UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended SeptemberJune 30, 20202021

 

or

 

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

 

For the transition period from ____ to _____

 

Commission File Number: 001-34647

 

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. Employer Identification No.)

 

Room 1106, Xinghuo Keji Plaza, No. 9 South Min Zhuang2 Fufeng Road, HaidianFengtai District, Beijing, PRC 100195CN 100070

(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 ☐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,August 16, 2021, the registrant had 21,741,92635,332,677 shares of common stock outstanding.


 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

PAGE

   

Item 1. 

Interim Financial Statements 
   
 

Condensed Consolidated Balance Sheets as of SeptemberJune 30, 20202021 (Unaudited) and December 31, 20192020

1-2

   
 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the NineSix and Three Months Ended SeptemberJune 30, 2021 and 2020 and 2019 (Unaudited)

3-4

   
 

Condensed Consolidated Statements of Cash Flows for the NineSix Months Ended SeptemberJune 30, 2021 and 2020 and 2019 (Unaudited)

5-6

   
 

Condensed Consolidated Statements of Changes in Equity for the NineSix and Three Months Ended SeptemberJune 30, 2021 and 2020 and 2019 (Unaudited)

7-8

   
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9-289-30

   

Item 2. 

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

29-3931-40

  

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk

3940

   

Item 4. 

Controls and Procedures

3940

   

PART II. OTHER INFORMATION

 
   

Item 1. 

Legal Proceedings

3941

   

Item 1A. 

Risk Factors

3941

  

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds

3941

   

Item 3. 

Defaults Upon Senior Securities

4041

  

Item 4. 

Mine Safety Disclosures

4041

   
Item 5. 

Other Information

4041

   

Item 6. 

Exhibits

4142

   

Signatures

4243

 

 

PART I.FINANCIAL INFORMATION

 

Item 1.Interim Financial Statements

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)

  

June 30,

2021

  

December 31,

2020

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents *

 $11,752  $4,297 

Accounts receivable, net of allowance for doubtful accounts of $2,207 and $4,247, respectively *

  3,707   2,407 

Prepayment and deposit to suppliers *

  8,035   4,657 

Due from related parties *

  104   61 

Other current assets *

  462   1,462 

Total current assets

  24,060   12,884 
         

Long-term investments *

  450   67 

Operating lease right-of-use assets *

  2,107   48 

Property and equipment, net *

  116   60 

Intangible assets, net *

  3,438   2,557 

Blockchain platform applications development costs

  4,409   4,406 

Long-term deposits and prepayments *

  1,716   39 

Deferred tax assets, net *

  652   606 

Total Assets

 $36,948  $20,667 
         

Liabilities and Equity

        

Current liabilities:

        

Accounts payable *

 $1,015  $608 

Advance from customers *

  1,539   1,436 

Accrued payroll and other accruals *

  280   489 

Taxes payable *

  3,408   3,430 

Operating lease liabilities *

  187   18 

Lease payment liability related to short-term leases *

  151   203 

Other current liabilities *

  267   333 

Warrant liabilities

  6,597   1,505 

Total current liabilities

  13,444   8,022 

 

  

September 30, 2020

 December 31, 2019
  (US $) (US $)
  (Unaudited)  
Assets        
Current assets:        
Cash and cash equivalents * $500  $1,603 
Accounts receivable, net of allowance for doubtful accounts of $3,996 and $3,148, respectively *  2,282   3,260 
Prepayment and deposit to suppliers *  6,301   6,980 
Due from related parties, net *  58   81 
Other current assets, net *  961   11 
Total current assets  10,102   11,935 
         
Long-term investments *  64   35 
Operating lease right-of-use assets *  4   12 
Property and equipment, net *  74   78 
Intangible assets, net *  1,288   1,899 
Blockchain platform applications development costs  4,189   3,879 
Long-term prepayments  474   - 
Deferred tax assets, net *  815   713 
Total Assets $17,010  $18,551 
         
Liabilities and Equity        
Current liabilities:        
Short-term bank loan * $-  $430 
Accounts payable *  552   408 
Advance from customers *  2,822   2,006 
Accrued payroll and other accruals *  442   491 
Taxes payable *  3,290   3,214 
Lease payment liability related to short-term leases *  222   136 
Other current liabilities *  325   221 
Warrant liabilities  103   107 
Total current liabilities  7,756   7,013 
1


1

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 

June 30, 

2021

  

December 31,

2020

 
 (US $) (US $) 

(US $)

 

(US $)

 
 (Unaudited)   

(Unaudited)

    
Long-term liabilities:                

Operating lease liabilities-Non current *

 1,979  32 
Long-term borrowing from a director  129   125   135   134 
Total Liabilities  7,885   7,138   15,558   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 35,290,650 shares and 26,062,915 shares at June 30, 2021 and December 31, 2020, respectively)

 35  26 
Additional paid-in capital  45,569   43,111  61,656  49,772 
Statutory reserves  2,607   2,607  2,598  2,598 
Accumulated deficit  (40,384)  (35,773) (43,941) (40,980)
Accumulated other comprehensive income  1,371   1,505   1,107   1,129 
Total ZW Data Action Technologies Inc.’s stockholders’ equity  9,185   11,470   21,455   12,545 
         
Noncontrolling interests  (60)  (57)  (65)  (66)
Total equity  9,125   11,413   21,390   12,479 
             
Total Liabilities and Equity $17,010  $18,551  $36,948  $20,667 

 

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

 

2
2

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 

Revenues

                

From unrelated parties

 $22,947  $14,786  $14,551  $10,415 

From a related party

  0   14   0   1 

Total revenues

  22,947   14,800   14,551   10,416 

Cost of revenues

  23,882   13,603   14,769   10,118 

Gross (loss)/profit

  (935)  1,197   (218)  298 
                 

Operating expenses

                

Sales and marketing expenses

  101   235   73   70 

General and administrative expenses

  8,895   3,928   7,899   1,132 

Research and development expenses

  163   330   89   116 

Total operating expenses

  9,159   4,493   8,061   1,318 
                 

Loss from operations

  (10,094)  (3,296)  (8,279)  (1,020)
                 

Other income/(expenses)

                
                 

Interest income/(expense), net

  2   (1)  1   0 

Other income/(expenses), net

  302   17   326   18 

Loss on disposal of long-term investments

  (38)  0   (38)  0 

Change in fair value of warrant liabilities

  6,829   68   4,322   22 

Total other income

  7,095   84   4,611   40 
                 

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

  (2,999)  (3,212)  (3,668)  (980)

Income tax benefit/(expense)

  40   (68)  22   10 

Net loss

  (2,959)  (3,280)  (3,646)  (970)

Net (income)/loss attributable to noncontrolling interests

  (2)  2   0   2 

Net loss attributable to ZW Data Action Technologies Inc.

 $(2,961) $(3,278) $(3,646) $(968)

3

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE 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)
Revenues        
From unrelated parties $27,086  $39,025  $12,300  $15,113 
From a related party  18   503   4   395 
Total revenues  27,104   39,528   12,304   15,508 
Cost of revenues  26,548   37,828   12,945   14,616 
Gross profit/(loss)  556   1,700   (641)  892 
                 
Operating expenses                
Sales and marketing expenses  293   461   58   111 
General and administrative expenses  4,520   2,875   592   817 
Research and development expenses  443   599   113   239 
Total operating expenses  5,256   3,935   763   1,167 
                 
Loss from operations  (4,700)  (2,235)  (1,404)  (275)
                 
Other income (expenses)                
Interest expense, net  -   (33)  1   (10)
Other expenses  (4)  (6)  (21)  (2)
Change in fair value of warrant liabilities  4   351   (64)  (120)
Total other income  -   312   (84)  (132)
                 
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)
  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Net loss

 $(2,959) $(3,280) $(3,646) $(970)

Foreign currency translation (loss)/gain

  (23)  68   (4)  (4)

Comprehensive loss

 $(2,982) $(3,212) $(3,650) $(974)

Comprehensive (income)/loss attributable to noncontrolling interests

  (1)  1   1   2 

Comprehensive loss attributable to ZW Data Action Technologies Inc.

 $(2,983) $(3,211) $(3,649) $(972)
                 

Loss per share

                

Loss per common share

                

Basic and diluted

 $(0.10) $(0.16) $(0.11) $(0.04)
                 

Weighted average number of common shares outstanding:

                

Basic and diluted

  30,727,546   21,044,666   32,925,488   21,691,926 

3

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE 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 

 

 

 

See notes to unaudited condensed consolidated financial statements

4
4

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

 Nine Months Ended September 30, 

Six Months Ended June 30,

 
 2020 2019 

2021

  

2020

 
 (US $) (US $) 

(US $)

 

(US $)

 
 (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 
Cash flows from operating activities                
Net loss $(4,613) $(1,913) $(2,959) $(3,280)
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities        

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

    
Depreciation and amortization  622   66  282  415 
Amortization of operating lease right-of-use assets  7   88  92  5 
Share-based compensation expenses  2,066   307  6,857  1,987 
Provision for allowances for doubtful accounts  751   445  0  747 

Loss on disposal of long-term investments

 38  0 
Deferred taxes  (87)  (10) (40) 11 
Change in fair value of warrant liabilities  (4)  (351) (6,829) (68)
Changes in operating assets and liabilities            
Accounts receivable  254   (289) (1,284) (38)
Prepayment and deposit to suppliers  1,077   (5,191) (980) 2,090 
Due from related parties  24   226  0  28 
Other current assets  (5)  11  8  (3)
Long-term prepayments  (375)  - 

Long-term deposits and prepayments

 (554) (750)
Accounts payable  137   (1,946) 403  (9)
Advance from customers  754   4,151  89  (362)
Advance from a customer, related  -   9 
Accrued payroll and other accruals  (55)  (242) (197) (57)
Lease payment liability related to short-term leases  81   180 
Other current liabilities  (38)  291  (123) 326 
Taxes payable  8   123  (49) 89 
Prepaid lease payment  (9)  (10)
Net cash provided by/(used in) operating activities  595   (4,055)

Lease payment liability related to short-term leases

 (54) 43 

Operating lease liabilities

  (31)  (9)

Net cash (used in)/provided by operating activities

  (5,331)  1,165 
         
Cash flows from investing activities                
Investment to investee entities  (27)  (36)

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

 (221) 0 

Cash effect of deconsolidation of VIEs’ subsidiaries

 (8) 0 

Investments and advances to ownership investee entities

 (463) (27)
Short-term loan to an unrelated party  (944)  -  (312) (944)

Repayment of short-term loan from an unrelated party

 1,303  0 

Payment for purchase of software technologies

 (1,160) 0 

Deposit and prepayment paid for contracts of other investing activities

 (3,500) 0 
Payment for blockchain platform applications development costs  (302)  -   0   (302)
Prepayment for software system development  -   (760)
Net cash used in investing activities  (1,273)  (796)  (4,361)  (1,273)

 

5

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

 

 Nine Months Ended September 30, 

Six Months Ended June 30,

 
 2020 2019 

2021

  

2020

 
 (US $) (US $) 

(US $)

 

(US $)

 
 (Unaudited) (Unaudited) 

(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 

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  (429)  (875)  0   (427)
Net cash (used in)/provided by financing activities  (429)  1,956 

Net cash provided by/(used in) financing activities

  17,111   (427)
           
Effect of exchange rate fluctuation  4   (10)

Effect of exchange rate fluctuation on cash and cash equivalents

  36   (13)
           
Net decrease in cash and cash equivalents  (1,103)  (2,905)

Net increase/(decrease) in cash and cash equivalents

  7,455   (548)
           
Cash and cash equivalents at beginning of the period  1,603   3,742   4,297   1,603 
Cash and cash equivalents at end of the period $500  $837  $11,752  $1,055 
           
Supplemental disclosure of cash flow information                
           
Income taxes paid $-  $-  $0  $0 
Interest expense paid $2  $36  $0  $2 

See notes to unaudited condensed consolidated financial statements

6

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2020

(In thousands, except for number of shares)

  Common stock  Additional paid-in capital   Statutory reserves   Accumulated deficit   Accumulated other comprehensive income   Noncontrolling interests   Total equity 
  Number of shares Amount            
    (US $) (US $) (US $) (US $) (US $) (US $) (US $)
                 
Balance, January 1, 2020  19,629,403  $20  $43,111  $2,607  $(35,773) $1,505  $(57) $11,413 
Share-based compensation in exchange for services from nonemployees  430,000   -   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 

 

 

See notes to unaudited condensed consolidated financial statements

 

7
6

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2021

(In thousands, except for number of shares)

 

 

  Common stock Additional paid-in capital Statutory reserves Accumulated deficit Accumulated other comprehensive income Noncontrolling interests Total equity
  Number of shares Amount            
    (US $) (US $) (US $) (US $) (US $) (US $) (US $)
                 
Balance, January 1, 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

  

Noncontrolling interests

  

Total equity

 
  

Number of shares

  

Amount

                         
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                                 

Balance, January 1, 2021

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

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

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

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

  30,000   0   23   0   0   0   0   23 

Net income for the period

  -   0   0   0   685   0   2   687 

Foreign currency translation adjustment

  -   0   0   0   0   (19)  0   (19)

Balance, March 31, 2021 (unaudited)

  31,304,915  $31  $54,980  $2,598  $(40,295) $1,110  $(64) $18,360 

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

  3,985,735   4   6,676   0   0   0   0   6,680 

Net loss for the period

  -   0   0   0   (3,646)  0   0   (3,646)

Foreign currency translation adjustment

  -   0   0   0   0   (3)  (1)  (4)

Balance, June 30, 2021 (Unaudited)

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

 

See notes to unaudited condensed consolidated financial statements

 

8
7

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2020

(In thousands, except for number of shares)

  

Common stock

  

Additional paid-in capital

  

Statutory reserves

  

Accumulated deficit

  

Accumulated other comprehensive income

  

Noncontrolling interests

  

Total equity

 
  

Number of shares

  

Amount

                         
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                                 

Balance, January 1, 2020

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

Share-based compensation in exchange for services from nonemployees

  430,000   0   477   0   0   0   0   477 

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

  1,632,523   2   1,897   0   0   0   0   1,899 

Net loss for the period

  -   0   0   0   (2,310)  0   0   (2,310)

Foreign currency translation adjustment

  -   0   0   0   0   71   1   72 

Balance, March 31, 2020 (unaudited)

  21,691,926   22   45,485   2,607   (38,083)  1,576   (56)  11,551 

Share-based compensation

  -   0   8   0   0   0   0   8 

Net loss for the period

  -   0   0   0   (968)  0   (2)  (970)

Foreign currency translation adjustment

  -   0   0   0   0   (4)  0   (4)

Balance, June 30, 2020 (Unaudited)

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

See notes to unaudited condensed consolidated financial statements

8

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

1.

1.

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(O2O) 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 into the blockchain industry and the related technology. As of September 30, 2020, 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.

2.2.

Variable interest entities

 

Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, respectively:

 

 

September 30, 2020

 December 31, 2019 

June 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(000)

 

US$(000)

 
 (Unaudited)   

(Unaudited)

    
Assets                
Current assets:                
Cash and cash equivalents $249  $699  $485  $277 
Accounts receivable, net  1,198   2,876  3,321  1,142 
Prepayment and deposit to suppliers  4,176   3,998  3,022  2,818 
Due from related parties, net  58   81 
Other current assets, net  9   6 

Due from related parties

 104  61 

Other current assets

  3   10 
Total current assets  5,690   7,660   6,935   4,308 
             
Long-term investments  64   35  450  67 
Operating lease right-of-use assets  4   12  26  48 
Property and equipment, net  39   40  90  32 
Intangible assets, net  13   25  0  9 

Long-term deposits and prepayments

 85  0 
Deferred tax assets, net  815   713   439   536 
Total Assets $6,625  $8,485  $8,025  $5,000 
             
Liabilities                
Current liabilities:                
Short-term bank loan $-  $430 
Accounts payable  290   408  $1,015  $270 
Advance from customers  2,553   2,006  1,397  1,436 
Accrued payroll and other accruals  188   132  93  168 
Taxes payable  2,632   2,568  2,729  2,755 
Lease payment liability related to a short-term lease  52   19 

Operating lease liabilities

 9  18 

Lease payment liability related to short-term leases

 109  108 
Other current liabilities  157   84   55   213 
Total current liabilities  5,872   5,647   5,407   4,968 
             

Operating lease liabilities-Non current

  9   32 
Total Liabilities $5,872  $5,647  $5,416  $5,000 

 

9

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, liabilitiesLiabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

 

9

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive loss for the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively:

 

 

Nine Months Ended September 30,

 Three Months Ended September 30, 

Six Months Ended June 30,

  

Three Months Ended June 30,

 
 2020 2019 2020 2019 

2021

  

2020

  

2021

  

2020

 
 US$(’000) US$(’000) US$(’000) US$(’000) 

US$(000)

 

US$(000)

 

US$(000)

 

US$(000)

 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
                 
Revenues $23,683  $39,523  $11,135  $15,503  $20,618  $12,548  $12,671  $9,612 
Cost of revenues  (24,051)  (37,828)  (11,729)  (14,616) (23,132) (12,322) (14,394) (9,477)
Total operating expenses  (1,515)  (2,407)  (123)  (545) (712) (1,392) (322) (648)
Net (loss)/income before allocation to noncontrolling interests  (1,802)  (742)  (642)  344 

Net loss before allocation to noncontrolling interests

 (3,407) (1,160) (2,126) (509)

 

3.
3.

Summary of significant accounting policies

 

a)

Basis of presentation

 

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

 

The unaudited condensed consolidated interim financial information as of SeptemberJune 30, 2020 2021 and for the ninesix and three months ended SeptemberJune 30, 2020 2021 and 20192020 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-K10-K for the fiscal year ended December 31, 2019, 2020, previously filed with the SEC (the “2019“2020 Form 10-K”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 SeptemberJune 30, 2020, 2021, its condensed consolidated results of operations for the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, and its condensed consolidated cash flows for the ninesix months ended SeptemberJune 30, 2020 2021 and 2019,2020, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.

 

b)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.

 10

b)

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.

c)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.

 

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 
10

ZW DATA ACTION TECHNOLOGIES INC.

  Nine Months Ended September 30,
  2020 2019
         
Items in the statements of operations and comprehensive loss  6.9917   6.8541 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  Three Months Ended September 30,
  2020 2019
         
Items in the statements of operations and comprehensive loss  6.9205   6.9872 

 

  

June 30, 2021

  

December 31, 2020

 
         

Balance sheet items, except for equity accounts

  6.4601   6.5249 

  

Six Months Ended June 30,

 
  

2021

  

2020

 
         

Items in the statements of operations and comprehensive loss

  6.4718   7.0319 

  

Three Months Ended June 30,

 
  

2021

  

2020

 
         

Items in the statements of operations and comprehensive loss

  6.4596   7.0839 

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

 11

e)

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

f)Fair value measurement

 

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of SeptemberJune 30, 2020 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

June 30, 2021

  

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

  

Significant
Other
Observable Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
  

(Unaudited)

             
                 

Warrant liabilities (Note 16)

  6,597   0   0   6,597 

 

    

 

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   0   0   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
  US$(’000) US$(’000) US$(’000) US$(’000)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Internet advertising and related services                
--distribution of the right to use search engine marketing service  18,004   30,134   8,706   11,554 
--online advertising placements  5,679   9,131   2,429   3,725 
--sales of effective sales lead information  -   253   -   224 
--data and technical services  900   10   300   5 
Ecommerce O2O advertising and marketing services  1,276   -   269   - 
Technical solution services  1,245   -   600   - 
Total revenues $27,104  $39,528  $12,304  $15,508 

12
11

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

Nine Months Ended September 30,

 Three Months Ended September 30,
  2020 2019 2020 2019
  US$(’000) US$(’000) US$(’000) US$(’000)
  (Unaudited) (Unaudited) (Unaudited) (Unaudited)
         
Revenue recognized over time  25,859   39,275   11,704   15,284 
Revenue recognized at a point in time  1,245   253   600   224 
Total revenues $27,104  $39,528  $12,304  $15,508 

  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Internet advertising and related services

                

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

  18,965   9,298   12,100   7,310 

--online advertising placements

  3,595   3,250   2,193   2,302 

--data and technical services

  0   600   0   300 

Ecommerce O2O advertising and marketing services

  387   1,007   258   504 

Technical solution services

  0   645   0   0 

Total revenues

 $22,947  $14,800  $14,551  $10,416 

  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Revenue recognized over time

  22,947   14,155   14,551   10,416 

Revenue recognized at a point in time

  0   645   0   0 

Total revenues

 $22,947  $14,800  $14,551  $10,416 

 

Contract costs

 

For the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, 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

 

The table below summarized the movement of the Company’s contract liabilities for the ninesix months ended SeptemberJune 30, 2020:2021:

 

Contract liabilities
US$(’000)
Balance as of January 1, 20202,006
Exchange translation adjustment49
Revenue recognized from beginning contract liability balances(1,681)
Advances received from customers related to unsatisfied performance obligations2,448
Balance as of September 30, 2020 (Unaudited)2,822
  

Contract liabilities

 
  

US$(000)

 
     

Balance as of January 1, 2021

  1,436 

Exchange translation adjustment

  14 

Revenue recognized from beginning contract liability balances

  (1,245)

Advances received from customers related to unsatisfied performance obligations

  1,334 

Balance as of June 30, 2021 (Unaudited)

 $1,539 

 

Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customerscustomers were insignificantinsignificant for the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019.2020.

 

For the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, there is no0 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 ninesix months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$0.440.16 million and US$0.600.33 million, respectively. Expenses for research and development for the three months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$0.110.09 million and US$0.240.12 million, respectively.

 

i)Lease

As of September 30, 2020, operating lease right-of-use assets recognized by the Company was approximately US$4,000. The Company had no 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) and US$284,000 (including approximately US$194,000 of short-term lease cost), respectively.

For the three months ended September 30, 2020 and 2019, total operating lease cost recognized was approximately US$37,000 (including approximately US$35,000 of short-term lease cost) and US$66,000 (including approximately US$64,000 of short-term lease cost), respectively.

13
12

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

h)

Lease

As of June 30, 2021, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$2.11 million and US$2.17 million, respectively.

Maturity of operating lease liabilities

   

Operating leases

 
   

US$(000)

 
   

(Unaudited)

 
      

Six months ending December 31, 2021

   147 

Year ending December 31,

     
-2022   316 
-2023   331 
-2024   337 
-2025   354 
-2026   372 

-thereafter

   869 

Total undiscounted lease payments

   2,726 

Less: imputed interest

   (560)

Total operating lease liabilities as of June 30, 2021

  $2,166 
      

Including:

     

Operating lease liabilities

   187 

Operating lease liabilities-Non current

   1,979 
   $2,166 

Operating lease expenses:

  

Six Months Ended June 30,

  

Three Months Ended June 30,

 
  

2021

  

2020

  

2021

  

2020

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

  

(Unaudited)

 
                 

Long-term operating lease contracts

  124   5   87   2 

Short-term operating lease contracts

  30   79   15   35 

Total

 $154  $84  $102  $37 

Supplemental information related to operating leases:

Six Months Ended June 30, 2021

(Unaudited)

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

63

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

2,179

Weighted-average remaining lease term (years)

7.63

Weighted-average discount rate

6%

 

13

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.

4.

Accounts receivable, net

 

 

September 30,

2020

 

December 31,

2019

 

June 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(000)

 

US$(000)

 
 (Unaudited)   

(Unaudited)

    
     
Accounts receivable  6,278   6,408  5,914  6,654 
Allowance for doubtful accounts  (3,996)  (3,148)  (2,207)  (4,247)
Accounts receivable, net  2,282   3,260   3,707   2,407 

 

All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, the Company provided approximately US$4.002.21 million and US$3.154.25 million allowance for doubtful accounts, respectively, which were primarily related to the accounts receivable of the Company’s internetInternet 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 ninesix and three months ended SeptemberJune 30, 2021, 0 allowance for doubtful accounts was provided. For the six and three months ended June 30, 2020, approximately US$0.75 million and US$nil0.34 million allowance for doubtful accounts was provided, respectively. For the nine and three months ended SeptemberJune 30, 2019,2021, the Company charged off approximately US$0.452.08 million accounts receivable against its related allowance, as all means of collection have been exhausted and US$nil million allowancethe potential for doubtful accounts was provided, respectively.recovery is considered remote.

 

5.

5.

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 
  

June 30,

2021

  

December 31,

2020

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Deposits to advertising resources providers

  619   307 

Prepayments to advertising resources providers

  4,390   3,696 

Deposit and prepayment for other investing contracts

  2,500   0 

Other deposits and prepayments

  526   654 
   8,035   4,657 

 

As of June 30, 2021, deposit and prepayment for other investing contracts consisted of a US$1.0 million refundable deposit paid for a potential merge and acquisition transaction, which will be refunded if no definitive agreement is reached among the parties before the expected closing date, i.e. September 30, 2021, and a US$1.5 million prepayment paid in accordance with a cryptocurrency mining machine purchase agreement, respectively.

As of the date hereof, the Company is in the due diligence process for the potential merge and acquisition transaction.

Due to the recent policies promulgated by the Chinese government which ban cryptocurrency mining business commencing in May 2021, the Company cancelled its cryptocurrency mining machine purchase agreement with the supplier and expects to be refunded with the prepayment of US$1.5 million in the second half of 2021.

14

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6.

6.

Due from related parties net

 

  

September 30,

2020

 

December 31,

2019

  US$(’000) US$(’000)
  (Unaudited)  
     
Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)  58   81 
Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua Shiji”)  176   172 
   234   253 
Allowance for doubtful accounts  (176)  (172)
Due from related parties, net  58   81 
  

June 30,

2021

  

December 31,

2020

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

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

  61   61 

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

  43   0 

Due from related parties

  104   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.

 

14

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, due from Zhongwang Xiyue represented the outstanding receivable for 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 SeptemberJune 30, 2020 and December 31, 2019, 2021, due from related parties also includedGong 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 is expected to be repaid to the Company had provided full allowance to against.for the year ending December 31, 2021.

 

7.

7.

Other current assets net

 

 September 30, 2020 December 31,2019 

June 30, 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  0  9  18  0  18 
Short-term loan to an unrelated party  944   -   944   -   -   -   453   0   453   1,444   0   1,444 
Overdue deposits  734   (734)  -   717   (717)  - 
Total  1,695   (734)  961   728   (717)  11   462   0   462   1,462   0   1,462 

 

As of SeptemberJune 30, 2020, 2021, other current assets primarily include a temporary working capital loan that the Company lentprovided to an unrelated party during the nine months ended September 30, 2020.party. This loan is unsecured, interest free, and payment on demand.is expected to be fully repaid to the Company for the year ending December 31, 2021.

8.

Long-term investments

  

Gong Xiang Technology

  

Xiao Peng Education

  

Business Opportunity Chain Guangzhou

  

Local Chain Xian

  

Total

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
                     

Balance as of January 1, 2021

  0   0   29   38   67 

Cash investment during the year

  232   79   110   0   421 

Disposed during the year

  0   0   0   (38)  (38)

Balance as of June 30, 2021 (Unaudited)

  232   79   139   0   450 

 

As of SeptemberJune 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, 2019,2021, except for long-term investments which were fully impaired, the Company had provided full allowance to against this doubtful account.

8.Long-term investments

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

15

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

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

 

In July 2020, due to May 2021, the facts that Shenzhen City Mingshan NetworkCompany disposed the 4.9% equity interest it owned in Local Chain Xi’an Information Technology Co., Ltd. (“Shenzhen Mingshan”Local Chain Xi’an”) to an unrelated party and ChinaNet Chuang Tou (Shenzhen) Co., Ltd. (“ChinaNet Chuang Tou”) had become dormant since 2015recorded an approximately US$0.04 million disposal loss for the six 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.three months ended June 30, 2021.

15

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

9.

9.

Property and equipment, net

 

 

September 30,

2020

 

December 31,

2019

 

June 30,

2021

  

December 31,

2020

 
 US$(’000) US$(’000) 

US$(000)

 

US$(000)

 
 (Unaudited)   

(Unaudited)

    
     
Vehicles  777   758  873  811 
Office equipment  1,363   1,331  908  894 
Electronic devices  960   937   621   615 
Property and equipment, cost  3,100   3,026   2,402   2,320 
Less: accumulated depreciation  (3,026)  (2,948)  (2,286)  (2,260)
Property and equipment, net  74   78   116   60 

 

Depreciation expenses for the ninesix months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$6,0000.004 million and US$53,000,0.004 million, respectively. Depreciation expenses for the three months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$2,0000.003 million and US$10,000,0.002 million, respectively.

 

10.

Intangible assets, net

  

As of June 30, 2021 (Unaudited)

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 

Intangible assets subject to amortization:

                

Cloud compute software technology

  1,437   (997)  (440)  0 

Internet Ad tracking system

  1,161   (58)  0   1,103 

Live streaming technology

  1,500   (175)  0   1,325 

Licensed products use right

  1,206   (196)  0   1,010 

Other computer software

  121   (121)  0   0 

Total

 $5,425  $(1,547) $(440) $3,438 

  

As of December 31, 2020

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 

Intangible assets subject to amortization:

                

Cloud compute software technology

  1,423   (978)  (436)  9 

Live streaming technology

  1,500   (25)  0   1,475 

Licensed products use right

  1,208   (135)  0   1,073 
Other computer software  120   (120)  0   0 

Total

 $4,251  $(1,258) $(436) $2,557 

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 
16

 

  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 

16

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Amortization expenses for the ninesix months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$616,0000.28 million and US$13,000,0.41 million, respectively. Amortization expenses for the three months ended SeptemberJune 30, 2020 2021 and 20192020 were approximately US$205,0000.17 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 5.775.68 years as of SeptemberJune 30, 2020, 2021, and assuming no further subsequent impairment of the underlying intangible assets, thethe estimated future amortization expenses is  approximately US$0.210.33 million for the year ending December 31, 2020, approximately US$0.13 million for the year ending December 31, 2021, and approximately US$0.12US$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.

11.

Blockchain software application platform development costs

 

In February 2018, the Company entered into a technical development contractcontracts with antwo unrelated entity to develop aentities for the development of two blockchain technology-based platform application for internal use by the Company. Totalapplications 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$0.440.46 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 SeptemberJune 30, 2020 and December 31, 2019, 2021, in accordance with ASC 350-40350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company capitalized approximately US$4.19 million and US$3.884.41 million development costs in the aggregate under these two contracts, respectively. As of the date hereof, contracts. During 2020, the Company is in the processfurther developed its Blockchain Integrated Framework (“BIF”) for retail business, to provide a framework platform for more accessible and efficient integration of further developingsmall and adjusting its blockchain-powered applications on the blockchain infrastructure platform to make the platform a better synergism with the currentmedium sized retail business and client base.users. The Company originally scheduled to complete the adjustments and upgrades of Bo!News,plans to launch the OMG for trialupgraded Bo!News application by the end of May 2020,the third fiscal quarter, which provides digitalized franchise management system for the SMEs. At the same time, BIF will be officially launched for SMEs’ smart retail business before the end of the year, which provides blockchain SaaS services, including: OMG membership card management, trusted and decentralized payment management and Non-Fungible Token (“NFT”) management services.

12.

Long-term deposits and prepayments

As of June 30, 2021, long-term deposits and prepayments consisted of an approximately US$0.56 million of the Company’s operating deposits and prepayments that were not expected to be refunded or consumed within one year of June 30, 2021, an approximately US$0.16 million prepayment for the leasehold improvement project of the Company’s Guangzhou office, which is expected to be completed in the second half of fiscal 2021, and a US$1.0 million prepayment for the shares subscription of a 15.38% equity interest in an entity. This investment was made by the Company to jointly develop blockchain, key opinion leader and e-sports platform and to complete the integration of BO!Newsjointly operate IP data for e-sports and OMG for commercial releasegames with its two strategic partners. The transaction is expected to be consummated by the end of 2020. However, due to the COVID-19 outbreak in China during the first fiscal quarter of 2020, the Company currently anticipates that the commercial releasing schedule will likely be postponed.August 2021.

 

13.

Accrued payroll and other accruals

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.

  

June 30,

2021

  

December 31,

2020

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Accrued payroll and staff welfare

  179   229 

Accrued operating expenses

  101   260 
   280   489 

 

14.

12.

Long-term prepaymentsTaxation

 

As of SeptemberJune 30, 2021 and December 31, 2020, long-term prepayments represented a portion of the Company’s 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 they were not expected to be consumed within one year of September 30, 2020.taxes payable consists of:

 

17
17

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

  US$(’000) US$(’000)
  (Unaudited)  
     
Accrued payroll and staff welfare  237   173 
Accrued operating expenses  205   318 
   442   491 

15.Taxation

As of September 30, 2020 and December 31, 2019, 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 
  

June 30,

2021

  

December 31,

2020

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Turnover tax and surcharge payable

  1,313   1,353 

Enterprise income tax payable

  2,095   2,077 

Total taxes payable

  3,408   3,430 

 

For the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, the Company’s income tax benefitbenefit/(expenses) consisted of:

 

 Nine Months Ended September 30, Three Months Ended September 30, 

Six Months Ended June 30,

  

Three Months Ended June 30,

 
 2020 2019 2020 2019 

2021

  

2020

  

2021

  

2020

 
 US$(’000) US$(’000) US$(’000) US$(’000) 

US$(000)

 

US$(000)

 

US$(000)

 

US$(000)

 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
         
Current  -   -   57   -  0  (57) 0  26 
Deferred  87   10   98   16   40   (11)  22   (16)
Income tax benefit  87   10   155   16 

Income tax benefit/(expenses)

  40   (68)  22   10 

 

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

 

 

September 30,

2020

 

December 31,

2019

 

June 30,

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  12,160  10,123 

Operating lease cost

 16  0 
Bad debts provision  890   743  331  728 
Valuation allowance  (10,223)  (9,190)  (11,855)  (10,245)
Deferred tax assets, net  815   713   652   606 

 

18

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The U.S. holding company has incurred aggregate NOLs of approximately US$22.830.4 million and US$20.323.3 million as of SeptemberJune 30, 2020 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 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$25.224.3 million and US$23.622.5 million as of SeptemberJune 30, 2020 2021 and December 31, 2019, 2020, respectively. The losses carryforwards gradually expire over time, the last of which expires in 20302031 due to certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred tax assets were calculated based on the respective 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.

 

18

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Company recorded approximately US$10.2211.9 million and US$9.1910.2 million valuation allowance as of SeptemberJune 30, 2020 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 ninesix and three months ended SeptemberJune 30, 2020, 2021, the Company recorded approximately US$0.901.96 million and US$0.141.65 million deferred tax valuation allowance, respectively. For the ninesix and three months ended SeptemberJune 30, 2019, 2020, the Company recorded approximately US$0.420.76 million deferred tax valuation allowance. For the three months ended September 30, 2019, the Company reversed approximately and US$0.030.21 million deferred tax valuation allowance,. respectively.

 

15.

16.

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, which is not expected to be repaid within one year.

 

16.

17.

WarrantThe Financing and warrant liabilities

 

TheFebruary 2021 Financing:

On February 18, 2021 (the “Closing Date”), the Company consummated a registered direct offering in January 2018of 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 129,0002,606,000 shares of the Company’s common stock at an exercise price of $6.60US$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 for these warrants as derivative liabilities. As a result, these warrants were remeasured at fair value asreceived gross proceeds of each reporting date with changes in fair value be recorded in earnings in each reporting period.

Fair value ofapproximately US$18.7 million from the warrantsFebruary 2021 Financing.

 

The Company used Binomial model to determine the fair valueplacement 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, basedthe “2021 Warrants”). The 2021 Placement Agent Warrants are exercisable at any time on or after August 18, 2021 (the assumptions summarized as below: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).

 

  Investors warrants Placement agent warrants
  December 31,
2019
 June 30,
2020
 September 30,
2020 #
 December 31,
2019
 June 30,
2020
 September 30,
2020
             
Stock price $1.17  $1.00      $1.17  $1.00  $2.02 
Years to maturity  0.55   0.05       1.05   0.55   0.30 
Risk-free interest rate  1.58%  0.19%      1.57%  0.18%  0.13%
Dividend yield  -   -       -   -   - 
Expected volatility  60%  143%      80%  112%  133%
Exercise Price * $1.4927  $1.4927      $1.4927  $1.4927  $1.4927 
                         
Fair value of the warrant $0.11  $0.02  $-  $0.28  $0.20  $0.80 
                         
Warrant Liabilities (US$’000) $71  $13  $-  $36  $26  $103 

19

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 

* On September 25, 2019, as a resultThe initial exercise prices of the close on2021 Warrants are subject to anti-dilution provisions that require adjustment of the first halfnumber of a private placement with a selected groupshares of investors,common stock that may be acquired upon exercise of the 2021 Warrants, or to the exercise price of the warrants issued in the 2018 Financing thatsuch shares, or both, to reflect stock dividends and splits, subsequent rights offerings, pro-rata distributions, and certain fundamental transactions. The 2021 Warrants also 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 during2021 Warrants may not be exercised if it would result in the three months ended September 30, 2020.holder beneficially owning more than 4.99% of the Company’s outstanding common shares (the “Beneficial Ownership Limitation”). The holder of the 2021 Warrants, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, provided that the Beneficial Ownership Limitation in no event exceeds 9.99% of the Company’s outstanding common shares. Any increase in the Beneficial Ownership Limitation will not be effective until the 61st day after such notice is delivered to the Company.

Accounting for securities issued in the February 2021 Financing

Changes

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

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

 

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

   As of   As of   As of   

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

 
Fair value of the Warrants:                    
Investor warrants  -   13   71   (71)  (13)
Placement agent warrants  103   26   36   67   77 
Warrant liabilities  103   39   107   (4)  64 
19

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 

20

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair value of the warrants

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

  

As of February 18, 2021

 
         
  

2021 Investor Warrants

  

2021 Placement Agent Warrants

 
         

Stock price

 $4.48  $4.48 

Years to maturity

  3.50   3.50 

Risk-free interest rate

  0.26%  0.26%

Dividend yield

  0   0 

Expected volatility

  168%  168%

Exercise Price

 $3.59  $4.4875 
         

Fair value of the warrant

 $4.02  $3.96 
         

Warrant liabilities (US$’000)

 $10,476  $1,445 

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

Allocation of gross proceeds from the February 2021 Financing

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

Initial measurement

(USD000)

Investor Warrants

10,476

Common Stock (par value and additional paid in capital)

8,235

Total proceeds from the Financing

18,711

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

Offering costs

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

Subsequent measurement and changes in fair value of the warrant liabilities

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

20

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the six and three months ended June 30, 2021:

Warrants issued in the February 2021 Financing:

  

2021 Investor Warrants

  

2021 Placement Agent Warrants

 
  

June 30, 2021

  

March 31, 2021

  

June 30, 2021

  

March 31, 2021

 
                 

Stock price

 $2.00  $2.64  $2.00  $2.64 

Years to maturity

  3.14   3.38   3.14   3.38 

Risk-free interest rate

  0.48%  0.41%  0.48%  0.41%

Dividend yield

  0   0   0   0 

Expected volatility

  114%  168%  114%  168%

Exercise Price

 $3.59  $3.59  $4.4875  $4.4875 
                 

Fair value of the warrant

 $1.25  $2.28  $1.18  $2.24 
                 

Warrant liabilities (US$’000)

 $3,257  $5,942  $431  $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

 
  

June 30, 2021

  

March 31, 2021

  

December 31, 2020

 
             

Stock price

 $2.00  $2.64  $1.35 

Years to maturity

  2.45   2.70   2.95 

Risk-free interest rate

  0.34%  0.29%  0.17%

Dividend yield

  0   0   0 

Expected volatility

  120%  120%  102%

Exercise Price

 $2.03  $2.03  $2.03 
             

Fair value of the warrant

 $1.40  $1.95  $0.74 
             

Investor warrants liabilities (US$’000)

 $2,420  $3,370  $1,279 
             

Placement agent warrants liabilities (US$’000)

 $423  $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, the exercise price of the 2018 Warrants was adjusted to US$1.4927. On January 18, 2021, the expiration date of the 2018 Placement Agent Warrants was extended to July 18, 2021.

21

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

  

2018 Placement Agent Warrants

 
  

June 30, 2021

  

March 31, 2021

  

December 31, 2020

 
             

Stock price

 $2.00  $2.64  $1.35 

Years to maturity

  0.05   0.30   0.05 

Risk-free interest rate

  0.04%  0.03%  0.08%

Dividend yield

  0   0   0 

Expected volatility

  74%  206%  59%

Exercise Price

 $1.4927  $1.4927  $1.4927 
             

Fair value of the warrant

 $0.51  $1.55  $0.02 
             

Warrant liabilities (US$’000)

 $66  $200  $2 

For the six and three months ended June 30, 2020:

Warrants issued in the 2018 Financing:

  

2018 Investors warrants

  

2018 Placement agent warrants

 
  

June 30,

2020

  

March 31,

2020

  

December 31,

2019

  

June 30,

2020

  

March 31,

2020

  

December 31,

2019

 
                         

Stock price

 $1.00  $0.95  $1.17  $1.00  $0.95  $1.17 

Years to maturity

  0.05   0.30   0.55   0.55   0.80   1.05 

Risk-free interest rate

  0.19%  0.10%  1.58%  0.18%  0.13%  1.57%

Dividend yield

  0   0   0   0   0   0 

Expected volatility

  143%  99%  60%  112%  78%  80%

Exercise Price

 $1.4927  $1.4927  $1.4927  $1.4927  $1.4927  $1.4927 
                         

Fair value of the warrant

 $0.02  $0.07  $0.11  $0.20  $0.12  $0.28 
                         

Warrant Liabilities (US$’000)

 $13  $45  $71  $26  $16  $36 

Changes in fair value of warrant liabilities

Six and Three Months Ended June 30, 2021 (Unaudited)

     

 

     

 

  

Change in Fair Value

(gain)/loss

 
   

As of

June 31, 2021

    

As of

March 31, 2021

    

As of

February 18, 2021

   

As of

December 31, 2020 

  

Six Months Ended

June 30, 2021

  

Three Months Ended

June 30, 2021

 
  

(US$000)

  

(US$000)

  

(US$000)

  

(US$000)

  

(US$000)

  

(US$000)

 
                         

Warrants issued in the February 2021 Financing:

 

--Investor Warrants

  3,257   5,942   10,476   *   (7,219)  (2,685)

--Placement Agent Warrants

  431   817   1,445   *   (1,014)  (386)

Warrants issued in the 2020 Financing:

 

--Investor Warrants

  2,420   3,370   *   1,279   1,141   (950)

--Placement Agent Warrants

  423   590   *   224   199   (167)

Warrants issued in the 2018 Financing:

 

--Placement Agent Warrants

  66   200   *   2   64   (134)
   6,597   10,919   11,921   1,505   (6,829)  (4,322)

22

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Six and Three Months Ended June 30, 2020 (Unaudited)

     

 

  

 

  

Change in Fair Value (gain)/loss

 
    

As of

June 30, 2020

    

As of

March 31, 2020

    

As of

December 31, 2019

  

Six Months Ended

June 30, 2020

  

Three Months Ended

June 30, 2020

 
  

(US$000)

  

(US$000)

  

(US$000)

  

(US$000)

  

(US$000)

 
                     

Warrants issued in the 2018 Financing:

 

--Investor Warrants

  13   45   71   (58)  (32)

--Placement Agent Warrants

  26   16   36   (10)  10 

Warrant liabilities

  39   61   107   (68)  (22)

Warrants issued and outstanding as of SeptemberJune 30, 2020 2021 and their movements during the ninesix 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   3.14  $3.70   4,636,865   2.84  $2.91 

Forfeited

  0           -         

Exercised

  0           -         

Balance, June 30, 2021 (Unaudited)

  5,130,705   2.79  $2.98   4,765,865   2.76  $2.87 

 

17.

18.

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 SeptemberJune 30, 2020 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.

 

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.

 

23

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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:

 

l

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

l

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

 

21

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Although the current Exchange Rules allow 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.

 

18.

19.

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$0.080.10 million and US$0.260.06 million for the ninesix months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively. The total amounts for such employee benefits were approximately US$0.030.05 million and US$0.090.02 million for the three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively.

 

19.

20.

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.deposits and loans to unrelated parties. As of SeptemberJune 30, 2020, substantially all2021, 41% of the Company’s cash and cash equivalents were held by major financial institutions located in China.Mainland and Hong Kong, China, the remaining 59% 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 deposits and loans to unrelated parties, the Company extends credit based on an evaluation of the customer’s or other parties’ financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the Company delegated a team responsible for credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Company reviews the recoverable amount of each individual 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 deposits and loans to unrelated parties are significantly reduced.reduced.

 

24

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 ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, 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

 
   
Nine Months Ended September 30, 2020  

Six Months Ended June 30, 2021

            
Revenues, customer concentration risk * * 16% * * - 11% 14% *  -  -  * 
   
Three Months Ended September 30, 2020  

Three Months Ended June 30, 2021

            
Revenues, customer concentration risk * * 21% * * - 14% 12% *  -  -  * 
      
Nine Months Ended September 30, 2019     

Six Months Ended June 30, 2020

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

Three Months Ended June 30, 2020

            
Revenues, customer concentration risk * * * - - 10% -  -  *  *  *  - 
      
As of September 30, 2020     

As of June 30, 2021

            
Accounts receivable, customer concentration risk 33% * * 27% 15% - 62% -  17% -  -  10%
      
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.

22

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 ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively:

 

Supplier A
Nine Months Ended September 30, 2020
Cost of revenues, supplier concentration risk78%
Three Months Ended September 30, 2020
Cost of revenues, supplier concentration risk78%
Nine Months Ended September 30, 2019
Cost of revenues, supplier concentration risk90%
Three Months Ended September 30, 2019
Cost of revenues, supplier concentration risk88%
  

Supplier A

  

Supplier B

 
         

Six Months Ended June 30, 2021

        

Cost of revenues, supplier concentration risk

  73%  12%
         

Three Months Ended June 30, 2021

        

Cost of revenues, supplier concentration risk

  86%  * 
         

Six Months Ended June 30, 2020

        

Cost of revenues, supplier concentration risk

  -   78%
         

Three Months Ended June 30, 2020

        

Cost of revenues, supplier concentration risk

  -   81%

 

* Less than 10%.

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

20.

21.

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$4.944.96 million. As of SeptemberJune 30, 2020, 2021, the Company had paid approximately US$4.194.41 million in the aggerate, and theaggregate. The remaining unpaid contract amount is expected to be paid during the year ending December 31, 2020.2021.

 

25

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

 

21.

22.

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.Six Months Ended June 30, 2021 (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

  22,560   387   0   0   0   22,947 

Cost of revenues

  23,132   750   0   0   0   23,882 

Total operating expenses

  590   658   1   7,910(1)  0   9,159 

Depreciation and amortization expense included in total operating expenses

  130   150   1   1   0   282 

Operating loss

  (1,162)  (1,021)  (1)  (7,910)  0   (10,094)
                         

Change in fair value of warrant liabilities

  0   0   0   6,829   0   6,829 
                         

Net loss

  (966)  (1,021)  (2)  (970)  0   (2,959)
                         

Expenditure for long-term assets

  1,220   0   0   161   0   1,381 
                         

Total assets-June 30, 2021

  11,515   4,588   4,410   45,422   (28,987)  36,948 

Total assets-December 31, 2020

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

(1)  Including approximately US$6.86 million share-based compensation expenses.

23
26

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Nine Months Ended September 30, 2020 (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  24,583   1,276   -   1,245   -   27,104 
Cost of revenues  24,847   1,125   -   576   -   26,548 
Total operating expenses  2,361   15   5   2,875(1)  -   5,256 
Depreciation and amortization expense included in total operating expenses  617   -   2   3   -   622 
Operating (loss)/income  (2,625)  136   (5)  (2,206)  -   (4,700)
                         
Change in fair value of warrant liabilities  -   -   -   4   -   4 
                         
Expenditure for long-term assets  -   -   302   -   -   302 
                         
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 

(1)Including approximately US$2,066 thousands share-based compensation expenses.

Three Months Ended SeptemberJune 30, 2021 (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

  14,293   258   0   0   0   14,551 

Cost of revenues

  14,394   375   0   0   0   14,769 

Total operating expenses

  207   455   0   7,399(1)  0   8,061 

Depreciation and amortization expense included in total operating expenses

  95   75   0   0   0   170 

Operating loss

  (308)  (572)  0   (7,399)  0   (8,279)
                         

Change in fair value of warrant liabilities

  0   0   0   4,322   0   4,322 
                         

Net loss

  (12)  (572)  (1)  (3,061)  0   (3,646)
                         

Expenditure for long-term assets

  60   0   0   161   0   221 

(1) Including approximately US$6.76 million share-based compensation expenses.

Six Months Ended June 30, 2020 (Unaudited)(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 service

  

Ecommerce
O2O Ad and
marketing
services

  

Blockchain technology

  

Corporate

  

Inter-segment and reconciling item

  

Total

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

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

 

US$

(‘000)

  

US$

(‘000)

 

US$

(‘000)

 
                          
Revenues  11,435   269   -   600   -   12,304  13,148  1,007  0  645  0  14,800 
Cost of revenues  11,994   375   -   576   -   12,945  12,853  750  0  0  0  13,603 
Total operating expenses  409   6   1   347(1)  -   763  1,952  9  4  2,528(1) 0  4,493 
Depreciation and amortization expense included in total operating expenses  205   -   1   1   -   207   412   0   1   2   0   415 
Operating loss  (968)  (112)  (1)  (323)  -   (1,404)

Operating (loss)/income

 (1,657) 248  (4) (1,883) 0  (3,296)
                                      
Change in fair value of warrant liabilities  -   -   -   (64)  -   (64) 0  0  0  68  0  68 
                                      
Net loss  (893)  (94)  (1)  (345)  -   (1,333)
Expenditure for long-term assets 0 0 302 0  0 302 
              

Net (loss)/income

 (1,650) 204  (4) (1,830) 0  (3,280)

 

(1)Including approximately US$79 thousands share-based compensation expenses.

(1)  Including approximately US$1.99 million share-based compensation expenses.

24
27

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 SeptemberJune 30, 2019 (Unaudited)2020 (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

  9,912   504   0   0   0   10,416 

Cost of revenues

  9,743   375   0   0   0   10,118 

Total operating expenses

  930   5   3   380(1)  0   1,318 

Depreciation and amortization expense included in total operating expenses

  206   0   1   1   0   208 

Operating (loss)/income

  (761)  124   (3)  (380)  0   (1,020)
                         

Change in fair value of warrant liabilities

  0   0   0   22   0   22 
                         

Net (loss)/income

  (757)  101   (3)  (311)  0   (970)

(1)  Including approximately US$0.07 million share-based compensation expenses.

 

   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)

22.

 

(1)Including approximately US$104 thousands share-based compensation expenses.

25

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

23.Loss per share


Basic and diluted loss(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, 

Six Months Ended June 30,

  

Three Months Ended June 30,

 
 2020 2019 2020 2019 

2021

  

2020

  

2021

  

2020

 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 

(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)

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

 $(2,961) $(3,278) $(3,646) $(968)
                 
                 
Weighted average number of common shares outstanding -Basic and diluted  21,271,301   16,447,233   21,720,259   16,517,440   30,727,546   21,044,666   32,925,488   21,691,926 
                 
Loss per share-Basic and diluted $(0.22) $(0.12) $(0.06) $(0.02) $(0.10) $(0.16) $(0.11) $(0.04)

 

For the ninesix and three months ended SeptemberJune 30, 2021 and 2020, the diluted 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.anti-dilutive.

 

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.

28


26

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

23.

24.

Share-based compensation expenses

 

In February May 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued in the aggregate of approximately 1.603.99 million fully-vested shares of the Company’s restricted common stock to its management and employees for their services provided.provided to the Company. These shares were valued at the closing bid price of the Company’s common stock on the date of grant, which is was US$1.181.67 per share. Total compensation expenses ofrecognized was approximately US$1.89US$6.66 million was recorded for both the ninesix and three months ended SeptemberJune 30, 2020.2021.

 

In March 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued 0.03 million fully-vested shares of the Company’s restricted common stock to one of itsthe Company’s independent directors in exchange for his servicesservice to the Company for the year ending December 31, 2020. 2021. These shares were valued at the closing bid price of the Company’s common stock on the date of grant, which is was US$1.113.13 per share. Total compensation expenses recognizedamortized for the ninesix and three months ended SeptemberJune 30, 2020 2021 was approximately US$0.020.05 million and US$0.010.02 million, respectively.

 

In For the six and three months ended June 30, 2021, the Company also amortized an approximately US$0.15 million and US$0.08 million compensation expense in the aggregate, respectively, which was related to fully-vested and nonforfeitable restricted common stock granted and issued to two of its service providers in March 2020 and August 2020, respectively.

During the first half year of 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued in the aggregate of approximately 1.63 million fully-vested shares of the Company’s restricted common stock to its 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. Total compensation expenses of approximately US$1.91 and US$0.01 million was recorded for the six and three months ended June 30, 2020, respectively.

In March 2020, the Company granted and issued 0.43 million 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.two-year 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 ninesix and three months ended SeptemberJune 30, 2020 was approximately US$0.140.08 million and US$0.06 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.respectively.

 

The table below summarized share-based compensation expenses recorded for the ninesix and three months ended SeptemberJune 30, 2020 2021 and 2019,2020, respectively:

 

 Nine Months Ended September 30, Three Months Ended September 30, 

Six Months Ended June 30,

  

Three Months Ended June 30,

 
 2020 2019 2020 2019 

2021

  

2020

  

2021

  

2020

 
 US$(’000) US$(’000) US$(’000) US$(’000) 

US$(000)

 

US$(000)

 

US$(000)

 

US$(000)

 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
         
Sales and marketing expenses  122   -   -   -  0  122  0  0 
General and administrative expenses  1,798   307   79   104  6,857  1,719  6,757  68 
Research and development expenses  146   -   -   -   0   146   0   0 
Total  2,066   307   79   104   6,857   1,987   6,757   68 

 

The aggregate unrecognized share-based compensation expenses as of SeptemberJune 30, 2020 2021 was approximately US$0.400.21 million, of which approximately US$0.080.17 million will be recognized for the year ending December 31, 2020,2021 and approximately US$0.280.04 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.

 

27
29

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Options issued and outstanding as of SeptemberJune 30, 2020 2021 and their movements during the ninesix months then ended are as follows:

 

 Option Outstanding Option Exercisable 

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
 

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 

Balance, January 1, 2021

 277,976  0.91  $3.00  277,976  0.91  $3.00 
Granted/Vested  -           -          0       -      
Expired  (477,240)     $2.10   (477,240)     $2.10  0       -      
Exercised  -           -           0         -       
Balance, September 30, 2020 (Unaudited)  277,976   1.16  $3.00   277,976   1.16  $3.00 

Balance, June 30, 2021 (Unaudited)

  277,976  0.41  $3.00   277,976  0.41  $3.00 

 

24.

25.

Subsequent eventevents

 

In October 2020, July 2021, the Company incorporated a new majority-owned subsidiary, Qiweilian (Guangzhou) Technology Co., Ltd. (“Qiweilian”), in which an unrelated party owns 49% andissued 0.04 million shares of the Company owns 51% equity interest. Qiweilian was establishedCompany’s restricted common stock for the developmentcashless settlement of digital business promotion services to SMEs based on WeChat.the 129,000 Placement Agent Warrants issued in the 2018 Financing.

 

The Company primarily conducts its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19)(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 hasCOVID-19 resulted in the World Health Organization declaring the outbreak of COVID-19COVID-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 principleprincipal 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-19COVID-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 havehad declared the COVID-19COVID-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-19COVID-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.

 

28
30

 

Item 2 Management’s2. Managements Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,expect, “anticipate,anticipate, “intend,intend, “believe,believe, or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors”Risk Factors in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019.2020. Readers are cautioned not to place undue reliance on these forward-looking statements.

Overview

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 expansionother 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 20192020 Form 10-K.

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31

 

A.RESULTS OF OPERATIONS FOR THE NINESIX AND THREE MONTHS ENDED SEPTEMBERJUNE 30, 20202021 AND 20192020

 

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

 

 Nine Months Ended September 30, Three Months Ended September 30, 

Six Months Ended June 30,

  

Three Months Ended June 30,

 
 2020 2019 2020 2019 

2021

  

2020

  

2021

  

2020

 
 (US $) (US $) (US $) (US $) 

(US $)

 

(US $)

 

(US $)

 

(US $)

 
 (Unaudited) (Unaudited) (Unaudited) (Unaudited) 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 

(Unaudited)

 
Revenues                        
From unrelated parties $27,086  $39,025  $12,300  $15,113  $22,947  $14,786  $14,551  $10,415 
From a related party  18   503   4   395   -   14   -   1 
Total revenues  27,104   39,528   12,304   15,508  22,947  14,800  14,551  10,416 
Cost of revenues  26,548   37,828   12,945   14,616   23,882   13,603   14,769   10,118 
Gross profit/(loss)  556   1,700   (641)  892 

Gross profit

  (935)  1,197   (218)  298 
                 
Operating expenses                                
Sales and marketing expenses  293   461   58   111  101  235  73  70 
General and administrative expenses  4,520   2,875   592   817  8,895  3,928  7,899  1,132 
Research and development expenses  443   599   113   239   163   330   89   116 
Total operating expenses  5,256   3,935   763   1,167   9,159   4,493   8,061   1,318 
                 
Loss from operations  (4,700)  (2,235)  (1,404)  (275)  (10,094)  (3,296)  (8,279)  (1,020)
                 
Other income (expenses)                                
Interest expense, net  -   (33)  1   (10)
Other expenses  (4)  (6)  (21)  (2)
            

Interest income/(expense), net

 2  (1) 1  - 

Other income/(expense), net

 302  17  326  18 

Loss on disposal of long-term investments

 (38) -  (38) - 
Change in fair value of warrant liabilities  4   351   (64)  (120)  6,829   68   4,322   22 
Total other income  -   312   (84)  (132)  7,095   84   4,611   40 
                 
Loss before income tax benefit and noncontrolling interests  (4,700)  (1,923)  (1,488)  (407)
Income tax benefit  87   10   155   16 

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

  (2,999)  (3,212)  (3,668)  (980)

Income tax benefit/(expense)

  40   (68)  22   10 
Net loss  (4,613)  (1,913)  (1,333)  (391)  (2,959)  (3,280)  (3,646)  (970)
Net loss attributable to noncontrolling interests  2   8   -   3 

Net (income)/loss attributable to noncontrolling interests

  (2)  2   -   2 
Net loss attributable to ZW Data Action Technologies Inc. $(4,611) $(1,905) $(1,333) $(388) $(2,961) $(3,278) $(3,646) $(968)

 

Revenues

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, 

Six Months Ended June 30,

 
 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% $3,595  15.7% $3,250  22.0%
-Distribution of the right to use search engine marketing service  18,004   66.4%  30,134   76.2% 18,965  82.6% 9,298  62.8%
-Data and technical services  900   3.3%  10   -   -   -   600   4.1%
Internet advertising and related services  24,583   90.7%  39,528   100% 22,560  98.3% 13,148  88.9%
Ecommerce O2O advertising and marketing services  1,276   4.7%  -   -  387  1.7% 1,007  6.8%
Technical solution services  1,245   4.6%  -   -   -   -   645   4.3%
Total $27,104   100% $39,528   100% $22,947   100% $14,800   100%

  

Three Months Ended June 30,

 
  

2021

  

2020

 

Revenue type

 

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

 
                 

-Internet advertising and related data service

 $2,193   15.1% $2,302   22.1%

-Distribution of the right to use search engine marketing service

  12,100   83.1%  7,310   70.2%

-Data and technical services

  -   -   300   2.9%

Internet advertising and related services

  14,293   98.2%  9,912   95.2%

Ecommerce O2O advertising and marketing services

  258   1.8%  504   4.8%

Total

 $14,551   100% $10,416   100%

 

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32

  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 decreasedincreased to US$27.1022.95 million and US$12.3014.55 million for the ninesix and three months ended SeptemberJune 30, 20202021, respectively, from US$39.5314.80 million and US$15.5110.42 million for the same periods last year, respectively, which was primarily due to the decreaseincrease in our main stream service revenues, from our Internet advertising andi.e. 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.services.

 

l

Internet advertising revenues for the ninesix and three months ended SeptemberJune 30, 20202021 was approximately US$5.683.60 million and US$2.432.19 million, respectively, compared with US$9.383.25 million and US$3.952.30 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively. The decreases were directly attributable to the COVID-19 outbreak andManagement expects no significant fluctuation on service revenues from this business shutdown during the first fiscal quarter of 2020 in China, and slow recovery of economycategory 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 quarterhalf of 2020,2021, compared with an approximately 50% decreasethat in the first fiscal quarter of 2020, which indicated a gradual improvement of our business after the COVID-19 outbreak.same period last year.

 

l

Revenue generated from the distribution of the right to use search engine marketing service for the ninesix and three months ended SeptemberJune 30, 2020 decreased to2021 was approximately US$18.0018.97 million and US$8.7112.10 million, respectively, compared with approximately US$30.139.30 million and US$11.557.31 million for the ninesix and three months ended SeptemberJune 30, 2019, respectively, due to the same reason as discussed above.2020, respectively. The performancesignificant increase of revenues from this business category also improved afterfor both 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.

lFor the ninesix and three months ended SeptemberJune 30, 2021 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. Although there are COVID-19 cases rebound in several provinces in China since July 2021 and uncertainties associated with the future developments of the pandemic still exist, management expects that revenues from this business will be stable in the second half of 2021, compared with that in the same period last year.

For the six and three months ended June 30, 2021, we generated an approximately US$1.280.39 million and US$0.270.26 million Ecommerce O2O advertising and marketing service revenues, respectively, compared with an approximately US$1.01 million and US$0.50 million service revenues generated for the six and three months ended June 30, 2020, respectively. We generated these revenues from the distribution of the advertising spaces in outdoor billboards we purchased from a third party.party for the reporting periods.

 

lFor 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 onlineInternet 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:eliminated:

 

 Nine Months Ended September 30, 

Six Months Ended June 30,

 
 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 $5,679  $4,904   14% $9,384  $8,887   5% $3,595  $3,245  10% $3,250  $2,906  11%
-Distribution of the right to use search engine marketing service  18,004   19,147   -6%  30,134   28,936   4% 18,965  19,887  -5% 9,298  9,416  -1%
-Data and technical services  900   796   12%  10   5   50%  -  -   -   600  531   12%
Internet advertising and related services  24,583   24,847   -1%  39,528   37,828   4% 22,560  23,132  -3% 13,148  12,853  2%
Ecommerce O2O advertising and marketing services  1,276   1,125   12%  -   -   -  387  750  -94% 1,007  750  26%
Technical solution services  1,245   576   54%  -   -   -   -  -  -  645  -  100%
Total $27,104  $26,548   2% $39,528  $37,828   4% $22,947  $23,882   -4% $14,800  $13,603   8%

 

  Three 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 $2,429  $1,998   18% $3,949  $3,669   7%
-Distribution of the right to use search engine marketing service  8,706   9,731   -12%  11,554   10,947   5%
-Data and technical services  300   265   12%  5   -   100%
Internet advertising and related services  11,435   11,994   -5%  15,508   14,616   6%
Ecommerce O2O advertising and marketing services  269   375   -39%  -   -   - 
Technical solution services  600   576   4%  -   -   - 
Total $12,304  $12,945   -5% $15,508  $14,616   6%

33

  

Three Months Ended June 30,

 
  

2021

  

2020

 
  

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

 
  

Revenue

  

Cost

  

GP ratio

  

Revenue

  

Cost

  

GP ratio

 
                         

-Internet advertising and related data service

 $2,193  $1,968   10% $2,302  $2,072   10%

-Distribution of the right to use search engine marketing service

  12,100   12,426   -3%  7,310   7,405   -1%

-Data and technical services

  -   -   -   300   266   11%

Internet advertising and related services

  14,293   14,394   -1%  9,912   9,743   2%

Ecommerce O2O advertising and marketing services

  258   375   -45%  504   375   26%

Total

 $14,551  $14,769   -1% $10,416  $10,118   3%

 

Cost of revenues: our total cost of revenues decreasedincreased to US$26.5523.88 million and US$12.9514.77 million for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, from US$37.8313.60 million and US$14.6210.12 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively. 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 decreaseincrease in our total cost of revenues for the ninesix and three months ended SeptemberJune 30, 20202021 was primarily due to the decreaseincrease 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,during the periods, which waswere in line with the decreaseincrease 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 ninesix and three months ended SeptemberJune 30, 2020,2021, our total cost of revenues for Internet advertising and data service decreased towas approximately US$4.903.25 million and US$2.001.97 million, respectively, compared with approximately US$8.892.91 million and US$3.672.07 million for the ninesix and three months ended SeptemberJune 30, 2019, respectively, which was in line with the revenues decrease as discussed above. 2020, respectively. The gross margin rate of our Internet advertising and data service improved to 14% and 18%was 10% for both the ninesix and three months ended SeptemberJune 30, 2021, compared with 11% and 10% for the six and three months ended June 30, 2020, respectively, comparedrespectively. We anticipate the gross margin rate will improve in the second half 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 ninesix and three months ended SeptemberJune 30, 2020,2021, our total cost of revenues for distribution of the right to use search engine marketing service decreasedincreased significantly to US$19.1519.89 million and US$9.7312.43 million, respectively, compared with US$28.949.42 million and US$10.957.41 million for the same periods last year, respectively. Gross margin rates of this service forrespectively, which was in line with the nine and three months ended September 30, 2020 was -6% and -12%, respectively, as we had to sell the resource pre-purchased from key search engines at a loss to meet our working capital needs and secure our client base under the circumstances of COVID-19 outbreak and slow recovery of economy after the pandemic. We are actively negotiating with our suppliers for more favorable discount,increase in revenues as a result we anticipant slight improvementof business recovery after successful containment of the grossCOVID-19 epidemic in China. Gross margin rate of this business category in future periods. Gross margin rates of this service was 4%-5% and 5%-3% for the ninesix and three months ended SeptemberJune 30, 2019, respectively.

32

lFor2021, respectively, significantly improved from -9% gross margin rate incurred for the ninefirst fiscal quarter of 2021. Gross margin rate of this business category was -1% for both the six and three months ended SeptemberJune 30, 2020, cost for our Internet advertising related data2020. We anticipant the gross margin rate will continue to improve in the second half of fiscal 2021, as we anticipate continuous increase in service revenues 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 duringcost consumption from this business category, which may put us in a better position to negotiate a lower rate with the suppliers in future periods.

 

l

For the nine and threesix months ended SeptemberJune 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service revenues was both approximately US$1.130.75 million, and for the three months ended June 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service was both approximately US$0.38 million, respectively, which costs represented the amortized cost forof the related outdoor billboards ad spaces we pre-purchased during the periods.

lFor 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.

 

Gross profit/(loss)/profit

 

As a result of the foregoing, we generatedincurred a gross loss of approximately US$0.94 million and US$0.22 million for the six and three months ended June 30, 2021, respectively, compared with a gross profit of approximately US$0.561.20 million and US$0.30 million for the nine months ended September 30, 2020 and incurred a gross loss of US$0.64 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 ninesix and three months ended SeptemberJune 30, 2019,2020, respectively. Our overall gross margin was 2%-4% and -5%-1% for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, compared with 4%8% and 6%3% for the same periods last year, respectively. The decrease in our overallincurrence of gross loss and negative gross margin rate for the ninesix and three months ended SeptemberJune 30, 2020, compared with that in2021 was directly resulted from the same periods last year, respectively was primarily attributable to thenegative gross lossmargin rate of -6% and -12% incurred forby 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 nineapproximately 82.6% and three months ended September 30, 2020, respectively, which revenues constituted approximately 66% and 71%83.1% of our total revenues for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively. Our gross margin for distribution of the right to use search engine marketing services improved to -3% for the second fiscal quarter of 2021 from -9% for the first fiscal quarter of 2021, as a result of the significant increase in revenues and the related cost consumption from this business category in the second fiscal quarter of 2021, which allowed us obtained a lower rate for the search engine marketing resources purchased from the suppliers, compared with that in the first fiscal quarter of 2021.

34

 

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, 

Six Months Ended June 30,

 
 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%
Gross Profit  556   2%  1,700   4%

Total revenues

 $22,947  100% $14,800  100%

Gross (loss)/profit

 (935) -4% 1,197  8%
Sales and marketing expenses  293   1%  461   1% 101  -% 235  2%
General and administrative expenses  4,520   17%  2,875   7% 8,895  39% 3,928  26%
Research and development expenses  443   2%  599   2%  163   1%  330   2%
Total operating expenses $5,256   19% $3,935   10% $9,159   40% $4,493   30%

 

33

 Three Months Ended September 30, 

Three Months Ended June 30,

 
 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 $12,304   100% $15,508   100%
Gross (Loss)/Profit  (641)  -5%  892   6%

Total revenues

 $14,551  100% $10,416  100%

Gross (loss)/profit

 (218) -1% 298  3%
Sales and marketing expenses  58   -%   111   1% 73  -% 70  1%
General and administrative expenses  592   5%  817   5% 7,899  54% 1,132  11%
Research and development expenses  113   1%  239   2%  89   1%  116   1%
Total operating expenses $763   6% $1,167   8% $8,061   55% $1,318   13%

 

Operating Expenses: Our total operating expenses was approximately US$5.269.16 million and US$0.768.06 million for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, compared with approximately US$3.944.49 million and US$1.171.32 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively.

 

l

Sales and marketing expenses: Sales and marketing expenses decreased towas US$0.290.10 million and US$0.060.07 million for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, compared with approximately US$0.460.24 million and US$0.110.07 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively. Our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals and our services, other advertising and promotional expenses, staff salaries staffand benefits, performance bonuses, travellingtravel 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 revenuesrevenues. For the ninesix months ended SeptemberJune 30, 2020, the changes2021, 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.last year. For the three months ended SeptemberJune 30, 2020, the decrease in2021, there was no significant fluctuation of 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 that for the same period last year, as a result of the slow recovery of economy during the COVID-19 pandemic.year.

 

35

l

General and administrative expenses: General and administrative expenses was US$4.528.90 million and US$0.597.90 million for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, compared with US$2.883.93 million and US$0.821.13 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, respectively. Our general and administrative expenses primarily consist of salaries and benefits of management, accounting, human resources and administrative personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities and other general office expenses.expenses of our supporting and administrative departments. For the ninesix months ended SeptemberJune 30, 2020,2021, the change in our general and administrative expenses was primarily due to the following reasons:reasons: (1) the increase in share-based compensation expenses of approximately US$1.495.14 million, due to more shares of the Company’s restricted sharescommon stock were granted and issued to management and employees in the second fiscal quarter of 2021, compared with that granted and issued in the first fiscal quarter of 2020; andlast year; (2) the increase in general office administrative expense of approximately US$0.58 million, primarily attributable to the increase in lease cost of the new office in Guangzhou and recovery from the COVID-19 epidemic, which resulted in the office shutdown during the first fiscal quarter of last year; and (3) the decrease in allowance for doubtful accounts of approximately US$0.31 million.0.75 million, due to strength of collection management. For the three months ended SeptemberJune 30, 2020, 2021, the change in our general and administrative expenses was primarily attributable to the followings, due to the followingsame reasons: as discussed above: (1) the increase in share-based compensation expenses of approximately US$6.69 million; (2) the increase in general departmental expenses of approximately US$0.42 million; and (3) the decrease in allowance for doubtful accounts of approximately US$0.02 million; (2) the decrease in share-based compensation expenses 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.0.34 million.

 

l

●     Research and development expenses: Research and development expenses was approximately US$0.440.16 million and US$0.110.09 million for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, compared with approximately US$0.600.33 million and US$0.240.12 million for the ninesix and three months ended SeptemberJune 30, 2019,2020, 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.  Theetc. For the six months ended June 30, 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, werewas primarily due to the cost reduction plan executed bydecrease 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. For the three months ended June 30, 2021, the decrease in our research and development expenses was primarily due to a decrease in number of staff in our research and development department, compared with the same period last year.

 

34

Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$4.7010.09 million and US$2.243.30 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. For the three months ended SeptemberJune 30, 20202021 and 2019,2020, we incurred a loss from operations of approximately US$1.408.28 million and US$0.281.02 million, respectively.

 

Change in fair value of warrant liabilities: weWe issued warrants in various of our 2018 Financing consummated in January 2018,financing activities, which we determined that 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$0.0046.83 million and US$4.32 million was recorded for the ninesix and three months ended SeptemberJune 30, 2020,2021, respectively, 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$0.060.07 million was recorded, compared with a loss of approximatelyand US$0.120.02 million recorded for the six and three months ended SeptemberJune 30, 2019.2020, respectively.

 

Loss before income tax benefitbenefit/(expense) and noncontrolling interests: As a result of the foregoing, our loss before income tax benefitbenefit/(expense) and noncontrolling interest was approximately US$4.703.00 million and US$1.923.21 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Our loss before income tax benefitbenefit/(expense) and noncontrolling interest was approximately US$1.493.67 million and US$0.410.98 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.

 

Income Tax benefit:benefit/(expense): For the nine and threesix months ended SeptemberJune 30, 2020, 2021, we recognized an approximately US$0.09 million and US$0.160.14 million income tax benefit respectively, in relation to deferred tax assetsthe net operating loss incurred by one of our operating VIEs for the period, which we expectconsider likely to be ableutilized with respect to utilized in future periods. For the nine and three months ended September 30, 2019, we recognizedearnings of this entity, which amount was partially offset by an additional deferred tax benefit of both approximately US$0.08 million relatedand an approximately US$0.02 million income tax expense recognized in relation to additional deferred tax assets we expect to be able to utilized in future periods,provision provided and theseutilization of prior period recognized deferred tax assets by two other operating VIEs during the period, respectively. For the three months ended June 30, 2021, we recognized an approximately US$0.04 million income tax benefit amounts recognized werein relation to the net operating loss incurred by one of our operating VIEs for the period, which amount was partially offset by thean approximately US$0.070.02 million andincome tax expense recognized in relation to utilization of prior period recognized deferred tax assets by another operating VIE during the period. For the six months ended June 30, 2020, we recognized an approximately US$0.06 million of income tax expense incurredin relation to net income generated by one of our operating subsidiaries for the nineperiod, and three months ended September 30, 2019, respectively, throughan approximately US$0.01 million income tax expense in relation to utilization of previously recognized deferred tax assets by another operating VIE for the period. For the three months ended June 30, 2020, we reversed an approximately US$0.03 million income tax expense due to earningsless net income generated during the periods by one of our operating entities. As a result, for the nine and three months ended September 30, 2019, we recognized asubsidiaries, compared with its net income tax benefit ofgenerated in the first fiscal quarter, and recognized an approximately US$0.010,02 million and US$0.02 million, respectively.income tax expense in relation to utilization of previously recognized deferred tax assets by another operating VIE for the period.

36

 

Net loss: As a result of the foregoing, for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, we incurred a total net loss of approximately US$4.612.96 million and US$1.913.28 million, respectively. For the three months ended SeptemberJune 30, 20202021 and 2019,2020, we incurred a total net loss of approximately US$1.333.65 million and US$0.390.97 million, respectively.

 

Net (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 ownsowned 51% equity interest. In March 2021, due to changes in business strategy of the noncontrolling interest shareholder of Qiweilian Guangzhou, we suspended the cooperation with that shareholder and sold our 51% equity interest in it.Qiweilian Guangzhou to unrelated parties. For the ninesix and three months ended SeptemberJune 30, 2020 and 2019,2021, net income allocated to the noncontrolling interest shareholder of Qiweilian Guangzhou, before we deconsolidated the entity, offset by the net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$0.002 million and US$0.008 million,nil, respectively. For the six and three months ended SeptemberJune 30, 2020, and 2019, net loss allocated to the noncontrolling interest of Business Opportunity Chain was both approximately US$nil million and US$0.003 million, respectively.0.002 million.

 

Net loss attributable to ZW Data Action Technologies Inc.: Total net loss as adjusted by net lossincome/(loss) attributable to the noncontrolling interest shareholders as discussed above yields the net loss attributable to ZW Data Action Technologies Inc. Net loss attributable to ZW Data Action Technologies Inc. was approximately US$4.612.96 million and US$1.913.28 million for the ninesix months ended SeptemberJune 30, 20202021 and 2019,2020, respectively. Net loss attributable to ZW Data Action Technologies Inc. was approximately US$1.333.65 million and US$0.390.97 million for the three months ended SeptemberJune 30, 20202021 and 2019,2020, respectively.

 

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 SeptemberJune 30, 2020,2021, we had cash and cash equivalents of approximately US$0.5011.75 million.

 

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to 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.network, and investment to establish joint ventures with strategic partners for the development of new technologies and services. To date, we have financed our liquidity 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)
  

Six Months Ended June 30,

 
  

2021

  

2020

 
  

Amounts in thousands of US dollars

 
         

Net cash (used in)/provided by operating activities

 $(5,331) $1,165 

Net cash used in investing activities

  (4,361) ��(1,273)

Net cash provided by/(used in) financing activities

  17,111   (427)

Effect of foreign currency exchange rate changes

  36   (13)

Net increase/(decrease) in cash and cash equivalents

 $7,455  $(548)

 

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

 

For the ninesix months ended SeptemberJune 30, 2020,2021, our net cash provided byused in operating activities of approximately US$0.605.33 million were primarily attributable to:

 

(1)

net loss excluding approximately US$0.630.28 million of non-cash expenses of depreciation and amortization;amortizations; approximately US$2.070.09 million amortization of operating lease right-of-use assets, approximately US$6.86 million share-based compensation expenses;compensation; approximately US$0.756.83 million allowance for doubtful accounts, approximately US$0.004 million gain from change in fair value of warrant liabilities, approximately US$0.04 million loss on disposal of long-term investment and approximately US$0.090.04 million deferred tax benefit, yielded the non-cash itemitems excluded net loss of approximately US$1.262.56 million.

 

37

(2)

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

-

-

accounts receivablepayable increased by approximately US$0.40 million, due to more favorable payment terms granted by a new supplier;

-

advance from customers increased by approximately US$0.09 million, primarily due to new advance payments received from customers during the period, which was partially offset by recognition of revenue from opening contract liabilities during the period; and

-

other current assets decreased by approximately US$0.250.01 million.

(3)

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

-

accounts receivable increased by approximately $1.28 million, due to significantly increase in revenues during the period;

-

prepayment and deposit to suppliers increased by approximately US$0.98 million, primarily due to new deposits and prepayments made for the purchase of various advertising resources during the period;

-

long-term deposits and prepayments increased by approximately US$0.55 million, which were made for the purchase of advertising resource and lease of our new office spaces during the period, and these amounts were not expected to be consumed or refunded within one year of June 30, 2021; and

-

accruals, tax payables, operating lease liabilities, short-term lease payment payables and other current liabilities decreased by approximately US$0.46 million in the aggregate;aggregate, due to settlement of these operating liabilities during the period.

For the six months ended June 30, 2020, our net cash provided by operating activities of approximately US$1.17 million were primarily attributable to:

(1)

net loss excluding approximately US$0.42 million of non-cash expenses of depreciation and amortization; approximately US$1.99 million share-based compensation expenses; approximately US$0.75 million allowance for doubtful accounts, approximately US$0.07 million gain in fair value of warrant liabilities and approximately US$0.01 million deferred tax expense yielded the non-cash item excluded net loss of approximately US$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$1.082.09 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 ninesix months ended SeptemberJune 30, 2020;

-advance from customers

-

tax payables, short-term lease payment payables and other current liabilities increased by approximately US$0.75 million, primarily due to new advance payments received that related to unsatisfied service performance obligations during the first nine months of 2020, 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$0.230.46 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, and

-

-

amount due from related parties decreased by approximately US$0.020.03 million.

(3)

(3)

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

-

-

long-term prepayment increased by approximately US$0.380.75 million, which prepayment was made for the purchase of ad resource during the first fiscal quarter of 2020, and this amount was not expected to be consumed within one year of SeptemberJune 30, 2020;

-accruals

-

advance from customers decreased by approximately US$0.06 million;

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

-we also prepaid approximately US$0.010.36 million, lease payment during the period.

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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 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 million share-based compensation; approximately US$0.45 million allowance for doubtful accounts; approximately US$0.35 million gain from change in fair value of warrant liabilities and approximately US$0.01 million deferred tax benefit, yielded the non-cash items excluded net loss of approximately US$1.37 million.

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

-advance from customers and a related party increased by approximately US$4.16 million, in the aggregate, primarily due to new advance payments received that related to unsatisfied service performance obligations during the first nine months of 2019, 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 million, primarily due to collection of US$0.2 million from an officer of our company

-

accounts receivable and a portion of a related party loan of approximately US$0.03 million;

-unpaid lease payments related to short-term lease agreements we entered into during the second and third fiscal quarter of 2019other current assets increased by approximately US$0.18 million;

-taxes payable increased by approximately US$0.12 million;

-other current liabilities increased by approximately US$0.290.04 million; and

-other current assets decreased by approximately US$0.01 million.

(3)

-

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

-accounts receivable increased by approximately US$0.29 million;

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

-accruals decreased by approximately US$0.24 million, due to settlement of these operational liabilities and payment for operating lease liabilities during 2019;0.08 million.

 

-prepayment and deposit to suppliers increased by approximately US$5.19 million, primarily due to increase in prepayments for the purchase of search engine resource as required by the major suppliers, and prepayments for the implementation, training and license fees of a software system incurred during the third quarter of 2019; and

 

-we also prepaid approximately US$0.01 million lease payment during the period.
38

 

Net cash used in investing activities

 

For the ninesix months ended June 30, 2021, (1) we paid an aggregate of approximately US$0.22 million for the purchase of vehicles, furniture and office equipment, and for our leasehold improvement project in Guangzhou; (2) we made an aggregate of approximately US$0.42 million cash investment to our investee entities, and provided an additional approximately US$0.04 million temporary loan to one of our investee entities; (3) we paid US$1.16 million for the purchase of an Internet Ad tracking system to further enhance the effectiveness of our Internet advertising business; (4) we provided to an unrelated party short-term loans of approximately US$1.75 million in the aggregate, of which an approximately US$0.31 million was provided in the first fiscal quarter of 2021, the borrower repaid an approximately US$1.30 million in the second fiscal quarter of 2021, and the remaining balance of approximately US$0.45 million is expected to be repaid for the year ending December 31, 2021; (5) cash decreased by approximately US$0.01 as a result of deconsolidation of VIEs’ subsidiaries during the period; and (6) we made an aggregate of US$3.50 million deposit and prepayment for other investing activities, including: (i) a US$1.0 million refundable deposit for a potential merge and acquisition transaction, which will be refunded if no definitive agreement is reached by September 30, 2021; (ii) a US$1.5 million prepayment in accordance with a cryptocurrency mining machine purchase agreement, which had been cancelled due to the industry banning policies announced by the government, and the prepayment is expected to be refunded in the second half of fiscal 2021; and (iii) a US$1.0 million prepayment for the shares subscription of a 15.38% equity interest in an entity, for jointly developing blockchain, key opinion leader and e-sports platform and jointly operating IP data for e-sports and games with strategic partners. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$4.36 million for the six months ended June 30, 2021.

For the six months ended June 30, 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; and (3) we lentprovided to an unrelated third party a short-term loan of approximately US$0.94 million. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$1.27 million for the ninesix months ended SeptemberJune 30, 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, 2019.2020.

 

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

 

For the ninesix months ended SeptemberJune 30, 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 six months ended June 30, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January 2020.

37

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.

 

39

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 SeptemberJune 30, 20202021 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.

 

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 SeptemberJune 30, 2020,2021, 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.

 

40

Changes in Internal Control over Financial Reporting

 

There was no change in our internal control over financial reporting that occurred during the third fiscal quarter of 20202021 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 3.Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

40

 

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

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

 41 

104

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

 


 

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 TECHNOLOGIES INC.
   
ZW DATA ACTION TECNOLOGIESINC.
   
Date: November 13, 2020August 16, 2021By:/s/ Handong Cheng 
Name: Handong Cheng
 

Name: Handong Cheng

 

Title: Chief Executive Officer

(Principal Executive Officer)

  (Principal Executive Officer)

By:  

By:/s/ Mark Li

Name: Mark Li

Title: Chief Financial Officer

(Principal Accounting and Financial Officer)

 


 

42