses for the nine and three months ended September 30, 2017, compared with the same periods last year, were primarily due to the decrease in headcount of our research and development department and the cost reduction plan executed by management.

 

•

    ●

Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately

Sales and marketing expenses: Sales and marketing expenses was US$3.480.16 million and US$3.76 million for the nine months ended September 30, 2017 and 2016, respectively. We incurred a loss from operations of approximately US$2.01 million and US$1.36 million for the three months ended September 30, 2017 and 2016, respectively.

•Interest income: For the nine and three months ended September 30, 2017 and 2016, interest income we earned was primarily contributed from the approximately US$3 million of term deposit we placed in one of the major financial institutions in the PRC, which matured in July 2017.

•Interest expense: For the nine and three months ended September 30, 2017, interest expense incurred were primarily related to the short-term bank loan we borrowed from major financial institutions in the PRC to supplement our short-term working capital needs and amounts due from new investors related to terminated security purchase agreements as discussed in Note 15. For the nine and three months ended September 30, 2016, interest expense incurred was primarily related to the short-term bank loan we borrowed from major financial institutions in the PRC during the periods.

•Loss before income tax expense, noncontrolling interests and discontinued operation: As a result of the foregoing, our loss before income tax expense, noncontrolling interest and discontinued operation was approximately US$3.76 million and US$3.80 million for the nine months ended September 30, 2017 and 2016, respectively. Our loss before income tax expense, noncontrolling interest and discontinued operation was approximately US$2.05 million and US$1.45 million for the three months ended September 30, 2017 and 2016, respectively.

•Income Tax expense: We recognized a net deferred income tax expense of approximately US$0.12 million and US$0.0020.06 million for the nine and three months ended September 30, 2017,2021, respectively, compared with approximately US$0.29 million and US$0.06 million for the nine and three months ended September 30, 2020, respectively. Our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals and our services, 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. For the nine months ended September 30, 2021, the decrease in our sales and marketing expenses was primarily due to the decrease in share-based compensation expenses of approximately US$0.12 million, related to restricted shares granted and issued to our sales staff during the first fiscal quarter of last year. For the three months ended September 30, 2021, there was no significant fluctuation of our sales and marketing expenses, compared with that for the same period last year.

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    ●

General and administrative expenses: General and administrative expenses was US$10.37 million and US$1.47 million for the nine and three months ended September 30, 2021, respectively, compared with US$4.52 million and US$0.59 million for the nine and three months ended September 30, 2020, 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, 2021, the change in our general and administrative expenses was primarily due to the following reasons: (1) the increase in share-based compensation expenses of approximately US$5.15 million, due to more shares of the Company’s restricted common stock were granted and issued to management and employees in the second fiscal quarter of 2021, compared with that granted and issued in the first fiscal quarter of last year; (2) the increase in general office administrative expense of approximately US$1.45 million, primarily attributable to the increase in lease and other administrative costs of our new office in Guangzhou and recovery from the COVID-19 epidemic, which resulted in the office shutdown during the first fiscal quarter of last year; and (3) the decrease in allowance for doubtful accounts of approximately US$0.75 million, due to improved collection management. For the three months ended September 30, 2021, the increase in our general and administrative expenses was primarily due to the increase in general departmental expenses of approximately US$0.88 million, which were primarily related to utilizing deferred tax assets recognizedthe expansion of our new office in previous yearsGuangzhou.

    ●Research and development expenses: Research and development expenses was approximately US$0.25 million and US$0.09 million for the nine and three months ended September 30, 2021, respectively, compared with approximately US$0.44 million and US$0.11 million for the nine and three months ended September 30, 2020, respectively. Our research and development expenses primarily consist of salaries and benefits of our staff in the research and development department, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department. For the nine months ended September 30, 2021, the decrease in our research and development expenses was primarily due to earnings generatedthe decrease in share-based compensation expenses of approximately US$0.15 million, related to restricted shares granted and issued to our research and development staff during the periods.first fiscal quarter of last year. For the three months ended September 30, 2021, the decrease in our research and development expenses was primarily due to a reduction in headcount in our research and development department, compared with the same period last year.

 

We recognizedLoss from operations: As a net deferred income tax expenseresult of the foregoing, we incurred a loss from operations of approximately US$0.1611.67 million and US$0.0034.70 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, we incurred a loss from operations of approximately US$1.57 million and US$1.40 million, respectively.

Change in fair value of warrant liabilities: We issued warrants in financing activities. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency (Renminbi or Yuan). As a result, a gain of change in fair value of these warrant liabilities of approximately US$9.68 million and US$2.85 million was recorded for the nine and three months ended September 30, 2016,2021, respectively, compared with a gain of change in fair value of these warrant liabilities of approximately US$0.004 million and a loss of approximately US$0.06 million recorded for the nine and three months ended September 30, 2020, respectively.

(Loss)/income before income tax benefit and noncontrolling interests: As a result of the foregoing, our loss before income tax benefit and noncontrolling interest was approximately US$1.76 million and US$4.70 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, we recognized an approximately US$1.24 million income before income tax benefit and noncontrolling interest, compared with an approximately US$1.49 million loss before income tax benefit and noncontrolling interest for the three months ended September 30, 2020.

Income Tax benefit: For the nine months ended September 30, 2021, we recognized an approximately US$0.27 million income tax benefit in relation to the net operating loss incurred by one of our operating VIEs for the period, which we consider likely to be utilized with respect to future earnings of this entity, which amount was partially offset by an approximately US$0.08 million and an approximately US$0.02 million income tax expense recognized in relation to additional deferred tax assets provision provided and utilization of prior period recognized deferred tax assets by two other operating VIEs during the period, respectively. For the three months ended September 30, 2021, we recognized an approximately US$0.13 million income tax benefit in relation to the net operating loss incurred by one of our operating VIEs for the period. For the nine and three months ended September 30, 2016,2020, we recognized an approximately US$0.09 million and US$0.030.16 million of our income tax benefit, respectively, was in relation to the amortization of the intangibledeferred tax assets identified in the acquisition transactions consummated in previous years; approximately US$0.07 million and US$nil of our income tax benefit was in relation to the net operating loss incurred by our PRC operating VIEs for the period, respectively, which we consider likelyexpect to be able to utilized with respect toin future earningsperiods.

Net (loss)/income: As a result of the entities to whichforegoing, for the operating losses relate;nine months ended September 30, 2021 and 2020, we also incurred a total net loss of approximately US$0.311.59 million and US$0.0334.61 million, deferredrespectively. For the three months ended September 30, 2021, we recognized a net income tax expense by utilizing deferred tax assets recognizedof approximately US$1.37 million, compared with a net loss of approximately US$1.33 million for the three months ended September 30, 2020.

36

Net (income)/loss attributable to noncontrolling interest: In May 2018, we incorporated a majority-owned subsidiary, Business Opportunity Chain, in previous yearswhich we beneficially own 51% equity interest. In October 2020, we incorporated another majority-owned subsidiary, Qiweilian Guangzhou and beneficially owned 51% equity interest. In March 2021, due to earnings generated duringchanges in business strategy of the periods,noncontrolling interest shareholder of Qiweilian Guangzhou, we suspended the cooperation with that shareholder and sold our 51% equity interest in Qiweilian Guangzhou to unrelated parties. For the nine months ended September 30, 2021, net income allocated to the noncontrolling interest shareholder of Qiweilian Guangzhou, before we deconsolidated the entity, offset by the net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$0.001 million, compared with a net loss allocated to the noncontrolling interest shareholder of Business Opportunity Chain of approximately US$0.001 million for the three months ended September 30, 2021. For the nine and three months ended September 30, 2020, net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$0.002 million and US$nil, respectively.

34

•Loss from continuing operations: As a result of the foregoing, we incurred a net loss from continuing operations of approximately US$3.87 million and US$3.96 million for the nine months ended September 30, 2017 and 2016, respectively. We incurred a net loss from continuing operations of approximately US$2.05 million and US$1.45 million for the three months ended September 30, 2017 and 2016, respectively.

•Loss from and on disposal of discontinued operation, net of income tax: We exited our brand management and sales channel building business segment in the fourth fiscal quarter of 2015, operated by a former VIE of ours, Quanzhou City Zhilang Network Technology Co., Ltd. (“Quanzhou Zhi Lang”), which qualified for presentation as a discontinued operation. In June 2016, we disposed Quanzhou Zhi Lang to an unaffiliated third-party. The results of operations of discontinued operation (including loss on disposal of the discontinued operation) was presented as a separate component in the condensed consolidated statements of operations and comprehensive loss, which was approximately US$0.06 million for the nine months ended September 30, 2016.

•Net loss: As a result of the foregoing, for the nine months ended September 30, 2017 and 2016, we incurred a total net loss of approximately US$3.87 million and US$4.02 million, respectively. For the three months ended September 30, 2017 and 2016, we incurred a total net loss of approximately US$2.05 million and US$1.45 million, respectively.

•Net income attributable to noncontrolling interest from continuing operations: Beijing Chuang Fu Tian Xia was 51% owned by Business Opportunity Online upon incorporation. For the nine and three months ended September 30, 2017, net income allocated to the noncontrolling interests of Beijing Chuang Fu Tian Xia was approximately US$0.09 million and US$0.04 million, respectively. For the nine and three months ended September 30, 2016, net income allocated to the noncontrolling interests of Beijing Chuang Fu Tian Xia was approximately US$0.14 million and US$0.02 million, respectively.

•Net loss attributable to ChinaNet Online Holdings, Inc.: Total net loss as adjusted by net loss attributable to the noncontrolling interest shareholders as discussed above yields the net loss attributable to ChinaNet Online Holdings, Inc. Net loss attributable to ChinaNet Online Holdings, Inc. was US$3.96 million and US$4.16 million for the nine months ended September 30, 2017 and 2016, respectively. Net loss attributable to ChinaNet Online Holdings, Inc. was US$2.09 million and US$1.47 million for the three months ended September 30, 2017 and 2016, respectively.

 

Net (loss)/income attributable to ZW Data Action Technologies Inc.: Total net (loss)/income as adjusted by net income/(loss) attributable to the noncontrolling interest shareholders as discussed above yields the net (loss)/income attributable to ZW Data Action Technologies Inc. Net loss attributable to ZW Data Action Technologies Inc. was approximately US$1.59 million and US$4.61 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, net income attributable to ZW Data Action Technologies Inc. was approximately US$1.38 million, compared with a net loss attributable to ZW Data Action Technologies Inc. of approximately US$1.33 million for the three months ended September 30, 2020.

B.LIQUIDITY AND CAPITAL RESOURCES

 

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, 2017,2021, we had cash and cash equivalents of approximately US$1.238.73 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 internet resourcesearch engine resources and technical servicesother 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 payment for acquisitionsinvestment to further expand technologies related to our existing and future business and client base,activities, investment in software technologies to enhance the functionality of the management toolsour current advertising portals for providing our advertising, marketing and data services and to secure the safety of our general network, and investment in other general office equipment.to establish joint ventures with strategic partners for the development of new technologies and services. To date, we have financed our liquidity need primarily through proceeds we generated from operating activities we generated. Our existing cash is adequate to fund operations for the next twelve months.financing activities.

 

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

 

  Nine Months Ended September 30,
  2017 2016
  Amounts in thousands of US dollars
     
Net cash used in operating activities  (2,654)  (1,853)
Net cash provided by/(used in) investing activities  762   (2,904)
Net cash provided by financing activities  -   456 
Changes in cash and cash equivalents included in assets classified as held for sale  -   132 
Effect of foreign currency exchange rate changes on cash  91   (88)
Net decrease in cash and cash equivalents $(1,801) $(4,257)

35

  

Nine Months Ended September 30,

 
  

2021

  

2020

 
  

Amounts in thousands of US dollars

 
         

Net cash (used in)/provided by operating activities

 $(6,600) $595 

Net cash used in investing activities

  (6,097)  (1,273)

Net cash provided by/(used in) financing activities

  17,111   (429)

Effect of foreign currency exchange rate changes

  20   4 

Net increase/(decrease) in cash and cash equivalents

 $4,434  $(1,103)

 

Net cash used in(used in)/provided by operating activities

 

For the nine months ended September 30, 2017,2021, our net cash used in operating activities of approximately US$2.656.60 million were primarily attributable to:

 

(1)

net loss excluding approximately US$1.070.45 million of non-cash expenses of depreciation and amortizations; approximately US$0.480.15 million amortization of operating lease right-of-use assets, approximately US$6.95 million share-based compensation; approximately US$1.259.68 million provisiongain from change in fair value of allowance for doubtful accountswarrant liabilities, approximately US$0.06 million loss on disposal of long-term investment and other non-operating loss, and approximately US$0.120.17 million deferred income tax expense,benefit, yielded the non-cash items excluded net loss of approximately US$0.95 million;3.83 million.

 

37

(2)

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

 

-

advance from customers

accounts payable increased by approximately US$0.760.14 million, primarily due to increase in advanced payments received from customers related to search engine marketingmore favorable payment terms granted by a new supplier; and data service;

 

-

accounts payable, other payables and taxes payable in the aggregate increased by approximately US$0.59 million; and

-other current assets decreased by approximately US$0.030.01 million.

 

(3)

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

 

-

accounts receivable and due from related parties for advertising services provided increased by approximately US$2.45 million, primarily due to increase in search engine marketing and data service revenues during the period;0.26 million;

 

-

prepayment and deposit to suppliers increased by approximately US$0.47 million;1.70 million, primarily due to increase innew deposits and prepayments made for the purchase of various advertising resources during the period;

-

long-term deposits and prepayments increased by approximately US$0.31 million, which were made for the purchase of advertising resources and lease of our new office spaces during the period, and these amounts were not expected to search engine marketing and data service resources providersbe consumed or refunded within one year of September 30, 2021;

-

advance from customers decreased by approximately US$0.13 million, primarily due to recognition of revenue from opening contract liabilities during the period; and

 

-

accruals, tax payables, operating lease liabilities, short-term lease payment payables and other current liabilities decreased by approximately US$0.17 million.0.52 million in the aggregate, due to settlement of these operating liabilities during the period.

 

For the nine months ended September 30, 2016,2020, our net cash used inprovided by operating activities of approximately US$1.850.60 million were primarily attributable to:

 

(1)

net loss excluding approximately US$1.170.63 million of non-cash expenses of depreciation and amortizations;amortization; approximately US$1.722.07 million share-based compensation;compensation expenses; approximately US$0.120.75 million of loss on disposal of fixed assets,allowance for doubtful accounts, approximately US$0.010.004 million loss on deconsolidationgain in fair value of VIEwarrant liabilities and approximately US$0.160.09 million of net deferred income tax expense,benefit yielded the non-cash itemsitem excluded net loss of approximately US$0.85 million;1.26 million.

 

(2)

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

 

-

other

accounts receivable decreased by approximately US$1.420.25 million in the aggregate;

-

prepayment and deposit to suppliers decreased by approximately US$1.08 million, primarily due to subsequent collectionutilization of TV advertisement depositthe prepayment made to suppliers in fiscal 2019 through Ad resources and prepayment receivableother services received from suppliers during the nine months ended September 30, 2020;

-

advance from customers increased by approximately US$0.75 million, primarily due to new advance payments received that related to aunsatisfied service performance obligations during the first nine months of 2020, which was partially offset by recognition of revenue from opening contract expired on December 31, 2014;liabilities during the period;

 

-

other current assets

accounts payable, tax payables and short-term lease payment payables increased by approximately US$0.23 million in the aggregate, primarily due to the factors that some of the payments were temporarily delayed as a result of the COVID-19 outbreak and some of the payments were not due until later periods, and

-

amount due from related parties decreased by approximately US$0.02 million;million.

 

-

(3)

other payables increased by approximately US$0.40 million; and

-taxes payable increased by approximately US$0.07 million.

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

 

-

accounts receivable and due from related parties for advertising services provided

long-term prepayment increased by approximately US$1.22 million;

36

-deposit0.38 million, which was made for the purchase of ad resources during the first fiscal quarter of 2020, and prepaymentthis amount was not expected to suppliers increased by approximately US$1.17 million;be consumed within one year of September 30, 2020;

 

-

advance from customers decreased by approximately US$0.11 million;

-accounts payable decreased by approximately US$0.13 million;

-accruals decreased by approximately US$0.150.06 million; and

 

-

contingent liability

other current liabilities decreased by approximately US$0.13 million.0.04 million; and

-

we also prepaid approximately US$0.01 million lease payment during the period.

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Net cash provided by/(used in)in investing activities

 

For the nine months ended September 30, 2017, our cash provided by investing activities included the following transactions:2021, (1) we spentpaid an aggregate of approximately US$0.0020.31 million for the purchase of generalvehicles, furniture and office equipment;equipment, and for our leasehold improvement project in Guangzhou; (2) our term depositwe made an aggregate of approximately US$3.12 million matured in July 2017, which was recorded as a cash inflow from investing activities during the period; (3) we withdrew approximately US$0.441.89 million cash investment from oneto our investee entities, including an US$1.0 million investment for a 15.38% equity interest in an entity, for jointly developing blockchain, key opinion leader and e-sports platform and jointly operating IP data for e-sports and games with strategic partners, and we also provided an additional approximately US$0.04 million temporary loans in the aggregate to two of our cost method investee companiesentities; (3) we paid US$1.16 million for the purchase of an Internet Ad tracking system to further enhance the effectiveness of our Internet advertising business; (4) we provided to an unrelated party short-term loans of approximately US$2.95 million in the aggregate, of which an approximately US$1.51 million was provided during the period, which was also recordedfirst nine months of 2021. The borrower repaid an approximately US$1.30 million during the first nine months of 2021, and the remaining balance of approximately US$1.65 million is expected to be fully repaid in March 2022; (5) cash decreased by approximately US$0.01 as a cash inflow from investing activitiesresult of deconsolidation of VIEs’ subsidiaries during the period; and (4)(6) we lentmade an aggregate of US$2.50 million deposit and prepayment for other investing activities, including: (i) a short-term working capital loanUS$1.0 million refundable deposit for a potential merge and acquisition transaction, which will be refunded if no definitive agreement is reached by December 31, 2021; and (ii) a US$1.5 million prepayment in accordance with a cryptocurrency mining machine purchase agreement, which had been cancelled due to the industry banning policies announced by the government, and the prepayment is expected to be refunded before the end of approximately US$2.8 million to an unrelated third party during the period.fiscal 2021. In the aggregate, these transactions resulted in a net cash inflowoutflow from investing activities of approximately US$0.766.10 million for the nine months ended September 30, 2017.2021.

 

For the nine months ended September 30, 2016, our cash used in investing activities included the following transactions:2020, (1) we spentinvested approximately US$0.150.03 million to a newly established entity, in which we hold a 19% equity interest; (2) we made an additional payment of approximately US$0.30 million for the purchasedevelopment of general office equipmentour blockchain technology-based platform applications; and expenditures on leasehold improvements; (2) we paid approximately US$1.98 million to purchase software technology related to Internet operation safety, information exchange security and data encryption and management; (3) we lent two of our cost method investeesprovided to an aggregateunrelated party a short-term loan of approximately US$0.31 million of short-term working capital loans during the period; (4) we made additional investments to our investee companies of approximately US$0.47 million in aggregate during the period; (5) cash divested from deconsolidation of VIE of approximately US$0.02 million; and (6) proceeds from disposal of investee companies of approximately US$0.030.94 million. In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$2.901.27 million for the nine months ended September 30, 2016.2020.

 

Net cash provided byby/(used in) financing activities

 

For the nine months ended September 30, 2017,2021, we repaidconsummated an offering of approximately US$0.45.21 million short-term bank loan maturedshares of our common stock to certain institutional investors at a purchase price of $3.59 per share. As part of the transaction, we also issued to the investors and the placement agent warrants to purchase up to 2.61 million shares and 0.36 million shares of our common stock, respectively, with an exercise price of $3.59 per share and US$4.4875 per share, respectively. We received net proceeds of approximately US$17.1 million, after deduction of approximately US$1.6 million direct financing cost paid in July 2017, which was recorded as a cash outflow from financing activities during the period, and we re-borrowed the loan in August 2017 for one-year until August 2018, which was recorded as cash provided by financing activities during the period.cash.

 

For the nine months ended September 30, 2016,2020, we borrowedrepaid an approximately US$0.460.43 million short-term bank loan from one of the major commercial banksmatured in the PRC, which was recorded as cash provided by financing activities during the period.January 2020.

 

Restricted Net Assets

 

As mostsubstantially all of our operations are conducted through our PRC subsidiarysubsidiaries and VIEs, our ability to pay dividends is primarily dependent on receiving distributions of funds from our PRC subsidiarysubsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiarysubsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiarysubsidiaries and VIEs included in our consolidated net assets are also not distributable for dividend purposes.

 

In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of our other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.

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As a result ofIn accordance with these PRC laws and regulations, our PRC subsidiarysubsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to us. As of September 30, 20172021 and December 31, 2016,2020, net assets restricted in the aggregate, which includes paid-in capital and statutory reserve funds of our PRC subsidiarysubsidiaries and VIEs that are included in our consolidated net assets waswere approximately US$8.113.2 million and US$7.88.2 million, respectively.

 

The current PRC Enterprise Income Tax (“EIT”) Law also imposedimposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China.China, which were exempted under the previous EIT law. 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. Holding companies in Hong Kong, for example, will be subject to a 5% rate.

 

The ability of our PRC subsidiaries to make dividends and other payments to us may also be restricted by changes in applicable foreign exchange and other laws and regulations.

 

Foreign currency exchange regulation in China is primarily governed by the following rules:

 

Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

    ●

Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;

    ●

Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules.

 

Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.

 

Although the current Exchange Rules allow the convertibilityconverting of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. We cannot be sure that it will be able to obtain all required conversion approvals for our operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of our retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit our ability to use retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

 

As of September 30, 2017 and December 31, 2016, there were approximately US$14.8 million and US$17.6 million retained earnings in the aggregate, respectively, which were generated by our PRC subsidiary and VIEs in Renminbi included in our consolidated net assets, aside from US$2.6 million and US$2.5 million of statutory reserve funds as of September 30, 2017 and December 31, 2016, respectively, that may be affected by increased restrictions on currency exchanges in the future, and accordingly, may further limit our PRC subsidiary’s or VIEs’ ability to make dividends or other payments in U.S. dollars to us, in addition to the approximately US$8.1 million and US$7.8 million of restricted net assets as of September 30, 2017 and December 31, 2016, as discussed above.

C.OFF-BALANCE SHEET ARRANGEMENTS

 

None.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable to smaller reporting companies.

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Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

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Under the supervision and with the participation of our management, including our principal executive officer and principal accounting and financial officer, we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended September 30, 2017,2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, the Company’s disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

 

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the third fiscal quarter of 20172021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II. OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

 

Item 1A. Risk Factors

 

This information has been omitted based on the Company’s status as a smaller reporting company.

 

Item 2.Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3.Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

 

None.

 

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Item 5.  Other Information

 

None.

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Item 6. Exhibits

 

The exhibits listed on the Exhibit Index below are provided as part of this report.

 

Exhibit No.

 

Document Description

31.1

 

Certification of the Principal Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   

31.2

 

Certification of the Principal Accounting and Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

   

32.1

 

Certification of the Principal Executive Officer and of the Principal Accounting and Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002).

   

101

 

The following materials are filed herewith: (i) Inline XBRL Instance, (ii) Inline XBRL Taxonomy Extension Schema, (iii) Inline XBRL Taxonomy Extension Calculation, (iv) XBRL Taxonomy Extension Labels, (v) XBRL Taxonomy Extension Presentation, and (vi) Inline XBRL Taxonomy Extension Definition.

104

Cover Page Interactive Data FilesFile – The cover page interactive data file does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.

40

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

CHINANET ONLINE HOLDINGS, INC.
   
 

ZW DATA ACTION TECHNOLOGIES INC.

  

Date: November 14, 201715, 2021

By:

/s/ Handong Cheng

 

Name: Handong Cheng

 

Title: Chief Executive Officer

(Principal Executive Officer)

  

By:

/s/ Zhige ZhangMark Li

 

Name: Zhige ZhangMark Li

 

Title: Chief Financial Officer

(Principal Accounting and Financial Officer)

 


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