UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

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

For the quarterly period ended ~~September 30, 2020~~March 31, 2021

☐o 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

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. ~~9 South Min Zhuang~~2 Fengfu Road, ~~Haidian~~Fengtai District, Beijing, PRC ~~100195~~100070

~~(Address~~

(Address of principal executive offices) (Zip Code)

+86-10-6084-6616

(Registrant’s telephone number, including area code)

~~ChinaNet Online Holdings, Inc.~~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 every Interactive Data File required to be submitted 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 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” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

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 13, 2020,~~May 19, 2021, the registrant had ~~21,741,926~~31,304,915 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, 2020~~March 31, 2021 (Unaudited) and December 31, ~~2019~~2020	1-2

	Condensed Consolidated Statements of Operations and Comprehensive Income/Loss for the ~~Nine and~~ Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	3-4

	Condensed Consolidated Statements of Cash Flows for the ~~Nine~~Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	5-6

	Condensed Consolidated Statements of Changes in Equity for the ~~Nine and~~ Three Months Ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (Unaudited)	7-8

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9-28

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~29-39~~29-37

Item 3. Quantitative and Qualitative Disclosures About Market Risk		3937

Item 4. Controls and Procedures		3937

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		3937

Item 1A. Risk Factors		3937

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		3937

Item 3. Defaults Upon Senior Securities		4037

Item 4. Mine Safety Disclosures		4037

Item 5. Other Information		4037

Item 6. Exhibits		4138

Signatures		4239

PART I. FINANCIAL INFORMATION

Item 1.

Interim Financial Statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	(US $)		(US $)			(US $)		(US $)
	(Unaudited)					(Unaudited)
Assets
Current assets:
Cash and cash equivalents *	$	500	$	1,603	$	15,785	$	4,297
Accounts receivable, net of allowance for doubtful accounts of $3,996 and $3,148, respectively *		2,282		3,260
Accounts receivable, net of allowance for doubtful accounts of $4,217 and $4,247, respectively *						1,694		2,407
Prepayment and deposit to suppliers *		6,301		6,980		7,194		4,657
Due from related parties, net *		58		81		102		61
Other current assets, net *		961		11		1,765		1,462
Total current assets		10,102		11,935		26,540		12,884

Long-term investments *		64		35		404		67
Operating lease right-of-use assets *		4		12		2,199		48
Property and equipment, net *		74		78		61		60
Intangible assets, net *		1,288		1,899		3,603		2,557
Blockchain platform applications development costs		4,189		3,879		4,403		4,406
Long-term prepayments		474		-
Long-term deposits and prepayments *						793		39
Deferred tax assets, net *		815		713		624		606
Total Assets	$	17,010	$	18,551	$	38,627	$	20,667

Liabilities and Equity
Current liabilities:
Short-term bank loan *	$	-	$	430
Accounts payable *		552		408	$	1,226	$	608
Advance from customers *		2,822		2,006
Advances from customers *						1,592		1,436
Accrued payroll and other accruals *		442		491		286		489
Taxes payable *		3,290		3,214		3,385		3,430
Lease payment liability related to short-term leases *		222		136
Operating lease liabilities *						267		18
Lease payment liabilities related to short-term leases *						200		203
Other current liabilities *		325		221		306		333
Warrant liabilities		103		107		10,919		1,505
Total current liabilities		7,756		7,013		18,181		8,022

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

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


	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)						(Unaudited)
Long-term liabilities:
Operating lease liabilities-Non current *								1,953			32
Long-term borrowing from a director		129			125			133			134
Total Liabilities		7,885			7,138			20,267			8,188

Commitments and contingencies

Equity:
ZW Data Action Technologies Inc.’s stockholders’ equity
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 21,741,926 shares and 19,629,403 shares at September 30, 2020 and December 31, 2019, respectively)		22			20
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 31,304,915 shares and 26,062,915 shares at March 31, 2021 and December 31, 2020, respectively)								31			26
Additional paid-in capital		45,569			43,111			54,980			49,772
Statutory reserves		2,607			2,607			2,598			2,598
Accumulated deficit		(40,384	)		(35,773	)		(40,295	)		(40,980	)
Accumulated other comprehensive income		1,371			1,505			1,110			1,129
Total ZW Data Action Technologies Inc.’s stockholders’ equity		9,185			11,470			18,424			12,545

Noncontrolling interests		(60	)		(57	)		(64	)		(66	)
Total equity		9,125			11,413			18,360			12,479

Total Liabilities and Equity	$	17,010		$	18,551		$	38,627		$	20,667

*All of the VIEs' assets can be used to settle obligations of their primary beneficiary. ~~Furthermore, liabilities~~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

ZW DATA ACTION TECHNOLOGIES INC.

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

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

													Three Months Ended March 31,
	Nine Months Ended September 30,						Three Months Ended September 30,						2021			2020
	2020			2019			2020			2019			(US $)			(US $)
	(US $)			(US $)			(US $)			(US $)			(Unaudited)			(Unaudited)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
From unrelated parties	$	27,086		$	39,025		$	12,300		$	15,113		$	8,396		$	4,371
From a related party		18			503			4			395
From related parities														-			13
Total revenues		27,104			39,528			12,304			15,508			8,396			4,384
Cost of revenues		26,548			37,828			12,945			14,616			9,113			3,485
Gross profit/(loss)		556			1,700			(641	)		892
Gross (loss)/profit														(717	)		899

Operating expenses
Sales and marketing expenses		293			461			58			111			28			165
General and administrative expenses		4,520			2,875			592			817			996			2,796
Research and development expenses		443			599			113			239			74			214
Total operating expenses		5,256			3,935			763			1,167			1,098			3,175

Loss from operations		(4,700	)		(2,235	)		(1,404	)		(275	)		(1,815	)		(2,276	)

Other income (expenses)
Interest expense, net		-			(33	)		1			(10	)
Other income/(expenses)
Interest income/(expense), net														1			(1	)
Other expenses		(4	)		(6	)		(21	)		(2	)		(24	)		(1	)
Change in fair value of warrant liabilities		4			351			(64	)		(120	)		2,507			46
Total other income		-			312			(84	)		(132	)		2,484			44

Loss before income tax benefit and noncontrolling interests		(4,700	)		(1,923	)		(1,488	)		(407	)
Income tax benefit		87			10			155			16
Net loss		(4,613	)		(1,913	)		(1,333	)		(391	)
Net loss attributable to noncontrolling interests		2			8			-			3
Net loss attributable to ZW Data Action Technologies Inc.	$	(4,611	)	$	(1,905	)	$	(1,333	)	$	(388	)
Income/(loss) before income tax benefit/(expense) and noncontrolling interests														669			(2,232	)
Income tax benefit/(expense)														18			(78	)
Net income/(loss)														687			(2,310	)
Net (income)/loss attributable to noncontrolling interests														(2	)		-
Net income/(loss) attributable to ZW Data Action Technologies Inc.													$	685		$	(2,310	)

ZW DATA ACTION TECHNOLOGIES INC.

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

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

Nine Months Ended September 30, Three Months Ended September 30,
2020 2019 2020 2019
(US $) (US $) (US $) (US $)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net loss $ (4,613 ) $ (1,913 ) $ (1,333 ) $ (391 )
Foreign currency translation (loss)/gain (135 ) 97 (203 ) 73
Comprehensive loss $ (4,748 ) $ (1,816 ) $ (1,536 ) $ (318 )
Comprehensive loss attributable to noncontrolling interests 3 6 2 1
Comprehensive loss attributable to ZW Data Action Technologies Inc. $ (4,745 ) $ (1,810 ) $ (1,534 ) $ (317 )

Loss per share
Loss per common share
Basic and diluted $ (0.22 ) $ (0.12 ) $ (0.06 ) $ (0.02 )

Weighted average number of common shares outstanding:
Basic and diluted 21,271,301 16,447,233 21,720,259 16,517,440

Three Months Ended March 31,
2021 2020
(US $) (US $)
(Unaudited) (Unaudited)

Net income/(loss) $ 687 $ (2,310 )
Foreign currency translation (loss)/gain (19 ) 72
Comprehensive income/(loss) 668 (2,238 )
Comprehensive income attributable to noncontrolling interests (2 ) (1 )
Comprehensive income/(loss) attributable to ZW Data Action Technologies Inc. $ 666 $ (2,239 )

Earnings/(loss) per share
Earnings/(loss) per common share

Basic and diluted $ 0.02 $ (0.11 )

Weighted average number of common shares outstanding:

Basic and diluted 28,505,181 20,397,406

See notes to ~~unaudited~~ condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Nine Months Ended September 30,						Three Months Ended March 31,
	2020			2019			2021			2020
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Cash flows from operating activities
Net loss	$	(4,613	)	$	(1,913	)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities
Net income/(loss)							$	687		$	(2,310	)
Adjustments to reconcile net income/(loss) to net cash (used in)/provided by operating activities
Depreciation and amortization		622			66			112			207
Amortization of operating lease right-of-use assets		7			88			36			3
Share-based compensation expenses		2,066			307			100			1,919
Provision for allowances for doubtful accounts		751			445			-			410
Deferred taxes		(87	)		(10	)		(18	)		(5	)
Change in fair value of warrant liabilities		(4	)		(351	)		(2,507	)		(46	)
Changes in operating assets and liabilities
Accounts receivable		254			(289	)		700			(255	)
Prepayment and deposit to suppliers		1,077			(5,191	)		(2,630	)		2,236
Due from related parties		24			226			-			29
Other current assets		(5	)		11			7			(5	)
Long-term prepayments		(375	)		-
Long-term deposits and prepayments								(794	)		(1,125	)
Accounts payable		137			(1,946	)		628			(147	)
Advance from customers		754			4,151
Advance from a customer, related		-			9
Advances from customers								169			123
Accrued payroll and other accruals		(55	)		(242	)		(188	)		34
Lease payment liability related to short-term leases		81			180
Other current liabilities		(38	)		291			25			319
Taxes payable		8			123			(18	)		94
Prepaid lease payment		(9	)		(10	)
Net cash provided by/(used in) operating activities		595			(4,055	)
Lease payment liability related to short-term leases								(1	)		37
Operating lease liabilities								(14	)		-
Net cash (used in)/provided by operating activities								(3,706	)		1,518

Cash flows from investing activities
Investment to investee entities		(27	)		(36	)
Cash effect of deconsolidation of VIEs’ subsidiaries								(8	)		-
Investments and advances to ownership investee entities								(385	)		-
Short-term loan to an unrelated party		(944	)		-			(312	)		(815	)
Payment for purchase of software technologies								(1,160	)		-
Payment for blockchain platform applications development costs		(302	)		-			-			(302	)
Prepayment for software system development		-			(760	)
Net cash used in investing activities		(1,273	)		(796	)		(1,865	)		(1,117	)

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

Nine Months Ended September 30,
2020 2019
(US $) (US $)
(Unaudited) (Unaudited)
Cash flows from financing activities
Proceeds from issuance of common stock (net of cash offering cost of US$8) - 2,393
Proceeds from short-term bank loan - 438
Repayment of short-term bank loan (429 ) (875 )
Net cash (used in)/provided by financing activities (429 ) 1,956

Effect of exchange rate fluctuation 4 (10 )

Net decrease in cash and cash equivalents (1,103 ) (2,905 )

Cash and cash equivalents at beginning of the period 1,603 3,742
Cash and cash equivalents at end of the period $ 500 $ 837

Supplemental disclosure of cash flow information

Income taxes paid $ - $ -
Interest expense paid $ 2 $ 36

Three Months Ended March 31,
2021 20120
(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 - (430 )
Net cash provided by/(used in) financing activities 17,111 (430 )

Effect of exchange rate fluctuation on cash and cash equivalents (52 ) (19 )

Net increase/(decrease) in cash and cash equivalents 11,488 (48 )

Cash and cash equivalents at beginning of the period 4,297 1,603
Cash and cash equivalents at end of the period $ 15,785 $ 1,555

Supplemental disclosure of cash flow information

Income taxes paid $ - $ -
Interest expense paid $ - $ 2

See notes to ~~unaudited~~ condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE ~~NINE AND~~ THREE MONTHS ENDED ~~SEPTEMBER 30, 2020~~MARCH 31, 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, 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 - 477 - - - - 477
Share-based compensation in exchange for services from employees and directors 1,632,523 2 1,905 - - - - 1,907
Net loss for the period - - - - (3,278 ) - (2 ) (3,280 )
Foreign currency translation adjustment - - - - - 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 - 76 - - - - 76
Net loss for the period - - - - (1,333 ) - - (1,333 )
Foreign currency translation adjustment - - - - - (201 ) (2 ) (203 )
Balance, September 30, 2020 (Unaudited) 21,741,926 $ 22 $ 45,569 $ 2,607 $ (40,384 ) $ 1,371 $ (60 ) $ 9,125
Common stock Additional paid-in capital Statutory reserves Accumulated deficit Accumulated other comprehensive income (loss) 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 - - - - 5,190
Share-based compensation in exchange for services from employees and directors 30,000 - 23 - - - - 23
Net income for the period - - - - 685 - 2 687
Foreign currency translation adjustment - - - - - (19 ) - (19 )
Balance, March 31, 2021 (unaudited) 31,304,915 $ 31 $ 54,980 $ 2,598 $ (40,295 ) $ 1,110 $ (64 ) $ 18,360

See notes to ~~unaudited~~ condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 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, 2019 16,382,543 $ 16 $ 38,275 $ 2,607 $ (34,512 ) $ 1,457 $ (49 ) $ 7,794
Share-based compensation 30,000 - 26 - - - - 26
Net loss for the period - - - - (1,517 ) - (5 ) (1,522 )
Foreign currency translation adjustment - - - - - 24 - 24
Balance, June 30, 2019 (Unaudited) 16,412,543 16 38,301 2,607 (36,029 ) 1,481 (54 ) 6,322
Issuance of common stock for private placement, net of $0.008 million direct offering cost 1,608,430 2 2,391 - - - - 2,393
Share-based compensation - - 14 - - - - 14
Net loss for the period - - - - (388 ) - (3 ) (391 )
Foreign currency translation adjustment - - - - - 71 2 73
Balance, September 30, 2019 (Unaudited) 18,020,973 $ 18 $ 40,706 $ 2,607 $ (36,417 ) $ 1,552 $ (55 ) $ 8,411
Common stock Additional paid-in capital Statutory reserves Accumulated deficit Accumulated other comprehensive income (loss) 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 - 477 - - - - 477
Share-based compensation in exchange for services from employees and directors 1,632,523 2 1,897 - - - - 1,899
Net loss for the period - - - - (2,310 ) - - (2,310 )
Foreign currency translation adjustment - - - - - 71 1 72
Balance, March 31, 2020 (unaudited) 21,691,926 $ 22 $ 45,485 $ 2,607 $ (38,083 ) $ 1,576 $ (56 ) $ 11,551

See notes to ~~unaudited~~ condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Organization and nature of operations

ZW Data Action Technologies Inc. ~~(formerly known as~~(f/k/a ChinaNet Online Holdings, Inc.*) ~~(the~~(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, e-commerce online to offline (O2O) ~~sales channel expansion~~advertising and marketing services as well as the related data and technical services to small and medium enterprises ~~(“SMEs”)~~(SMEs) in the PRC. In early 2018, the Company commenced ~~to expand its business~~expansion into the blockchain industry and the related technology. As of ~~September 30, 2020,~~March 31, 2021, the Company was in the process of developing its blockchain-powered platform applications (See Note 11).

* Effective October 14, 2020, the Company changed its corporate name from ChinaNet Online Holdings, Inc. to ZW Data Action Technologies Inc.

Variable interest entities

To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its PRC subsidiaries and operating entities (the “VIEs”).

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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively:

	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	249	$	699	$	1,055	$	277
Accounts receivable, net		1,198		2,876		1,565		1,142
Prepayment and deposit to suppliers		4,176		3,998		4,107		2,818
Due from related parties, net		58		81		102		61
Other current assets, net		9		6		3		10
Total current assets		5,690		7,660		6,832		4,308

Long-term investments		64		35		404		67
Operating lease right-of-use assets		4		12		2,199		48
Property and equipment, net		39		40		34		32
Intangible assets, net		13		25		4		9
Long-term deposits and prepayments						73		-
Deferred tax assets, net		815		713		457		536
Total Assets	$	6,625	$	8,485		10,003	$	5,000

Liabilities
Current liabilities:
Short-term bank loan	$	-	$	430
Accounts payable		290		408	$	814	$	270
Advance from customers		2,553		2,006
Advances from customers						1,554		1,436
Accrued payroll and other accruals		188		132		80		168
Taxes payable		2,632		2,568		2,713		2,755
Lease payment liability related to a short-term lease		52		19
Operating lease liabilities						267		18
Lease payment liabilities related to short-term leases						107		108
Other current liabilities		157		84		212		213
Total current liabilities		5,872		5,647		5,747		4,968

Operating lease liabilities-Non current						1,953		32
Total Liabilities	$	5,872	$	5,647	$	7,700	$	5,000

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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~~income/(loss) for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:

	Nine Months Ended September 30,						Three Months Ended September 30,						Three Months Ended March 31,
	2020			2019			2020			2019			2021			2020
	US$(’000)			US$(’000)			US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	23,683		$	39,523		$	11,135		$	15,503		$	7,947		$	2,936
Cost of revenues		(24,051	)		(37,828	)		(11,729	)		(14,616	)		(8,738	)		(2,845	)
Total operating expenses		(1,515	)		(2,407	)		(123	)		(545	)		(390	)		(744	)
Net (loss)/income before allocation to noncontrolling interests		(1,802	)		(742	)		(642	)		344
Net loss before allocation to noncontrolling interests														(1,281	)		(651	)

3.	Summary of significant accounting policies

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, 2020~~March 31, 2021 and for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete 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 Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019,~~2020, previously filed with the SEC (the ~~“2019~~“2020 Form 10-K”) on ~~May 27, 2020.~~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, 2020,~~March 31, 2021, its condensed consolidated results of operations for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ and its condensed consolidated cash flows for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ 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.

~~Going concern~~

The Company incurred operating losses and may continue to incur operating losses, and as a result, to generate negative cash flows as the Company implements its future business plan. The Company’s net loss attributable to stockholders for the nine and three months ended September 30, 2020 was approximately US$4.61 million and US$1.33 million, compared with approximately US$1.91 million and US$0.39 million for the nine and three months ended September 30, 2019, respectively. As of September 30, 2020, the Company had cash and cash equivalents of approximately US$0.50 million, compared with approximately US$1.60 million as of December 31, 2019.

The Company does not currently have sufficient cash or commitments for financing to sustain its operation for the twelve months from the issuance date of these financial statements. The Company plans to optimize its internet resources cost investment strategy to improve the gross profit margin of its core business and to further strengthen the accounts receivables collection management and negotiate with vendors for more favorable payment terms, all of which will help to substantially increase the cashflows from operations. However, the COVID-19 outbreak incurred in the first fiscal quarter of 2020 in the PRC has had and may continue to have an adverse effect on the Company’s business operations and cashflows. If the Company fails to achieve these goals, the Company may need additional financing to execute its business plan. If additional financing is required, the Company cannot predict whether this additional financing will be in the form of equity, debt, or another form, and the Company may not be able to obtain the necessary additional capital in a timely manner, on acceptable terms, or at all. In the event that financing sources are not available, or that the Company is unsuccessful in increasing its gross profit margin and reducing operating losses, the Company may be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

The unaudited condensed consolidated financial statements as of September 30, 2020 have been prepared under the assumption that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. The Company's ability to continue as a going concern is dependent upon its uncertain ability to increase gross profit margin and reduce operating loss from its core business and/or obtain additional financing. The accompanying financial statements as of September 30, 2020 do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on the financial statements.

Principles of consolidation

The unaudited condensed consolidated interim financial statements include the accounts 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.

d)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 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.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

e)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, 2020 December 31, 2019

Balance sheet items, except for equity accounts 6.8101 6.9762
March 31, 2021 December 31, 2020

Balance sheet items, except for equity accounts 6.5713 6.5249

Nine Months Ended September 30,
2020 2019

Items in the statements of operations and comprehensive loss 6.9917 6.8541

Three Months Ended September 30,
2020 2019

Items in the statements of operations and comprehensive loss 6.9205 6.9872
Three Months Ended March 31,
2021 2020

Items in the statements of operations and comprehensive income/(loss) 6.4844 6.9790

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

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

f)e)

Fair value measurement

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 are as follows:

Fair value measurement at reporting date using

As of
September 30, 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)
(Unaudited)

Warrant liabilities (Note 17) 103 - - 103

Fair value measurement at reporting date using

As of
March 31, 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) 10,919 - - 10,919

Fair value measurement at reporting date using

As of
December 31, 2019
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 17) 107 - - 107

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 - - 1,505

g)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,
	2020		2019		2020		2019		Three Months Ended March 31,
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		2021		2020
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		US$(’000)		US$(’000)
									(Unaudited)		(Unaudited)
Internet advertising and related services
--distribution of the right to use search engine marketing service		18,004		30,134		8,706		11,554		6,865		1,988
--online advertising placements		5,679		9,131		2,429		3,725		1,402		948
--sales of effective sales lead information		-		253		-		224
--data and technical services		900		10		300		5		-		300
Ecommerce O2O advertising and marketing services		1,276		-		269		-		129		503
Technical solution services		1,245		-		600		-		-		645
Total revenues	$	27,104	$	39,528	$	12,304	$	15,508		8,396		4,384

1211

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

	Nine Months Ended September 30,				Three Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Revenue recognized over time		25,859		39,275		11,704		15,284		8,396		3,739
Revenue recognized at a point in time		1,245		253		600		224		-		645
Total revenues	$	27,104	$	39,528	$	12,304	$	15,508		8,396		4,384

Contract costs

For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, that 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~~balances

The table below summarized the movement of the Company’s contract liabilities (advance from customers) for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:

	Contract liabilities
	US$(’000)

Balance as of January 1, ~~2020~~2021		~~2,006~~1,436
Exchange translation adjustment		49(10	)
Revenue recognized from beginning contract liability ~~balances~~balance		(~~1,681~~1,092	)
Advances received from customers related to unsatisfied performance obligations		~~2,448~~1,258
Balance as of ~~September 30, 2020~~March 31, 2021 (Unaudited)		~~2,822~~1,592

Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for both the ~~nine and~~ three months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ there is no revenue recognized from performance obligations that were satisfied in prior periods.

h)g)

Research and development expenses

The Company accounts for expenses for the enhancement, maintenance and technical support to the Company’s Internet platforms and intellectual properties that are used in its daily operations in research and development expenses. Research and development costs are charged to expense when incurred. Expenses for research and development for the ~~nine months ended September 30, 2020 and 2019 were approximately US$0.44 million and US$0.60 million, respectively. Expenses for research and development for the~~ three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were approximately US$~~0.11~~0.07 million and US$~~0.24~~0.21 million, respectively.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

i)h)

Lease

As of ~~September 30, 2020,~~March 31, 2021, operating lease right-of-use assets ~~recognized by the Company was approximately US$4,000. The Company had no~~and total operating lease liabilities ~~as of September 30, 2020.~~

~~For the nine months ended September 30, 2020 and 2019, total operating lease cost~~ recognized was approximately US$~~121,000 (including approximately US$114,000 of short-term lease cost)~~2.20 million and US$~~284,000 (including approximately US$194,000 of short-term lease cost),~~2.22 million, respectively.

~~For the three months ended September 30, 2020 and 2019, total~~Maturity of operating lease ~~cost recognized was approximately US$37,000 (including approximately US$35,000 of short-term~~liabilities

Operating leases
US$(’000)
(Unaudited)

Nine months ending December 31, 2021 192
Year ending December 31,
-2022 313
-2023 331
-2024 341
-2025 361
-2026 383
-thereafter 908
Total undiscounted lease payments 2,829
Less: imputed interest (609 )
Total operating lease liabilities as of March 31, 2021 2,220

Including:
Operating lease liabilities 267
Operating lease liabilities-Non current 1,953
2,220

Operating lease ~~cost) and US$66,000 (including approximately US$64,000 of short-term lease cost), respectively.~~expenses:

Three Months Ended March 31,
2021 2020
US$(’000) US$(’000)
(Unaudited) (Unaudited)

Long-term operating lease contracts 37 3
Short-term operating lease contracts 15 44
Total 52 47

Supplemental information related to operating leases:

	Three Month Ended March 31, 2021
	(Unaudited)

Operating cash flows used for operating leases (US$’000)		14
Right-of-use assets obtained in exchange for new lease liabilities (US$’000)		2,249
Weighted-average remaining lease term (years)		7.88
Weighted-average discount rate		6	%

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Accounts receivable, net

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)						(Unaudited)

Accounts receivable		6,278			6,408			5,911			6,654
Allowance for doubtful accounts		(3,996	)		(3,148	)		(4,217	)		(4,247	)
Accounts receivable, net		2,282			3,260			1,694			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, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the Company provided approximately US$~~4.00~~4.22 million and US$~~3.15~~4.25 million allowance for doubtful accounts, respectively, which were primarily related to the accounts receivable of the Company’s ~~internet~~Internet advertising and related services segment with an aging over six months. The Company evaluates its accounts receivable 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,~~March 31, 2021 and 2020, approximately US$~~0.75 million~~nil and US$~~nil~~0.41 million allowance for doubtful accounts was provided, respectively. ~~For the nine and three months ended September 30, 2019, approximately US$0.45 million and US$nil million allowance for doubtful accounts was provided, respectively.~~

Prepayments and deposit to suppliers ~~net~~

September 30,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

Deposits to internet resources providers 1,323 1,315
Prepayments to internet resources providers 4,121 4,361
Prepayment of license fee 591 1,062
Other deposits and prepayments 266 242
6,301 6,980

March 31,
2021

December 31,
2020
US$(’000) US$(’000)
(Unaudited)

Deposits to advertising resources providers 609 307
Prepayments to advertising resources providers 5,984 3,696
Other deposits and prepayments 601 654
7,194 4,657

6.	Due from related parties, net

	September 30, 2020			December 31, 2019			March 31, 2021		December 31, 2020
	US$(’000)			US$(’000)			US$(’000)		US$(’000)
	(Unaudited)						(Unaudited)

Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)		58			81			60		61
Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua Shiji”)		176			172
		234			253
Allowance for doubtful accounts		(176	)		(172	)
Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”)								42		-
Due from related parties, net		58			81			102		61

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

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, due from Zhongwang Xiyue represented the outstanding receivable for the advertising and marketing service that the Company provided to this related party in its normal course of business, which is on the same terms as those provided to its unrelated ~~clients~~.clients.

As of ~~September 30, 2020 and~~ ~~December~~March 31, ~~2019,~~2021, due from ~~related parties also included~~Gong Xiang Technology was a short-term working capital loan ~~of RMB1.2 million (approximately US$0.18 million)~~provided to ~~Guohua Shiji,~~this investee entity, which loan is expected to be repaid to the Company ~~had provided full allowance to against~~.for the year ending December 31, 2021.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Other current assets, net

	September 30, 2020							December 31,2019							March 31, 2021						December 31,2020
	Gross		Allowance for doubtful accounts			Net		Gross		Allowance for doubtful accounts			Net		Gross		Allowance for doubtful accounts		Net		Gross		Allowance for doubtful accounts		Net
	US$(’000)		US$(’000)			US$(’000)		US$(’000)		US$(’000)			US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)			(Unaudited)									(Unaudited)		(Unaudited)		(Unaudited)

Staff advances for business operations		17		-			17		11		-			11		9		-		9		18		-		18
Short-term loan to an unrelated party		944		-			944		-		-			-		1,756		-		1,756		1,444		-		1,444
Overdue deposits		734		(734	)		-		717		(717	)		-
Total		1,695		(734	)		961		728		(717	)		11		1,765		-		1,765		1,462		-		1,462

As of ~~September 30, 2020,~~March 31, 2021, other current assets primarily include a temporary working capital loan that the Company ~~lent~~provided to an unrelated ~~party during the nine months ended September 30, 2020.~~party. This loan is unsecured, interest free, of which approximately US$0.76 million has been repaid to the Company as of the date hereof, and ~~payment on demand.~~the remaining outstanding balance is expected to be repaid to the Company for the year ending December 31, 2021.

As of September 30, 2020 and December 31, 2019, other current assets also included an approximately RMB5 million (approximately US$0.7 million) overdue contractual deposit related to an advertising resources purchase contract that had been completed with no further cooperation. Based on the assessment of the collectability of this overdue deposit as of September 30, 2020 and December 31, 2019, the Company had provided full allowance to against this doubtful account.

8.	Long-term investments

Gong Xiang Technology Xiao Peng Education Business Opportunity Chain Guangzhou Local Chain Xi’an Total
US$(’000) US$(’000) US$(’000) US$(’000) US$(’000)

Balance as of January 1, 2021 - - 29 38 67
Exchange translation adjustment - - - (1 ) (1 )
Cash investment during the year 228 78 32 - 338
Balance as of March 31, 2021 (Unaudited) 228 78 61 37 404

As of ~~September 30, 2020,~~March 31, 2021, the ~~Company’s long-term investments consisted of an investment of approximately RMB0.25 million (approximately US$0.03 million)~~Company beneficially owned a 15%, 17%, 19% and ~~an investment of RMB0.19 million (approximately US$0.03 million)~~4.9% equity interest in ~~cash to two of its indirect equity ownership investee entities, Local Chain Xi’an Information~~Guangzhou Gong Xiang Technology Co., Ltd. (“~~Local Chain Xi’an”~~Gong Xiang Technology”) ~~and~~, Xiao Peng Education Technology (Hubei) Co., Ltd. (“Xiao Peng Education”), Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), ~~respectively. The Company beneficially owns a 4.9%~~ and ~~a 19% equity interest in~~ Local Chain Xi’an ~~and Business Opportunity~~Information Technology Co., Ltd. (“Local Chain ~~Guangzhou,~~Xi’an”), respectively.

The Company measures ~~these investments~~each investment which dodoes 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 similar investment of the Company.

~~In July 2020, due to the facts that~~ Shenzhen City Mingshan Network Technology Co., Ltd. (“Shenzhen Mingshan”) and ChinaNet Chuang Tou (Shenzhen) Co., Ltd. (“ChinaNet Chuang Tou”) had become dormant since 2015 and 2018, respectively, ~~as approved by all the respective shareholders of~~ these two entities, ChinaNet Chuang Tou and Shenzhen Mingshan were officially closed and deregistered with the competent local authorities. The Company used to own a 19% and a 23.18% equity interest in ChinaNet Chuang Tou and Shenzhen Mingshan, respectively. The Company’s equity investments in these entities had been fully impaired in previous years before the deregistration.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Property and equipment, net

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)						(Unaudited)

Vehicles		777			758			805			811
Office equipment		1,363			1,331			890			894
Electronic devices		960			937			610			615
Property and equipment, cost		3,100			3,026			2,305			2,320
Less: accumulated depreciation		(3,026	)		(2,948	)		(2,244	)		(2,260	)
Property and equipment, net		74			78			61			60

~~Depreciation expenses for the nine months ended September 30, 2020 and 2019 were approximately US$6,000 and US$53,000, respectively.~~ Depreciation expenses for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were approximately US$~~2,000~~0.001 million and US$~~10,000,~~0.002 million, respectively.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

10.	Intangible assets, net

As of September 30, 2020 (Unaudited)
Items
Gross
Carrying
Value

Accumulated
Amortization
Impairment
Net
Carrying
Value
US$(’000) US$(’000) US$(’000) US$(’000)
Intangible assets not subject to amortization:
Domain name 1,418 - (1,418 ) -
Intangible assets subject to amortization:
Customer relationship 1,956 (1,956 ) - -
Non-compete agreements 1,076 (584 ) (492 ) -
Software technologies 301 (301 ) - -
Intelligent marketing data service platform 4,741 (1,920 ) (2,821 ) -
Internet safety, information exchange security and data encryption software 1,909 (430 ) (1,479 ) -
Cloud video management system 1,395 (346 ) (1,049 ) -
Cloud compute software technology 1,363 (932 ) (418 ) 13
Licensed products use right 1,208 (105 ) - 1,103
Other computer software 875 (703 ) - 172
Total $ 16,242 $ (7,277 ) $ (7,677 ) $ 1,288
As of March 31, 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 1,412 (975 ) (433 ) 4
Internet Ad tracking system 1,160 - - 1,160
Live streaming technology 1,500 (100 ) - 1,400
Licensed products use right 1,205 (166 ) - 1,039
Other computer software 119 (119 ) - -
Total $ 5,396 $ (1,360 ) $ (433 ) $ 3,603

As of December 31, 2019
Items
Gross
Carrying
Value

Accumulated
Amortization
Impairment
Net
Carrying
Value
US$(’000) US$(’000) US$(’000) US$(’000)
Intangible assets not subject to amortization:
Domain name 1,385 - (1,385 ) -
Intangible assets subject to amortization:
Customer relationship 1,909 (1,909 ) - -
Non-compete agreements 1,051 (571 ) (480 ) -
Software technologies 294 (294 ) - -
Intelligent marketing data service platform 4,629 (1,876 ) (2,753 ) -
Internet safety, information exchange security and data encryption software 1,863 (419 ) (1,444 ) -
Cloud video management system 1,362 (338 ) (1,024 ) -
Cloud compute software technology 1,331 (898 ) (408 ) 25
Licensed products use right 1,202 (15 ) - 1,187
Other computer software 872 (185 ) - 687
Total $ 15,898 $ (6,505 ) $ (7,494 ) $ 1,899
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 ) - 1,475
Licensed products use right 1,208 (135 ) - 1,073
Other computer software 120 (120 ) - -
Total $ 4,251 $ (1,258 ) $ (436 ) $ 2,557

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Amortization expenses for the nine months ended September 30, 2020 and 2019 were approximately US$616,000 and US$13,000, respectively.~~ Amortization expenses for the three months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ were approximately US$~~205,000~~0.11 million and US$~~4,000,~~0.21 million, respectively.

Based on the adjusted carrying value of the finite-lived intangible assets after the deduction of the impairment losses, which has a weighted average remaining useful life of ~~5.77~~5.90 years as of ~~September 30, 2020,~~March 31, 2021, and assuming no further subsequent impairment of the underlying intangible assets, thethe estimated future amortization expenses is approximately US$~~0.21 million for the year ending December 31, 2020, approximately US$0.13~~0.49 million for the year ending December 31, 2021, ~~and~~ approximately US$~~0.12~~0.65 million each year for the year ending December 31, 2022 through 2024,. approximately US$0.63 million for the year ending December 31, 2025, and approximately US$0.18 million for the year ending December 31, 2026.

11.	Blockchain ~~software application~~ platform applications development costs

In ~~February~~ 2018, the Company entered into a technical development ~~contract~~contracts with antwo unrelated ~~entity to develop a~~entities for the development of two blockchain technology-based platform ~~application for internal use by the Company. Total~~applications with a contract amount of ~~the contract was~~ US$~~4.5 million. In March 2018, the Company entered into a~~4.50 million and RMB3.0 million (approximately US$~~0.44~~0.46 million) social network-based software application development contract with another unrelated entity, which software application the Company had further combined into the current under developing blockchain technology-based platform., respectively. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of ~~September 30, 2020 and December~~March 31, ~~2019,~~2021, in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company capitalized approximately US$~~4.19 million and US$3.88~~4.40 million development costs in the aggregate under these two contracts, respectively. ~~As of the date hereof,~~During 2020, the Company ~~is in the process~~further developed its Blockchain Integrated Framework (“BIF”) for retail business, to provide a framework platform for more accessible and efficient integration of ~~further developing~~small and ~~adjusting its blockchain-powered applications on the blockchain infrastructure platform to make the platform a better synergism with the current~~medium sized retail business ~~and client base.~~users. The Company ~~originally scheduled to complete the adjustments and upgrades of Bo!News, to launch the OMG for trial by the end of May 2020, and~~plans to complete the integration of BO!News and OMG onto BIF for commercial release by the first half of 2021 and launch BIF to retail business users before the end of ~~2020. However, due to~~ the ~~COVID-19 outbreak in China during the first~~third fiscal quarter of ~~2020, the Company currently anticipates that the commercial releasing schedule will likely be postponed.~~2021.

According to the development contracts the Company signed with the counter parties, the Company will not bear any development risk related loss unless the counter party has no fault during the development and the causes for failure is considered reasonable as agreed by both parties. In the latter case, the related development loss will be shared by both parties based on further negotiations. As of the date hereof, the Company has not been aware of any technical risks or other factors that may lead to any failure or partial failure of these development projects.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

12.

Long-term deposits and prepayments

As of ~~September 30, 2020,~~March 31, 2021, long-term deposits and prepayments represented a portion of the Company’s deposits and prepayments of which approximately US$0.37 million was paid to one of its advertising resource suppliers and the remaining approximately US$0.10 million was paid to one of its professional service suppliers. The Company recorded these amounts as long-term prepayments because theythat were not expected to be refunded or consumed within one year of ~~September 30, 2020.~~

March 31, 2021.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

13.

~~Short-term bank loan and credit facility~~

As of December 31, 2019, the Company had a revolving credit facility of RMB5.0 million (approximately US$0.7 million) for short-term working capital loans granted by a major financial institution in China, which expired in January 2020.

~~As of December 31, 2019, under the revolving credit facility, the Company borrowed RMB3.0 million (approximately US$0.43 million) short-term bank loan, which matured and was repaid in January 2020.~~

~~14.~~

Accrued payroll and other accruals

	September 30, 2020		December 31, 2019		March 31, 2021		December 31, 2020
	US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)				(Unaudited)

Accrued payroll and staff welfare		237		173		118		229
Accrued operating expenses		205		318		168		260
		442		491		286		489

~~15.~~14.

Taxation

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, taxes payable consists of:

September 30,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

PRC turnover tax and surcharge payable 1,280 1,244
PRC enterprise income tax payable 2,010 1,970
Total taxes payable 3,290 3,214

March 31,
2021

December 31,
2020
US$(’000) US$(’000)
(Unaudited)

Turnover tax and surcharge payable 1,321 1,353
Enterprise income tax payable 2,064 2,077
Total taxes payable 3,385 3,430

For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ the Company’s income tax ~~benefit~~benefit/(expense) consisted of:

	Nine Months Ended September 30,				Three Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Current		-		-		57		-		-		(83	)
Deferred		87		10		98		16		18		5
Income tax benefit		87		10		155		16
Income tax benefit/(expense)										18		(78	)

The Company’s deferred tax assets as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were as follows:

	September 30, 2020			December 31, 2019			March 31, 2021			December 31, 2020
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)						(Unaudited)

Tax effect of net operating losses carried forward		10,148			9,160			10,414			10,123
Bad debts provision		890			743			724			728
Valuation allowance		(10,223	)		(9,190	)		(10,514	)		(10,245	)
Deferred tax assets, net		815			713			624			606

1817

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The U.S. holding company has incurred aggregate ~~NOLs~~net operating losses (NOLs) of approximately US$~~22.8~~23.5 million and US$~~20.3~~23.3 million ~~as of September 30, 2020~~at March 31, 2021 and December 31, ~~2019,~~2020, respectively. The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward ~~indefinitely, subject to~~indefinitely. Furthermore, the Act imposes 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 against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets.

The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately US$~~25.2~~23.5 million and US$~~23.6~~22.5 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. The losses carryforwards gradually expire over time, the last of which ~~expires~~will expire in ~~2030~~2031 due to the fact that 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 NOLs 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$~~10.22~~10.5 million and US$~~9.19~~10.2 million valuation allowance as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively, because it is considered more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses related.

For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, the Company recorded approximately US$~~0.90~~0.31 million and US$~~0.14~~0.55 million deferred tax valuation allowance, respectively. For the nine months ended September 30, 2019, the Company recorded approximately US$0.42 million deferred tax valuation allowance. For the three months ended September 30, 2019, the Company reversed approximately US$0.03 million deferred tax valuation allowance.

~~16.~~15.

Long-term borrowing from a director

Long-term borrowing from a director is a non-interest bearing loan from a director 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.

~~17.~~16.

~~Warrant~~The Financing and warrant liabilities

The February 2021 Financing:

On February 18, 2021 (the “Closing Date”), the Company consummated a registered direct offering ~~in January 2018~~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 ~~“2018~~“February 2021 Financing”)~~, as~~. As part of the transaction, the Company also issued to the investors ~~and the placement agent~~ warrants to purchase up to ~~645,000 shares and 129,000~~2,606,000 shares of the Company’s common stock at an exercise price of ~~$6.60~~US$3.59 per share ~~respectively.~~(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 ~~accounted~~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 61^st day after such notice is delivered to the Company.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Accounting for ~~these warrants~~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 ~~derivative liabilities.~~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, ~~these warrants were remeasured~~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 ~~as of each reporting date~~ with changes in fair value be recorded in earnings in each reporting period.

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
	Investors warrants								Placement agent warrants
	December 31, 2019			June 30, 2020			September 30, 2020 #		December 31, 2019			June 30, 2020			September 30, 2020			2021 Investor Warrants			2021 Placement Agent Warrants

Stock price	$	1.17		$	1.00				$	1.17		$	1.00		$	2.02		$	4.48		$	4.48
Years to maturity		0.55			0.05					1.05			0.55			0.30			3.50			3.50
Risk-free interest rate		1.58	%		0.19	%				1.57	%		0.18	%		0.13	%		0.26	%		0.26	%
Dividend yield		-			-					-			-			-			-			-
Expected volatility		60	%		143	%				80	%		112	%		133	%		168	%		168	%
Exercise Price *	$	1.4927		$	1.4927				$	1.4927		$	1.4927		$	1.4927
Exercise Price																		$	3.59		$	4.4875

Fair value of the warrant	$	0.11		$	0.02		$	-	$	0.28		$	0.20		$	0.80		$	4.02		$	3.96

Warrant Liabilities (US$’000)	$	71		$	13		$	-	$	36		$	26		$	103
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.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Investors warrants Placement agent warrants
December 31,
2018 June 30,
2019 September 30,
2019 December 31,
2018 June 30,
2019 September 30,
2019

Stock price $ 1.34 $ 1.35 $ 1.30 $ 1.34 $ 1.35 $ 1.30
Years to maturity 1.55 1.05 0.80 2.05 1.55 1.30
Risk-free interest rate 2.50 % 1.73 % 1.79 % 2.50 % 1.73 % 1.57 %
Dividend yield - - - - - -
Expected volatility 199 % 90 % 82 % 176 % 202 % 83 %
Exercise Price $ 6.60 $ 6.60 $ 1.4927 $ 6.60 $ 6.60 $ 1.4927

Fair value of the warrant $ 0.78 $ 0.05 $ 0.31 $ 0.80 $ 0.80 $ 0.43

Warrant Liabilities (US$’000) $ 503 $ 32 $ 200 $ 103 $ 103 $ 55

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 measure at fair value with changes in fair value be recorded in earnings in each reporting period.

For the three months ended March 31, 2021:

Warrants issued in the February 2021 Financing:

As of March 31, 2021

2021 Investor
Warrants 2021 Placement
Agent Warrants

Stock price $ 2.64 $ 2.64
Years to maturity 3.38 3.38
Risk-free interest rate 0.41 % 0.41 %
Dividend yield - -
Expected volatility 168 % 168 %
Exercise Price $ 3.59 $ 4.4875

Fair value of the warrant $ 2.28 $ 2.24

Warrant liabilities (US$’000) $ 5,942 $ 817

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
As of
March 31, 2021 As of
December 31, 2020

Stock price $ 2.64 $ 1.35
Years to maturity 2.70 2.95
Risk-free interest rate 0.29 % 0.17 %
Dividend yield - -
Expected volatility 120 % 102 %
Exercise Price $ 2.03 $ 2.03

Fair value of the warrant $ 1.95 $ 0.74

Investor warrants liabilities (US$’000) $ 3,370 $ 1,279

Placement agent warrants liabilities (US$’000) $ 590 $ 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, ~~as a result of the close on the first half of a private placement with a selected group of investors,~~ the exercise price of the ~~warrants~~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.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

2018 Placement Agent Warrants
As of
March 31, 2021 As of
December 31, 2020

Stock price $ 2.64 $ 1.35
Years to maturity 0.30 0.05
Risk-free interest rate 0.03 % 0.08 %
Dividend yield - -
Expected volatility 206 % 59 %
Exercise Price $ 1.4927 $ 1.4927

Fair value of the warrant $ 1.55 $ 0.02

Warrant liabilities (US$’000) $ 200 $ 2

For the three months ended March 31, 2020:

Warrants issued in the 2018 ~~Financing that contain the “full ratchet” price protection in the event of subsequent issuances below the applicable exercise price (the “Down round feature”) was adjusted to $1.4927.~~

~~# The investor warrants had expired during the three months ended September 30, 2020.~~Financing:

2018 Investor Warrants 2018 Placement Agent Warrants
As of
March 31, 2020 As of
December 31, 2019 As of
March 31, 2020 As of
December 31, 2019

Stock price $ 0.95 $ 1.17 $ 0.95 $ 1.17
Years to maturity 0.30 0.55 0.80 1.05
Risk-free interest rate 0.10 % 1.58 % 0.13 % 1.57 %
Dividend yield - - - -
Expected volatility 99 % 60 % 78 % 80 %
Exercise Price $ 1.4927 $ 1.4927 $ 1.4927 $ 1.4927

Fair value of the warrant $ 0.07 $ 0.11 $ 0.12 $ 0.28

Warrant liabilities (US$’000) $ 45 $ 71 $ 16 $ 36

Changes in fair value of warrant liabilities

~~Nine and~~ Three Months Ended ~~September 30,~~March 31, 2021 (Unaudited)

As of
March 31, 2021

As of
February 18, 2021

As of
December 31, 2020

Change in Fair Value
(gain)/loss
(US$’000) (US$’000) (US$’000) (US$’000)
Fair value of the Warrants:

Warrants issued in the February 2021 Financing:
--Investor Warrants 5,942 10,476 * (4,534 )
--Placement Agent Warrants 817 1,445 * (628 )
Warrants issued in the 2020 Financing:
--Investor Warrants 3,370 * 1,279 2,091
--Placement Agent Warrants 590 * 224 366
Warrants issued in the 2018 Financing:
--Placement Agent Warrants 200 * 2 198
Warrant liabilities 10,919 11,921 1,505 (2,507 )

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended March 31, 2020 (Unaudited)

	As of	As of	As of	Change in Fair Value (gain)/loss				As of March 31, 2020		As of December 31, 2019		Change in Fair Value (gain)/loss
	September 30, 2020	June 30, 2020	December 31, 2019	Nine Months Ended September 30, 2020		Three Months Ended September 30, 2020		US$’000		US$’000		US$’000
Fair value of the Warrants:
Investor warrants	-	13	71	(71	)	(13	)
Placement agent warrants	103	26	36	67		77

Warrants issued in the 2018 Financing:
--Investor Warrants									45		71		(26	)
--Placement Agent Warrants									16		36		(20	)
Warrant liabilities	103	39	107	(4	)	64			61		107		(46	)

~~Nine and Three Months Ended September 30, 2019 (Unaudited)~~

As of As of As of
Change in Fair Value (gain)/loss

September 30,
2019

June 30,
2019

December 31,
2018

Nine Months Ended
September 30, 2019

Three Months Ended
September 30, 2019

Fair value of the Warrants:
Investor warrants 200 32 503 (303 ) 168
Placement agent warrants 55 103 103 (48 ) (48 )
Warrant liabilities 255 135 606 (351 ) 120

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Warrants issued and outstanding as of ~~September 30, 2020~~March 31, 2021 and their movements during the ~~nine~~three 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, 2020 774,000 0.63 $ 1.4927 774,000 0.63 $ 1.4927
Granted/Vested - -
Expired (645,000 ) (645,000 )
Exercised - -
Balance, September 30, 2020 (Unaudited) 129,000 0.13 $ 1.4927 129,000 0.13 $ 1.4927
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 3.38 $ 3.70 2,606,000 3.38 $ 3.59
Forfeited - -
Exercised - -
Balance, March 31, 2021 (Unaudited) 5,130,705 3.04 $ 2.98 2,735,000 3.24 $ 3.49

~~18.~~17.

Restricted net assets

As substantially all of the Company’s operations are conducted through its PRC subsidiaries and VIEs, the Company’s ability to pay dividends is primarily dependent on receiving distributions of funds from its PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by its PRC subsidiaries 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 subsidiaries 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.

In accordance with these PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of the Company’s PRC subsidiaries and VIEs that are included in the Company’s consolidated net assets, were ~~both~~ approximately US$~~6.21 million.~~13.2 million and US$8.2 million, respectively.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The current PRC Enterprise Income Tax (“EIT”) Law also imposes 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, subject to approval from the related PRC tax authorities.~~

The ability of the Company’s PRC subsidiaries 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.

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.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Although the current Exchange Rules allow the converting 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.

~~19.~~18.

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$~~0.08~~0.05 million and US$~~0.26 million for the nine months ended September 30, 2020 and 2019, respectively. The total amounts for such employee benefits were approximately US$0.03 million and US$0.09~~0.04 million for the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively.

~~20.~~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, accounts receivable and ~~accounts receivable.~~loans to unrelated parties. As of ~~September 30, 2020, substantially all~~Mach 31, 2021, 33% of the Company’s cash and cash equivalents were held by major financial institutions located in ~~China.~~Mainland and Hong Kong, China, the remaining 67% 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 receivable 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 receivable 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 receivable isand loans to unrelated parties are significantly ~~reduced~~.reduced.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Concentration of customers

The following tables summarized the information about the Company’s concentration of customers for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:

	Customer A	Customer B	Customer C	Customer D	Customer E	Customer F	Customer A			Customer B			Customer C			Customer D			Customer E			Customer F			Customer G

Nine Months Ended September 30, 2020
Three Months Ended March 31, 2021																				18	%		-			-
Revenues, customer concentration risk	*	*	16%	*	*	-		*			*			-			-

Three Months Ended September 30, 2020
Three Months Ended March 31, 2020
Revenues, customer concentration risk	*	*	21%	*	*	-		*			-			*			*			-			15	%		11	%

Nine Months Ended September 30, 2019
Revenues, customer concentration risk	11%	*	*	-	-	*

Three Months Ended September 30, 2019
Revenues, customer concentration risk	*	*	*	-	-	10%

As of September 30, 2020
As of March 31, 2021
Accounts receivable, customer concentration risk	33%	*	*	27%	15%	-		38	%		34	%		-			-			-			-			-

As of December 31, 2019
As of December 31, 2020
Accounts receivable, customer concentration risk	57%	13%	12%	-	-	-		28	%		-			27	%		21	%		-			-			-

* Less than 10%.

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

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

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,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:

Supplier A Supplier B Supplier C
Three Months Ended March 31, 2021
Cost of revenues, supplier concentration risk 52 % 30 % *

Three Months Ended March 31, 2020
Cost of revenues, supplier concentration risk - 71 % 11 %

* Less than 10%.

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

		~~Supplier A~~

~~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%~~

~~Nine Months Ended September 30, 2019~~
~~Cost of revenues, supplier concentration risk~~		~~90%~~

~~Three Months Ended September 30, 2019~~
~~Cost of revenues, supplier concentration risk~~		~~88%~~

~~21.~~20.

Commitments and contingencies

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$~~4.94~~4.96 million. As of ~~September 30, 2020,~~March 31, 2021, the Company had paid approximately US$~~4.19~~4.40 million in the ~~aggerate, and the~~aggregate. The remaining unpaid contract amount is expected to be paid during the year ending December 31, ~~2020.~~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.

~~22.~~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.

Previously, the Company had four reportable segments, which were Internet advertising and related services, TV advertising service, Blockchain technology and Corporate. From fiscal 2020, the Company has a new reportable segment, which is Ecommerce O2O advertising and marketing services segment. In additional, due to the Company’s TV advertising business gradually became dormant since fiscal 2019, and the remaining general operating expenses, net loss and total assets amounts of the Company’s TV advertising segment were and are expected to continue be immaterial, the Company combines the results of operations of its TV advertising segment and other disclosure information with its new Ecommerce O2O advertising and marketing services segment in fiscal 2020. As a result, the related disclosures for the respective corresponding periods in fiscal 2019 have been reclassified in comfort with the disclosures in fiscal 2020.

2324

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Nine~~Three Months Ended ~~September 30, 2020~~March 31, 2021 (Unaudited)

		Internet Ad and related service			Ecommerce O2O Ad and marketing services		Blockchain technology			Corporate			Inter-segment and reconciling item			Total		Internet Ad and related services			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$(‘000)			US$(‘000)

Revenues		24,583			1,276		-			1,245			-			27,104			8,267			129			-			-			-			8,396
Cost of revenues		24,847			1,125		-			576			-			26,548			8,738			375			-			-			-			9,113
Total operating expenses		2,361			15		5			2,875	(1)		-			5,256			383			203			1			511	(1)		-			1,098
Depreciation and amortization expense included in total operating expenses		617			-		2			3			-			622			35			75			1			1			-			112
Operating (loss)/income		(2,625	)		136		(5	)		(2,206	)		-			(4,700	)
Operating loss																			(854	)		(449	)		(1	)		(511	)		-			(1,815	)

Change in fair value of warrant liabilities		-			-		-			4			-			4			-			-			-			2,507			-			2,507

Net (loss)/income																			(954	)		(449	)		(1	)		2,091						687

Expenditure for long-term assets		-			-		302			-			-			302			1,160			-			-			-			-			1,160

Net (loss)/income		(2,543	)		110		(5	)		(2,175	)		-			(4,613	)

Total assets- September 30, 2020		10,830			2,093		4,193			21,224			(21,330	)		17,010
Total assets-December 31, 2019		13,332			2,075		3,885			21,338			(22,079	)		18,551
Total assets-March 31, 2021																			11,186			5,192			4,405			43,034			(25,190	)		38,627
Total assets-December 31, 2020																			8,310			3,206			4,409			27,766			(23,024	)		20,667

(1)

Including approximately US$~~2,066 thousands~~0.10 million share-based compensation expenses.

Three Months Ended ~~September 30,~~March 31, 2020 (Unaudited)

		Internet Ad. and related service			Ecommerce O2O Ad and marketing services			Blockchain technology			Corporate			Inter-segment and reconciling item		Total		Internet Ad. and related services			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)		US$ (‘000)

Revenues		11,435			269			-			600			-		12,304			3,236			503		-			645			-		4,384
Cost of revenues		11,994			375			-			576			-		12,945			3,110			375		-			-			-		3,485
Total operating expenses		409			6			1			347	(1)		-		763			1,022			4		1			2,148	(1)		-		3,175
Depreciation and amortization expense included in total operating expenses		205			-			1			1			-		207			206			-		-			1			-		207
Operating loss		(968	)		(112	)		(1	)		(323	)		-		(1,404	)
Operating (loss)/income																			(896	)		124		(1	)		(1,503	)		-		(2,276	)

Change in fair value of warrant liabilities		-			-			-			(64	)		-		(64	)		-			-		-			46			-		46

Net loss		(893	)		(94	)		(1	)		(345	)		-		(1,333	)
Net (loss)/income																			(893	)		103		(1	)		(1,519	)		-		(2,310	)

Expenditure for long-term assets																			-			-		302			-			-		302

(1)

Including approximately US$~~79 thousands~~1.92 million share-based compensation expenses.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Nine Months Ended September 30, 2019 (Unaudited)~~

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)

Revenues 39,528 - - - - 39,528
Cost of revenues 37,828 - - - - 37,828
Total operating expenses 2,525 42 18 1,350 (1) - 3,935
Depreciation and amortization expense included in total operating expenses 47 - 2 17 - 66
Operating loss (825 ) (42 ) (18 ) (1,350 ) - (2,235 )

Change in fair value of warrant liabilities - - - 351 - 351

Expenditure for long-term assets 760 - - - - 760

Net loss (854 ) (42 ) (18 ) (999 ) - (1,913 )

~~(1)~~

~~Including approximately US$307 thousands share-based compensation expenses.~~

~~Three Months Ended September 30, 2019 (Unaudited)~~

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)

Revenues 15,508 - - - - 15,508
Cost of revenues 14,616 - - - - 14,616
Total operating expenses 675 6 7 479 (1) - 1,167
Depreciation and amortization expense included in total operating expenses 12 - 1 1 - 14
Operating income/(loss) 217 (6 ) (7 ) (479 ) - (275 )

Change in fair value of warrant liabilities - - - (120 ) - (120 )

Expenditure for long-term assets 760 - - - - 760

Net income/(loss) 221 (6 ) (7 ) (599 ) - (391 )

~~(1)~~

~~Including approximately US$104 thousands share-based compensation expenses.~~

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~23.~~22.

~~Loss~~Earnings/(Loss) per share

Basic and diluted ~~loss~~income/(loss) 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,
2020 2019 2020 2019
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net loss attributable to ZW Data Technologies Inc. (numerator for basic and diluted loss per share) $ (4,611 ) $ (1,905 ) $ (1,333 ) $ (388 )

Weighted average number of common shares outstanding -Basic and diluted 21,271,301 16,447,233 21,720,259 16,517,440

Loss per share-Basic and diluted $ (0.22 ) $ (0.12 ) $ (0.06 ) $ (0.02 )
Three Months Ended March 31,
2021 2020
US$(’000) US$(’000)
(Unaudited) (Unaudited)

Net income/(loss) attributable to ZW Data Action Technologies Inc. (numerator for basic and diluted income/(loss) per share) $ 685 $ (2,310 )

Weighted average number of common shares outstanding -Basic and diluted 28,505,181 20,397,406

Income/(loss) per share -Basic and diluted $ 0.02 $ (0.11 )

For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, the diluted ~~loss~~earnings/(loss) per share calculation did not include any outstanding warrants and options to purchase ~~up to 129,000 and 277,976 shares of~~ the Company’s common stock, ~~respectively,~~ because their effect was ~~anti-dilutive, as the Company incurred a loss for both periods.~~

For the nine and three months ended September 30, 2019, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 835,216 shares of the Company’s common stock, respectively, because their effect was anti-dilutive, as the Company incurred a net loss for both periods.anti-dilutive.

~~ZW DATA ACTION TECHNOLOGIES INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~24.~~23.

Share-based compensation expenses

In ~~February~~March 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued ~~in the aggregate of approximately 1.60~~0.03 million fully-vested shares of the Company’s restricted common stock to ~~its management and employees~~one of the Company’s independent directors for ~~their services provided.~~his service to the Company for the year ending December 31, 2021. These shares were valued at the closing bid price of the Company’s common stock on the date of grant, which iswas US$~~1.18~~3.13 per share. Total compensation expenses ofamortized for the three months ended March 31, 2021 was approximately US$~~1.89 million was recorded for the nine months ended September 30, 2020.~~0.02 million.

InFor the three months ended March 31, 2021, the Company also amortized an approximately US$0.08 million compensation expense in the aggregate, 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 first fiscal quarter of 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued ~~0.03~~in the aggregate of approximately 1.63 million fully-vested shares of the Company’s restricted common stock to ~~one of~~ its ~~independent directors in exchange for his services for the year ending December 31, 2020.~~management, employees and directors. These shares were valued at the closing bid price of the Company’s common stock on the respective date of ~~grant, which is US$1.11 per share.~~grant. Total compensation expenses ~~recognized~~of approximately US$1.90 million was recorded for the ~~nine and~~ three months ended ~~September 30, 2020 was approximately US$0.02 million and US$0.01 million, respectively.~~March 31, 2020.

~~In March~~

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

During the first fiscal quarter of 2020, the Company also granted and issued ~~0.43 million~~430,000 shares of the Company restricted common stock to a management consulting and advisory service provider in exchange for its service for a two-year ~~period until February 2022.~~period. According to the service agreement, these shares are fully-vested upon issuance at the contract inception and shall not be subject to forfeiture upon termination of the agreement. The Company valued these shares at US$1.11 per share, the closing bid price of the Company’s common stock on the grant date of these shares and recorded the related total cost of approximately US$0.48 million as a prepayment asset in prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total compensation expenses amortized for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2020 was approximately US$~~0.14 million and US$0.06~~0.02 million.

In August 2020, the Company granted and issued 0.05 million shares of the Company restricted common stock to a information technology consulting and advisory service provider in exchange for its service for a one-year period ending July 2021. According to the service agreement, these shares are fully-vested upon issuance at the contract inception and shall not be subject to forfeiture upon termination of the agreement. The Company valued these shares at US$1.36 per share, the closing bid price of the Company’s common stock on the grant date of these shares and recorded the related total cost of approximately US$0.07 million as a prepayment asset in prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total compensation expenses amortized for the nine and three months ended September 30, 2020 was approximately US$0.01 million for both periods.

The table below summarized share-based compensation expenses recorded for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively:

	Nine Months Ended September 30,				Three Months Ended September 30,				Three Months Ended March 31,
	2020		2019		2020		2019		2021		2020
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Sales and marketing expenses		122		-		-		-		-		122
General and administrative expenses		1,798		307		79		104		100		1,651
Research and development expenses		146		-		-		-		-		146
Total		2,066		307		79		104		100		1,919

The aggregate unrecognized share-based compensation expenses as of ~~September 30, 2020~~March 31, 2021 was approximately US$~~0.40~~0.31 million, of which approximately US$~~0.08 million will be recognized for the year ending December 31, 2020, approximately US$0.28~~0.27 million will be recognized for the year ending December 31, 2021 and approximately US$0.04 million will be recognized for the year ending December 31, 2022.

Options issued and outstanding as of March 31, 2021 and their movements during the three 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 - -
Forfeited - -
Exercised - -
Balance, March 31, 2021 (Unaudited) 277,976 0.66 $ 3.00 277,976 0.66 $ 3.00

~~ZW DATA ACTION TECHNOLOGIES INC.~~

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Options issued and outstanding as of September 30, 2020 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, 2020 755,216 1.15 $ 2.43 755,216 1.15 $ 2.43
Granted/Vested - -
Expired (477,240 ) $ 2.10 (477,240 ) $ 2.10
Exercised - -
Balance, September 30, 2020 (Unaudited) 277,976 1.16 $ 3.00 277,976 1.16 $ 3.00

~~25.~~24.

Subsequent event

In October 2020, the Company incorporated a new majority-owned subsidiary, Qiweilian (Guangzhou) Technology Co., Ltd. (“Qiweilian”), in which an unrelated party owns 49% and the Company owns 51% equity interest. Qiweilian was established for the development of digital business promotion services to SMEs based on WeChat.

The Company primarily conducts its operations in the PRC. In January 2020, an outbreak of a 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 ~~outbreak caused the Chinese government to require businesses to close, people to quarantine, and also to restrict certain travel within the country. The~~ spread of COVID-19 ~~has~~ resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. In cooperation with the government authorities, the Company’s operating offices (especially that in Xiaogan City, Hubei province) were shut down for approximately one to two months after the Chinese New Year Holiday and were unable to reopen until mid-March or early-April in 2020. The Company’s ~~principle~~principal business activity is to provide ~~online~~ 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. While the COVID-19 pandemic is still in developing stages worldwide, international stock markets have begun to reflect the uncertainty associated with the slow-down in the global economy and the reduced levels of international travel experienced since the beginning of January 2020, large declines in oil prices and the significant decline in the Dow Industrial Average at the end of February 2020 and beginning of March 2020 was largely attributed to the effects of COVID-19. Although the Chinese government ~~have~~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 ~~remainder of the year.~~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 of this consolidated financial statements.

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

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, ~~2019.~~2020. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

Our company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is engaged in providing Internet advertising, precision marketing, ~~online to offline sales channel expansion~~other ecommerce O2O advertising and marketing services and the related data and technical services to SMEs in the PRC. Effective October 14, 2020, we changed our corporate name from ChinaNet Online Holdings, Inc. to ZW Data Action Technologies Inc. Our shareholders approved the name change as part of the Company’s annual shareholder meeting held on October 12, 2020.

Through our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising, precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through this system, which primarily include distribution of the right 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 to maximize market exposure and effectiveness for our clients.

To enhance the reliability of our future blockchain services and optimize location for client proximity, we incorporated a new wholly-owned subsidiary, ChinaNet Online (Guangdong) Technology Co., Ltd. (“ChinaNet Online Guangdong”) in May 2020 as we are in the process of expanding our corporate business and technology headquarters to the city of Guangzhou in Southern China. ChinaNet Online Guangdong has officially commenced its operations since July 2020. Along with the development of new customer base in southern China in future periods, we plan to gradually transfer a portion of our core business activities to ChinaNet Online Guangdong. We are also currently seeking for new local business partners to develop new high-technology related business, including blockchain services.

In June 2020, we made an investment of RMB0.19 million (approximately US$0.03 million) in cash to Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), a newly established entity in which we beneficially own a 19% equity interest. Our investment to Business Opportunity Chain Guangzhou is aiming to further integrate our resources in customer base, media operations and technology for the development of webcast platform based business promotion service and franchise consultancy service.

In October 2020, we incorporated a new majority-owned subsidiary, Qiweilian (Guangzhou) Technology Co., Ltd. (“Qiweilian”), in which an unrelated party owns 49% and we own 51% equity interest. Qiweilian was established for the development of digital business promotion services to SMEs based on WeChat.

Basis of presentation, management estimates and critical accounting policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries and VIEs. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial statements in our ~~2019~~2020 Form 10-K.

A. RESULTS OF OPERATIONS FOR THE ~~NINE AND~~ THREE MONTHS ENDED ~~SEPTEMBER 30,~~MARCH 31, 2021 AND 2020 ~~AND 2019~~

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.

													Three Months Ended March 31,
	Nine Months Ended September 30,						Three Months Ended September 30,						2021			2020
	2020			2019			2020			2019			(US $)			(US $)
	(US $)			(US $)			(US $)			(US $)			(Unaudited)			(Unaudited)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
From unrelated parties	$	27,086		$	39,025		$	12,300		$	15,113		$	8,396		$	4,371
From a related party		18			503			4			395
From related parties														-			13
Total revenues		27,104			39,528			12,304			15,508			8,396			4,384
Cost of revenues		26,548			37,828			12,945			14,616			9,113			3,485
Gross profit/(loss)		556			1,700			(641	)		892
Gross (loss)/profit														(717	)		899

Operating expenses
Sales and marketing expenses		293			461			58			111			28			165
General and administrative expenses		4,520			2,875			592			817			996			2,796
Research and development expenses		443			599			113			239			74			214
Total operating expenses		5,256			3,935			763			1,167			1,098			3,175

Loss from operations		(4,700	)		(2,235	)		(1,404	)		(275	)		(1,815	)		(2,276	)

Other income (expenses)
Interest expense, net		-			(33	)		1			(10	)
Other income/(expenses)
Interest income/(expense), net														1			(1	)
Other expenses		(4	)		(6	)		(21	)		(2	)		(24	)		(1	)
Change in fair value of warrant liabilities		4			351			(64	)		(120	)		2,507			46
Total other income		-			312			(84	)		(132	)
Total other income/(expenses)														2,484			44

Loss before income tax benefit and noncontrolling interests		(4,700	)		(1,923	)		(1,488	)		(407	)
Income tax benefit		87			10			155			16
Net loss		(4,613	)		(1,913	)		(1,333	)		(391	)
Net loss attributable to noncontrolling interests		2			8			-			3
Net loss attributable to ZW Data Action Technologies Inc.	$	(4,611	)	$	(1,905	)	$	(1,333	)	$	(388	)
Income/(loss) before income tax benefit/(expense) and noncontrolling interests														669			(2,232	)
Income tax benefit/(expense)														18			(78	)
Net income/(loss)														687			(2,310	)
Net (income)/loss attributable to noncontrolling interests														(2	)		-
Net income/(loss) attributable to ZW Data Action Technologies Inc.													$	685		$	(2,310	)

Revenues

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

	Nine Months Ended September 30,								Three Months Ended March 31,
	2020				2019				2021				2020
Revenue type	(Amounts expressed in thousands of US dollars, except percentages)								(Amounts expressed in thousands of US dollars, except percentages)

-Internet advertising and related data service	$	5,679	21.0	%	$	9,384	23.8	%	$	1,402	16.7	%	$	948	21.6	%
-Distribution of the right to use search engine marketing service		18,004	66.4	%		30,134	76.2	%		6,865	81.8	%		1,988	45.4	%
-Data and technical services		900	3.3	%		10	-			-	-			300	6.8	%
Internet advertising and related services		24,583	90.7	%		39,528	100	%		8,267	98.5	%		3,236	73.8	%
Ecommerce O2O advertising and marketing services		1,276	4.7	%		-	-			129	1.5	%		503	11.5	%
Technical solution services		1,245	4.6	%		-	-			-	-			645	14.7	%
Total	$	27,104	100	%	$	39,528	100	%	$	8,396	100.0	%	$	4,384	100.0	%

Total Revenues: Our total revenues increased to US$8.40 million for the three months ended March 31, 2021 from US$4.38 million for the same period last year, which was primarily due to the increase in revenues from our Internet advertising and related services business segment, as a result of recovery from the COVID-19 outbreak since the second half of last year.

Revenues from our core businesses, Internet advertising and distribution of the right to use search engine marketing service, for the three months ended March 31, 2021 increased significantly to US$1.40 million and US$6.87 million, respectively, compared with US$0.95 million and US$1.99 million for the three months ended March 31, 2020, respectively. The increases were directly attributable to the successful containment of 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.

Three Months Ended September 30,
2020 2019
Revenue type (Amounts expressed in thousands of US dollars, except percentages)

-Internet advertising and related data service $ 2,429 19.7 % $ 3,949 25.5 %
-Distribution of the right to use search engine marketing service 8,706 70.8 % 11,554 74.5 %
-Data and technical services 300 2.4 % 5 -
Internet advertising and related services 11,435 92.9 % 15,508 100 %
Ecommerce O2O advertising and marketing services 269 2.2 % - -
Technical solution services 600 4.9 % - -
Total $ 12,304 100 % $ 15,508 100 %
~~Total Revenues:~~Our total revenues decreased to US$27.10 million and US$12.30 million for the nine and three months ended September 30, 2020 from US$39.53 million and US$15.51 million for the same periods last year, respectively, which was primarily due to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the COVID-19 outbreak during the first fiscal quarter and slow recovery in the second and third fiscal quarters of 2020.
l Internet advertising revenues for the nine and three months ended September 30, 2020 was approximately US$5.68 million and US$2.43 million, respectively, compared with US$9.38 million and US$3.95 million for the nine and three months ended September 30, 2019, respectively. ~~The decreases were directly attributable to the COVID-19 outbreak and business shutdown during the first fiscal quarter of 2020 in China, and slow recovery of economy in the following quarters~~. The decrease in revenues from our Internet advertising has gradually narrowed down to a less than 40% decrease in both the second and third fiscal quarter of 2020, compared with an approximately 50% decrease in the first fiscal quarter of 2020, which indicated a gradual improvement of our business after the COVID-19 outbreak.
l Revenue generated from the distribution of the right to use search engine marketing service for the nine and three months ended September 30, 2020 decreased to approximately US$18.00 million and US$8.71 million, respectively, compared with approximately US$30.13 million and US$11.55 million for the nine and three months ended September 30, 2019, respectively, due to the same reason as discussed above. The performance of this business category also improved after the COVID-19 outbreak, with the decrease in revenues significantly narrowed down to 38% and 25% in the second and third fiscal quarter of 2020, respectively, compared with a 70% decrease in revenues in the first fiscal quarter of 2020.
l For the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, we also generated an approximately US$~~1.28~~0.13 and US$0.50 million, ~~and US$0.27 million~~respectively, Ecommerce O2O advertising and marketing service revenues from ~~the~~ distribution of the advertising spaces in outdoor billboards we purchased from a third party.

l ~~For the nine months and three months ended September 30, 2020, we also generated an approximately US$1.25 million and US$0.60 million revenue from providing technical design and support services.~~
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Cost of revenues

Our cost of revenues consisted of costs directly related to the offering of our ~~online~~Internet advertising, precision marketing and related data and technical services, and cost related to our Ecommerce O2O advertising and marketing service. The following table sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the periods indicated, with inter-company transactions eliminated:

Nine Months Ended September 30,
2020 2019
(Amounts expressed in thousands of US dollars, except percentages)
Revenue Cost GP ratio Revenue Cost GP ratio

-Internet advertising and related data service $ 5,679 $ 4,904 14 % $ 9,384 $ 8,887 5 %
-Distribution of the right to use search engine marketing service 18,004 19,147 -6 % 30,134 28,936 4 %
-Data and technical services 900 796 12 % 10 5 50 %
Internet advertising and related services 24,583 24,847 -1 % 39,528 37,828 4 %
Ecommerce O2O advertising and marketing services 1,276 1,125 12 % - - -
Technical solution services 1,245 576 54 % - - -
Total $ 27,104 $ 26,548 2 % $ 39,528 $ 37,828 4 %
Three Months Ended September 30, Three Months Ended March 31,
2020 2019 2021 2020
(Amounts expressed in thousands of US dollars, except percentages) (Amounts expressed in thousands of US dollars, except percentages)
Revenue Cost GP ratio Revenue Cost GP ratio Revenue Cost GP ratio Revenue Cost GP ratio

-Internet advertising and related data service $ 2,429 $ 1,998 18 % $ 3,949 $ 3,669 7 % $ 1,402 1,277 9 % $ 948 834 12 %
-Distribution of the right to use search engine marketing service 8,706 9,731 -12 % 11,554 10,947 5 % 6,865 7,461 -9 % 1,988 2,011 -1 %
-Data and technical services 300 265 12 % 5 - 100 % - - - 300 265 12 %
Internet advertising and related services 11,435 11,994 -5 % 15,508 14,616 6 % 8,267 8,738 -6 % 3,236 3,110 4 %
Ecommerce O2O advertising and marketing services 269 375 -39 % - - - 129 375 -191 % 503 375 25 %
Technical solution services 600 576 4 % - - - - - - 645 - 100 %
Total $ 12,304 $ 12,945 -5 % $ 15,508 $ 14,616 6 % $ 8,396 $ 9,113 -9 % $ 4,384 $ 3,485 21 %

Cost of revenues: our total cost of revenues ~~decreased~~increased significantly to US$~~26.55 million and US$12.95~~9.11 million for the ~~nine and~~ three months ended ~~September 30, 2020, respectively,~~March 31, 2021 from US$~~37.83 million and US$14.62~~3.49 million for the ~~nine and~~ three months ended ~~September 30, 2019, respectively.~~ March 31, 2020. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, cost of outdoor advertising resource ~~license fee paid for providing data and technical services,~~ and other direct costs associated with providing our services. The ~~decrease~~increase in our total cost of revenues for the ~~nine and~~ three months ended ~~September 30, 2020~~March 31, 2021 was primarily due to the ~~decrease~~increase in costs associated with ~~the~~ distribution of the right to use search engine marketing service we purchased from key search engines and cost related to providing Internet advertising services on our ad portals, which was in line with the ~~decrease~~increase in the related revenues as discussed ~~above~~.above.

l 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~~.portals. For the ~~nine and~~ three months ended ~~September 30, 2020,~~March 31, 2021, our total cost of revenues for Internet advertising and data service ~~decreased~~increased significantly to US$1.28 million from approximately US$~~4.90 million and US$2.00 million, respectively, compared with approximately US$8.89 million and US$3.67~~0.83 million for the ~~nine and~~ three months ended ~~September 30, 2019, respectively,~~ March 31, 2020, which was in line with the increase in revenues ~~decrease~~ as ~~discussed above~~. a result of business recovery after the successful containment of the COVID-19 epidemic in China and business recovery since the second half of fiscal 2020. The gross margin rate of our Internet advertising and data service ~~improved to 14%~~was 9% and ~~18%~~12% for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, respectively ~~compared~~. We anticipate the gross margin rate will improve in the following quarters of fiscal 2021 along with ~~5% and 7% for~~ the ~~same periods last year, respectively, which was attributable to our enhancement of data analysis capabilities and optimization of cost control mechanism~~increase in revenues from this business category..

l Costs for distribution of the right to use search engine marketing service was direct search engine resource ~~costs~~ 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 resource in relatively large amounts under our own name at a relatively lower rate compared to the ~~market.~~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, 2020,~~March 31, 2021, our total cost of revenues for distribution of the right to use search engine marketing service ~~decreased~~increased significantly to US$~~19.15~~7.46 million ~~and~~from approximately US$~~9.73 million, respectively, compared with US$28.94 million and US$10.95~~2.01 million for the ~~same periods last year, respectively.~~three months ended March 31, 2020, which was in line with the increase in revenues as a result of business recovery after successful containment of the COVID-19 epidemic in China. Gross margin ~~rates~~rate of this service decreased to -9% for the ~~nine and~~ three months ended ~~September 30, 2020 was -6% and -12%, respectively,~~March 31, 2021, as ~~we had to sell~~on one hand, the resource ~~pre-purchased from key search engines at a loss~~suppliers, who have much stronger barging power, increase the resource cost during the period, while on the other hand, in order to ~~meet our working capital needs and~~ secure our client base and competitive advantage under the ~~circumstances of~~post COVID-19 ~~outbreak and slow~~business recovery ~~of economy after~~environment, we did not charge the ~~pandemic.~~increased cost to our clients. We ~~are actively negotiating with our suppliers for more favorable discount, as a result, we~~ anticipant ~~slight improvement of~~ the gross margin rate of this business category will improve in the following quarters of fiscal 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. ~~Gross margin rates of this service was 4% and 5% for the nine and three months ended September 30, 2019, respectively.~~
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l For the ~~nine and~~ three months ended September 30, 2020, cost for our Internet advertising related data and technical service revenue was approximately US$0.80 million and US$0.27 million, respectively, which represented the amortized licensee fee for the use of the related data analysis and management system during the periods.
l ~~For the nine and three months ended September 30, 2020,~~March 31, 2021, cost for our Ecommerce O2O advertising and marketing service revenues ~~was~~of approximately ~~US$1.13 million and~~ US$0.38 million ~~respectively, which represented~~was the amortized cost for the related outdoor billboards ad spaces we ~~pre-purchased during the periods.~~
l ~~For the nine and three months ended September 30, 2020, we also incurred cost for providing technical design and support services of approximately US$0.58 million.~~pre-purchased.

Gross ~~profit/(loss)~~Profit

As a result of the foregoing, we ~~generated~~incurred a gross loss of approximately US$0.72 million for the three months ended March 31, 2021, compared with a gross profit of approximately US$~~0.56 million for the nine months ended September 30, 2020 and incurred a gross loss of US$0.64~~0.90 million for the three months ended ~~September 30, 2020, compared with gross profit of approximately US$1.70 million and US$0.89 million for the nine and three months ended September 30, 2019, respectively.~~March 31, 2020. Our overall gross margin was 2%-9% and ~~-5%~~21% for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared with 4% and 6% for the same periods last year,~~ respectively. The ~~decrease in our overall~~incurrence of gross loss and negative gross margin rate for the ~~nine and~~ three months ended ~~September 30, 2020, compared with that in~~March 31, 2021 was directly resulted from the ~~same periods last year, respectively was primarily attributable to the~~negative gross ~~loss~~margin rate of ~~-6% and -12%~~-9% incurred ~~for~~by our main stream of service revenues, i.e. ~~the~~ distribution of the right to use search engine marketing ~~service business category,~~services, which accounted for ~~the nine and three months ended September 30, 2020, respectively, which revenues constituted~~ approximately ~~66% and 71%~~81.8% of our total revenues for the ~~nine and~~ three months ended ~~September 30, 2020, respectively.~~March 31, 2021.

Operating Expenses
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, Three Months Ended March 31,
2020 2019 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 $ 27,104 100 % $ 39,528 100 % $ 8,396 100 % $ 4,384 100 %
Gross Profit 556 2 % 1,700 4 %
Gross (Loss)/Profit (717 ) -9 % 899 21 %
Sales and marketing expenses 293 1 % 461 1 % 28 0.3 % 165 4 %
General and administrative expenses 4,520 17 % 2,875 7 % 996 11.9 % 2,796 64 %
Research and development expenses 443 2 % 599 2 % 74 0.9 % 214 5 %
Total operating expenses $ 5,256 19 % $ 3,935 10 % 1,098 13.1 % $ 3,175 73 %
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Three Months Ended September 30,
2020 2019
(Amounts expressed in thousands of US dollars, except percentages)
Amount % of total revenue Amount % of total revenue

Total Revenues $ 12,304 100 % $ 15,508 100 %
Gross (Loss)/Profit (641 ) -5 % 892 6 %
Sales and marketing expenses 58 -% 111 1 %
General and administrative expenses 592 5 % 817 5 %
Research and development expenses 113 1 % 239 2 %
Total operating expenses $ 763 6 % $ 1,167 8 %
Operating Expenses: Our total operating expenses was approximately US$~~5.26~~1.10 million and US$~~0.76~~3.18 million for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared with approximately US$3.94 million and US$1.17 million~~ respectively. The decrease was primarily attribute to the decrease in share-based compensation expenses for the ~~nine and~~ three months ended ~~September 30, 2019, respectively.~~March 31, 2021.

l Sales and marketing expenses: Sales and marketing expenses ~~decreased to~~was US$~~0.29~~0.03 million and US$~~0.06~~0.17 million for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared with approximately US$0.46 million and US$0.11 million for the nine and three months ended September 30, 2019,~~ 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, other advertising and promotional expenses, staff salaries, staff benefits, performance bonuses, ~~travelling~~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~~revenues. For the ~~nine~~three months ended ~~September 30, 2020, the changes~~March 31, 2021, the decrease in our sales and marketing expenses was primarily due to the following reasons: (1) staff salary and benefit expenses and general departmental expenses decreased by approximately US$0.29 million, due to office shutdown during the first fiscal quarter of 2020, resulted from the COVID-19 outbreak during the period and related epidemic control measures imposed by the local governments where we operate, and slow recovery of business performance after the outbreak in the following quarters; and (2) the increasedecrease 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 ~~2020~~. For the three months ended September 30, 2020, the decrease in our sales and marketing expenses was primarily attributable to the decrease in performance based salary and bonus expenses, due to significant decrease in net revenues generated in the period, compared with the same period last ~~year, as a result of the slow recovery of economy during the COVID-19 pandemic.~~year.

l General and administrative expenses: General and administrative expenses ~~was~~decreased to US$~~4.52 million and US$0.59~~1.0 million for the ~~nine and~~ three months ended ~~September 30, 2020, respectively, compared with~~March 31, 2021 from US$~~2.88 million and US$0.82~~2.80 million for the ~~nine and three months ended September 30, 2019, respectively.~~ same period in 2020. Our general and administrative expenses primarily consist of salaries and benefits of management, accounting, human resources and administrative personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities and other general office ~~expenses.~~expenses of our supporting and administrative departments. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the change in our general and administrative expenses was primarily due to the following ~~reasons~~:reasons: (1) the ~~increase~~decrease in share-based compensation expenses of approximately US$~~1.49~~1.55 million, ~~due~~related to restricted shares granted and issued in the first fiscal quarter of ~~2020; and~~last year; (2) the ~~increase~~decrease in allowance for doubtful accounts of approximately US$~~0.31 million. For~~0.41 million; and (3) the ~~three months ended September 30, 2020,~~ ~~the change~~increase in ~~our~~ general ~~and~~ administrative expenses ~~was primarily~~of approximately US$0.16 million, due to the ~~following reasons: (1)~~office shutdown in the ~~increase in allowance for doubtful accounts~~first fiscal quarter of ~~approximately US$0.02 million; (2)~~ ~~the decrease in share-based compensation expenses~~last year, as a result of ~~approximately US$0.03 million; and (3) the decrease in general departmental expenses of approximately US$0.22 million, due to cost reduction plan executed by management after the~~ COVID-19 ~~outbreak.~~outbreak during that period.

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l Research and development expenses: Research and development expenses ~~was approximately~~were US$~~0.44~~0.07 million and US$~~0.11~~0.21 million for the ~~nine and~~ three months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, compared with approximately US$0.60 million and US$0.24 million for the nine and three months ended September 30, 2019,~~ respectively. Our research and development expenses primarily consist of salaries and benefits of our staff in the research and development ~~staff,~~department, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department ~~etc~~. ~~The~~etc. For the three months ended March 31, 2021, the decrease in our research and development expenses ~~for the nine and three months ended September 30, 2020, compared with that in the respective same period last year, were~~was primarily due to the ~~cost reduction plan executed by~~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 ~~management~~.first fiscal quarter of last year.

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Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$~~4.70~~1.82 million and US$~~2.24~~2.28 million for ~~the nine months ended September 30, 2020 and 2019, respectively. For~~ the three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019, we incurred a loss from operations of approximately US$1.40 million and US$0.28 million~~ respectively.

Change in fair value of warrant liabilities: we issued warrants in ~~our 2018 Financing consummated in January 2018,~~various financing activities, which we determined that the 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$~~0.004~~2.51 million and US$0.05 million was recorded for the nine months ended September 30, 2020, compared with a gain of approximately US$0.35 million recorded for the nine months ended September 30, 2019. For the three months ended September 30, 2020, a loss of change in fair value of these warrant liabilities of approximately US$0.06 million was recorded, compared with a loss of approximately US$0.12 million recordedrecognized for the three months ended ~~September 30, 2019~~.March 31, 2021 and 2020, respectively.

~~Loss~~Income/(loss) before income tax ~~benefit~~benefit/(expense) and noncontrolling interests: As a result of the foregoing, our ~~loss~~income before income tax benefit and noncontrolling interest for the three months ended March 31, 2011 was approximately US$~~4.70~~0.67 million, ~~and US$1.92 million for the nine months ended September 30, 2020 and 2019, respectively. Our~~compared with a net loss before income tax ~~benefit~~expense and noncontrolling interest ~~was~~of approximately US$~~1.49 million and US$0.41~~2.23 million for the three months ended ~~September 30, 2020 and 2019, respectively.~~March 31, 2020.

Income Tax ~~benefit:~~benefit/(expense): For the ~~nine and~~ three months ended ~~September 30, 2020,~~ March 31, 2021, we recognized an approximately US$~~0.09 million and US$0.16~~0.10 million income tax benefit ~~respectively,~~ in relation to ~~deferred tax assets we expect to be able to utilized in future periods. For~~ the nine and three months ended September 30, 2019, we recognized an additional deferred tax benefit of both approximately US$0.08 million, related to deferred tax assets we expect to be able to utilized in future periods, and these deferred tax benefit amounts recognized were partially offset by the approximately US$0.07 million and US$0.06 million of income tax expensenet operating loss incurred ~~for the nine and three months ended September 30, 2019, respectively, through utilization of previously recognized, deferred tax assets, due to earnings generated during the periods~~ by one of our operating ~~entities. As a result, f~~orVIEs for the ~~nine and~~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 income tax expense recognized in relation to additional deferred tax assets provision provided by another operating VIE of ours for the period. For the three months ended ~~September 30, 2019,~~March 31, 2020, we recognized aan approximately US$0.08 million income tax expense in relation to net income generated by one of our operating subsidiaries for the period, which amount was partially offset by an approximately US$0.01 million income tax benefit recognized in relation to the net operating loss incurred by another operating VIE of ~~approximately US$0.01 million and US$0.02 million, respectively.~~ours for the period, which we consider likely to be utilized with respect to future earnings of this entity.

Net ~~loss:~~income/(loss): As a result of the foregoing, for the ~~nine~~three months ended ~~September 30, 2020 and 2019,~~March 31, 2021, we ~~incurred~~generated a total net income of approximately US$0.69 million, compared with a total net loss of approximately US$~~4.61~~2.31 million ~~and US$1.91 million, respectively. For~~for the three months ended ~~September 30, 2020 and 2019, we incurred a total net loss of approximately US$1.33 million and US$0.39 million, respectively.~~March 31, 2020.

Net ~~loss~~income/(loss) attributable to noncontrolling interest: In May 2018, we incorporated a majority-owned subsidiary, Business Opportunity Chain, in which we beneficially own 51% equity interest. In October 2020, we incorporated another majority-owned subsidiary, Qiweilian Guangzhou and beneficially ~~owns~~owned 51% equity interest in it. For the ~~nine~~three months ended ~~September 30, 2020 and 2019,~~March 31, 2021, net ~~loss~~income allocated to the noncontrolling interest shareholders of ~~Business Opportunity Chain~~these entities was approximately US$0.002 ~~million and US$0.008 million, respectively. For the three months ended September 30, 2020 and 2019, net loss allocated~~million. In March 2021, due to changes in business strategy of the noncontrolling interest shareholder of ~~Business Opportunity Chain was approximately US$nil million~~Qiweilian Guangzhou, we suspended the cooperation with that shareholder and ~~US$0.003 million, respectively.~~sold our 51% equity interest in Qiweilian Guangzhou to unrelated parties.

Net ~~loss~~income/(loss) attributable to ZW Data Action Technologies Inc.: Total net ~~loss~~income/(loss) as adjusted by net ~~loss~~income/(loss) attributable to the noncontrolling interest shareholders as discussed above yields the net ~~loss~~income/(loss) attributable to ZW Data Action Technologies Inc. Net ~~loss attributable to ZW Data Action Technologies Inc. was US$4.61 million and US$1.91 million for the nine months ended September 30, 2020 and 2019, respectively. Net loss~~income attributable to ZW Data Action Technologies Inc. was approximately US$~~1.33 million and US$0.39~~0.69 million for the three months ended ~~September 30, 2020 and 2019, respectively.~~March 31, 2021, compared with a net loss attributable to ZW Data Action Technologies Inc. of approximately US$2.31 million for the three months ended March 31, 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, 2020,~~March 31, 2021, we had cash and cash equivalents of approximately US$~~0.50~~15.8 million.

33
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 search engine resource and other advertising resource providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and future business activities, investment to enhance the functionality of our current advertising portals for providing advertising, marketing and data services and to secure the safety of our general network. To date, we have financed our liquidity need primarily through proceeds we generated from financing activities.

35
As discussed in Note 3(b) to our unaudited condensed consolidated financial statements, there is substantial doubt about our ability to continue as a going concern within one year after the date that the financial statements are issued. We intend to improve our cashflow status through improving gross profit margin, strengthening receivables collection management, negotiating with vendors for more favorable payment terms and obtaining more credit facilities from banks or other form of financing.
The following table provides detailed information about our net cash flow for the periods indicated:

Nine Months Ended September 30,
2020 2019
Amounts in thousands of US dollars

Net cash provided by/(used in) operating activities $ 595 $ (4,055 )
Net cash used in investing activities (1,273 ) (796 )
Net cash (used in)/provided by financing activities (429 ) 1,956
Effect of exchange rate fluctuation 4 (10 )
Net decrease in cash and cash equivalents $ (1,103 ) $ (2,905 )
Three Months Ended March 31,
2021 2020
Amounts in thousands of US dollars

Net cash (used in)/provided by operating activities $ (3,706 ) $ 1,518
Net cash used in investing activities (1,865 ) (1,117 )
Net cash provided by/(used in) financing activities 17,111 (430 )
Effect of Effect of exchange rate changes (52 ) (19 )
Net increase/(decrease) in cash and cash equivalents 11,488 $ (48 )

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

For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, our net cash ~~provided by~~used in operating activities of approximately US$~~0.60~~3.71 million were primarily attributable to:

(1) net ~~loss~~income excluding approximately US$~~0.63~~0.11 million of non-cash expenses of depreciation and ~~amortization;~~amortizations; approximately US$~~2.07~~0.04 million amortization of operating lease right-of-use assets, approximately US$0.10 million share-based ~~compensation expenses;~~compensation; approximately US$~~0.75~~2.51 million ~~allowance for doubtful accounts, approximately US$0.004 million~~ gain from change in fair value of warrant liabilities and approximately US$~~0.09~~0.02 million deferred tax benefit, yielded the non-cash ~~item~~items excluded net loss of approximately US$~~1.26~~1.59 million.

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

- accounts receivable decreased by approximately ~~US$0.25~~$0.70 million, ~~in the aggregate;~~due to strengthen of collection management;

- ~~prepayment and deposit to suppliers decreased~~accounts payable increased by approximately US$~~1.08~~0.63 million, ~~primarily~~ due to ~~utilization of the prepayment made to suppliers in fiscal 2019 through Ad resource and other services received from suppliers during the nine months ended September 30, 2020;~~more favorable payment terms granted by a new supplier;

- advance from customers increased by approximately US$~~0.75~~0.17 million, primarily due to new advance payments received ~~that related to unsatisfied service performance obligations~~from customers during the first ~~nine months~~fiscal quarter of ~~2020,~~2021, which was partially offset by recognition of revenue from opening contract liabilities during the ~~period~~;
- accounts payable, tax payables and short-term lease payment payables increased by approximately US$0.23 million in the aggregate, primarily due to temporary delay of some payments as a result of the COVID-19 outbreak and some of the payments were not due until later periods,period; and

- ~~amount due from related parties decreased~~other current liabilities increased by approximately US$~~0.02~~0.03 million.

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

- ~~long-term~~ prepayment and deposit to suppliers increased by approximately US$~~0.38~~2.63 million, primarily due to new deposits and prepayments made for the purchase of various advertising resources during the first fiscal quarter of 2021;
- long-term deposits and prepayments increased by approximately US$0.79 million, which ~~prepayment~~ was made for the purchase of adadvertising resource and lease of our new office spaces during the first fiscal quarter of ~~2020,~~2021, and this amount was not expected to be consumed within one year of ~~September 30, 2020;~~March 31, 2021; and

- accruals, tax payables, operating lease liabilities and short-term lease payment payables decreased by approximately US$~~0.06 million;~~0.22 million in the aggregate.

- ~~other current liabilities decreased by approximately US$0.04 million; and~~
For the three months ended March 31, 2020, our net cash provided by operating activities of approximately US$1.52 million were primarily attributable to:
- ~~we also prepaid approximately US$0.01 million lease payment during the period.~~

3634

~~For the nine months ended September 30, 2019, our net cash used in operating activities of approximately US$4.06 million were primarily attributable to:~~
(1) net loss excluding approximately US$~~0.07~~0.21 million of non-cash expenses of depreciation and amortizations; approximately US$~~0.09 million amortization of operating lease right-of-use assets; approximately US$0.31~~1.92 million share-based compensation; approximately US$~~0.45~~0.41 million allowance for doubtful accounts; approximately US$~~0.35~~0.05 million gain from change in fair value of warrant liabilities and approximately US$~~0.01~~0.005 million deferred tax benefit, yielded the non-cash items excluded net ~~loss~~income of approximately US$~~1.37~~0.18 million.

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

- prepayment and deposit to suppliers decreased by approximately US$2.24 million, primarily due to utilization of the prepayment made to suppliers in fiscal 2019 through Ad resource and other services received from suppliers during the first fiscal quarter of 2020;
- advance from customers ~~and a related party~~ increased by approximately US$~~4.16~~0.12 million, ~~in the aggregate,~~ primarily due to new advance payments received ~~that related to unsatisfied service performance obligations~~from customers during the first ~~nine months~~fiscal quarter of ~~2019,~~2020, which was partially offset by recognition of revenue from opening contract liabilities during the ~~period~~;period;

- due from related parties decreased by approximately US$~~0.23~~0.03 million, ~~primarily~~ due to collection of ~~US$0.2 million~~advertising service fee from ~~an officer of our company and a portion of a~~ related ~~party loan of approximately US$0.03 million~~;parties;

- ~~unpaid lease payments related to~~accruals, tax payables, short-term lease ~~agreements we entered into during the second~~payment payables and ~~third fiscal quarter of 2019 increased by approximately US$0.18 million~~;
- ~~taxes payable increased by approximately US$0.12 million;~~
- other current liabilities increased by approximately US$~~0.29 million;~~0.48 million in the aggregate, primarily due to temporary delay of some payments during the COVID-19 outbreak in the first fiscal quarter of 2020 and
- ~~other current assets decreased by approximately US$0.01 million.~~ some of the payments were not due until later periods.

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

- accounts receivable increased by approximately US$~~0.29~~0.26 million;

- accounts payable decreased by approximately US$~~1.95 million, due to settlement with major suppliers of search engine resource during 2019;~~0.15 million; and

- ~~accruals decreased by approximately US$0.24 million, due to settlement of these operational liabilities and payment for operating lease liabilities during 2019~~;
- long-term prepayment ~~and deposit to suppliers~~ increased by approximately US$~~5.19~~1.13 million, ~~primarily due to increase in prepayments~~which prepayment was made for the purchase of ~~search engine~~ad resource ~~as required by the major suppliers, and prepayments for the implementation, training and license fees of a software system incurred~~ during the ~~third~~first fiscal quarter of ~~2019~~;2020, and
- ~~we also prepaid approximately US$0.01 million lease payment during the period.~~ this amount was not expected to be consumed within one year of March 31, 2020.

Net cash used in investing activities

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, (1) we made an aggregate of approximately US$0.34 million cash investment to our investee entities, and provided an additional approximately US$0.05 million temporary loan to one of our investee entities; (2) 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; (3) we provided to an unrelated party an additional short-term loan of approximately US$0.31 million, which is expected to be repaid by December 31, 2021; and (4) cash decreased by approximately US$0.01 as a result of deconsolidation of VIEs’ subsidiaries during the period. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$1.87 million for the three months ended March 31, 2021.
For the three months ended March 31, 2020, (1) ~~we invested RMB0.19 million (approximately US$0.03 million) to a newly established entity, in which we hold a 19% equity interest; (2)~~ we made an additional payment of approximately US$0.30 million for the development of our blockchain technology-based platform ~~applications;~~applications and ~~(3)~~(2) we ~~lent~~provided to an unrelated ~~third~~ party a short-term loan of approximately US$~~0.94~~0.82 million. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$~~1.27~~1.12 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2020.
For the nine months ended September 30, 2019, (1) we contributed our pro-rata share of cash investment of approximately US$0.04 million to an ownership investee company incorporated in October 2018; and (2) we prepaid US$0.76 million for the development of a software system. In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$0.80 million for the nine months ended September 30, 2019.

Net cash ~~(used~~provided by/(used in)~~/provided by~~ financing activities

For the ~~nine~~three months ended ~~September 30,~~March 31, 2021, we consummated an offering of approximately 5.21 million shares 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 cash.
For the three months ended March 31, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January ~~2020.~~2020, which was recorded as a cash outflow from financing activities during the period.
3735

For the nine months ended September 30, 2019, (1) we closed on the first half of a private placement with a select group of investors related the Securities Purchase Agreement entered into on August 7, 2019. In connection with the closing, we issued 1,608,430 shares of common stock and received net proceeds of approximately US$2.39 million, after deduction of approximately US$0.01 million direct financing cost paid in cash; (2) we repaid approximately US$0.88 million short-term bank loan, in the aggregate, matured in the first quarter and third quarter of 2019; (3) we re-borrowed approximately US$0.44 million short-term loan matured in the first quarter of 2019. In the aggregate, these transactions resulted in a net cash inflow from financing activities of approximately US$1.96 million for the nine months ended September 30, 2019.
Restricted Net Assets

As substantially all of our operations are conducted through our PRC subsidiaries and VIEs, our ability to pay dividends is primarily dependent on receiving distributions of funds from our PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries 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 subsidiaries 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.

In accordance with these PRC laws and regulations, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to us. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, net assets restricted in the aggregate, which includes paid-in capital and statutory reserve funds of our PRC subsidiaries and VIEs that are included in our consolidated net assets were ~~both~~ approximately US$~~6.21 million.~~13.2 million and US$8.2 million, respectively.

The current PRC Enterprise Income Tax (“EIT”) Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside 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, subject to approval from the related PRC tax authorities.

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:

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

l 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.

38
Although the current Exchange Rules allow converting of Renminbi into foreign currency for current account items, conversion of 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 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.

36
C.      OFF-BALANCE SHEET ARRANGEMENTS

None.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable to smaller reporting companies.

Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures

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, 2020,~~March 31, 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~~first fiscal quarter of ~~2020~~2021 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.
39

Item 3.  Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not applicable.

Item 5. Other Information

None.
4037

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 Interactive Data Files

4138

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.

ZW DATA ACTION ~~TECNOLOGIES~~TECHNOLOGIES INC.

Date: ~~November 13, 2020~~May 19, 2021 By: /s/ Handong Cheng

Name: Handong Cheng

Title: Chief Executive Officer
(Principal Executive Officer)
By:
/s/ Mark Li
Name: Mark Li
Title: Chief Financial Officer
(Principal Accounting and Financial Officer)

4239

	Three Months Ended March 31,
	2021			20120
	(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		-			(430	)
Net cash provided by/(used in) financing activities		17,111			(430	)

Effect of exchange rate fluctuation on cash and cash equivalents		(52	)		(19	)

Net increase/(decrease) in cash and cash equivalents		11,488			(48	)

Cash and cash equivalents at beginning of the period		4,297			1,603
Cash and cash equivalents at end of the period	$	15,785		$	1,555

Supplemental disclosure of cash flow information

Income taxes paid	$	-		$	-
Interest expense paid	$	-		$	2

	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		-		477		-		-			-			-			477
Share-based compensation in exchange for services from employees and directors		1,632,523		2		1,905		-		-			-			-			1,907
Net loss for the period		-		-		-		-		(3,278	)		-			(2	)		(3,280	)
Foreign currency translation adjustment		-		-		-		-		-			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		-		76		-		-			-			-			76
Net loss for the period		-		-		-		-		(1,333	)		-			-			(1,333	)
Foreign currency translation adjustment		-		-		-		-		-			(201	)		(2	)		(203	)
Balance, September 30, 2020 (Unaudited)		21,741,926	$	22	$	45,569	$	2,607	$	(40,384	)	$	1,371		$	(60	)	$	9,125

	September 30, 2020	December 31, 2019

Balance sheet items, except for equity accounts	6.8101	6.9762

	Operating leases
	US$(’000)
	(Unaudited)

Nine months ending December 31, 2021		192
Year ending December 31,
-2022		313
-2023		331
-2024		341
-2025		361
-2026		383
-thereafter		908
Total undiscounted lease payments		2,829
Less: imputed interest		(609	)
Total operating lease liabilities as of March 31, 2021		2,220

Including:
Operating lease liabilities		267
Operating lease liabilities-Non current		1,953
		2,220

	Gong Xiang Technology		Xiao Peng Education		Business Opportunity Chain Guangzhou		Local Chain Xi’an			Total
	US$(’000)		US$(’000)		US$(’000)		US$(’000)			US$(’000)

Balance as of January 1, 2021		-		-		29		38			67
Exchange translation adjustment		-		-		-		(1	)		(1	)
Cash investment during the year		228		78		32		-			338
Balance as of March 31, 2021 (Unaudited)		228		78		61		37			404

	As of September 30, 2020 (Unaudited)
Items	Gross Carrying Value		Accumulated Amortization			Impairment			Net Carrying Value
	US$(’000)		US$(’000)			US$(’000)			US$(’000)
Intangible assets not subject to amortization:
Domain name		1,418		-			(1,418	)		-
Intangible assets subject to amortization:
Customer relationship		1,956		(1,956	)		-			-
Non-compete agreements		1,076		(584	)		(492	)		-
Software technologies		301		(301	)		-			-
Intelligent marketing data service platform		4,741		(1,920	)		(2,821	)		-
Internet safety, information exchange security and data encryption software		1,909		(430	)		(1,479	)		-
Cloud video management system		1,395		(346	)		(1,049	)		-
Cloud compute software technology		1,363		(932	)		(418	)		13
Licensed products use right		1,208		(105	)		-			1,103
Other computer software		875		(703	)		-			172
Total	$	16,242	$	(7,277	)	$	(7,677	)	$	1,288

	As of March 31, 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		1,412		(975	)		(433	)		4
Internet Ad tracking system		1,160		-			-			1,160
Live streaming technology		1,500		(100	)		-			1,400
Licensed products use right		1,205		(166	)		-			1,039
Other computer software		119		(119	)		-			-
Total	$	5,396	$	(1,360	)	$	(433	)	$	3,603

	Investors warrants									Placement agent warrants
	December 31, 2018			June 30, 2019			September 30, 2019			December 31, 2018			June 30, 2019			September 30, 2019

Stock price	$	1.34		$	1.35		$	1.30		$	1.34		$	1.35		$	1.30
Years to maturity		1.55			1.05			0.80			2.05			1.55			1.30
Risk-free interest rate		2.50	%		1.73	%		1.79	%		2.50	%		1.73	%		1.57	%
Dividend yield		-			-			-			-			-			-
Expected volatility		199	%		90	%		82	%		176	%		202	%		83	%
Exercise Price	$	6.60		$	6.60		$	1.4927		$	6.60		$	6.60		$	1.4927

Fair value of the warrant	$	0.78		$	0.05		$	0.31		$	0.80		$	0.80		$	0.43

Warrant Liabilities (US$’000)	$	503		$	32		$	200		$	103		$	103		$	55

	2020 Investor Warrants and 2020 Placement Agent Warrants
	As of March 31, 2021			As of December 31, 2020

Stock price	$	2.64		$	1.35
Years to maturity		2.70			2.95
Risk-free interest rate		0.29	%		0.17	%
Dividend yield		-			-
Expected volatility		120	%		102	%
Exercise Price	$	2.03		$	2.03

Fair value of the warrant	$	1.95		$	0.74

Investor warrants liabilities (US$’000)	$	3,370		$	1,279

Placement agent warrants liabilities (US$’000)	$	590		$	224

	2018 Placement Agent Warrants
	As of March 31, 2021			As of December 31, 2020

Stock price	$	2.64		$	1.35
Years to maturity		0.30			0.05
Risk-free interest rate		0.03	%		0.08	%
Dividend yield		-			-
Expected volatility		206	%		59	%
Exercise Price	$	1.4927		$	1.4927

Fair value of the warrant	$	1.55		$	0.02

Warrant liabilities (US$’000)	$	200		$	2

	2018 Investor Warrants						2018 Placement Agent Warrants
	As of March 31, 2020			As of December 31, 2019			As of March 31, 2020			As of December 31, 2019

Stock price	$	0.95		$	1.17		$	0.95		$	1.17
Years to maturity		0.30			0.55			0.80			1.05
Risk-free interest rate		0.10	%		1.58	%		0.13	%		1.57	%
Dividend yield		-			-			-			-
Expected volatility		99	%		60	%		78	%		80	%
Exercise Price	$	1.4927		$	1.4927		$	1.4927		$	1.4927

Fair value of the warrant	$	0.07		$	0.11		$	0.12		$	0.28

Warrant liabilities (US$’000)	$	45		$	71		$	16		$	36

	As of March 31, 2021		As of February 18, 2021		As of December 31, 2020		Change in Fair Value (gain)/loss
	(US$’000)		(US$’000)		(US$’000)		(US$’000)
Fair value of the Warrants:

Warrants issued in the February 2021 Financing:
--Investor Warrants		5,942		10,476		*		(4,534	)
--Placement Agent Warrants		817		1,445		*		(628	)
Warrants issued in the 2020 Financing:
--Investor Warrants		3,370		*		1,279		2,091
--Placement Agent Warrants		590		*		224		366
Warrants issued in the 2018 Financing:
--Placement Agent Warrants		200		*		2		198
Warrant liabilities		10,919		11,921		1,505		(2,507	)

	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, 2020		774,000		0.63	$	1.4927		774,000		0.63	$	1.4927
Granted/Vested		-						-
Expired		(645,000	)					(645,000	)
Exercised		-						-
Balance, September 30, 2020 (Unaudited)		129,000		0.13	$	1.4927		129,000		0.13	$	1.4927

	Supplier A			Supplier B			Supplier C
Three Months Ended March 31, 2021
Cost of revenues, supplier concentration risk		52	%		30	%		*

Three Months Ended March 31, 2020
Cost of revenues, supplier concentration risk		-			71	%		11	%

	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		-						-
Forfeited		-						-
Exercised		-						-
Balance, March 31, 2021 (Unaudited)		277,976		0.66	$	3.00		277,976		0.66	$	3.00

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		Interactive Data Files


	ZW DATA ACTION ~~TECNOLOGIES~~TECHNOLOGIES INC.

Date: ~~November 13, 2020~~May 19, 2021	By:	/s/ Handong Cheng
		Name: Handong Cheng
		Title: Chief Executive Officer (Principal Executive Officer)

By:		/s/ Mark Li
		Name: Mark Li
		Title: Chief Financial Officer (Principal Accounting and Financial Officer)