UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ____ to _____
Commission File Number:
ZW Data Action Technologies Inc.
(Exact name of registrant as specified in its charter)
| | |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
+86-
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| | | |
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:
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).
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 ☐ |
| Smaller reporting company | |
| Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
As of November 15, 2021, the registrant had
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares and per share data)
| September 30, 2021 | December 31, 2020 | |||||||
| (US $) | (US $) | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents * | $ | $ | ||||||
| Accounts receivable, net of allowance for doubtful accounts of and , respectively * | ||||||||
| Prepayment and deposit to suppliers * | ||||||||
| Due from related parties * | ||||||||
| Other current assets * | ||||||||
| Total current assets | ||||||||
| Long-term investments * | ||||||||
| Operating lease right-of-use assets * | ||||||||
| Property and equipment, net * | ||||||||
| Intangible assets, net * | ||||||||
| Blockchain platform applications development costs | ||||||||
| Long-term deposits and prepayments * | ||||||||
| Deferred tax assets, net * | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable * | $ | $ | ||||||
| Advance from customers * | ||||||||
| Accrued payroll and other accruals * | ||||||||
| Taxes payable * | ||||||||
| Operating lease liabilities * | ||||||||
| Lease payment liability related to short-term leases * | ||||||||
| Other current liabilities * | ||||||||
| Warrant liabilities | ||||||||
| Total current liabilities | ||||||||
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except for number of shares and per share data)
| September 30, 2021 | December 31, 2020 | |||||||
| (US $) | (US $) | |||||||
| (Unaudited) | ||||||||
| Long-term liabilities: | ||||||||
| Operating lease liabilities-Non current * | ||||||||
| Long-term borrowing from a related party | ||||||||
| Total Liabilities | ||||||||
| Commitments and contingencies | ||||||||
| Equity: | ||||||||
| ZW Data Action Technologies Inc.’s stockholders’ equity | ||||||||
| Common stock (US par value; authorized and shares at September 30, 2021 and December 31, 2020, respectively; issued and outstanding shares and shares at September 30, 2021 and December 31, 2020, respectively) | ||||||||
| Additional paid-in capital | ||||||||
| Statutory reserves | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ||||||||
| Total ZW Data Action Technologies Inc.’s stockholders’ equity | ||||||||
| Noncontrolling interests | ( | ) | ( | ) | ||||
| Total equity | ||||||||
| Total Liabilities and Equity | $ | $ | ||||||
*All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME
(In thousands, except for number of shares and per share data)
| Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| (US $) |
(US $) |
(US $) |
(US $) |
|||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
| Revenues |
||||||||||||||||
| From unrelated parties |
$ | $ | $ | $ | ||||||||||||
| From a related party |
||||||||||||||||
| Total revenues |
||||||||||||||||
| Cost of revenues |
||||||||||||||||
| Gross (loss)/profit |
( |
) | ( |
) | ||||||||||||
| Operating expenses |
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| Sales and marketing expenses |
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| General and administrative expenses |
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| Research and development expenses |
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| Total operating expenses |
||||||||||||||||
| Loss from operations |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Other income/(expenses) |
||||||||||||||||
| Interest income/(expense), net |
||||||||||||||||
| Other income/(expenses), net |
( |
) | ( |
) | ( |
) | ||||||||||
| Loss on disposal of long-term investments |
( |
) | ||||||||||||||
| Change in fair value of warrant liabilities |
( |
) | ||||||||||||||
| Total other income/(expenses) |
( |
) | ||||||||||||||
| (Loss)/income before income tax benefit and noncontrolling interests |
( |
) | ( |
) | ( |
) | ||||||||||
| Income tax benefit |
||||||||||||||||
| Net (loss)/income |
( |
) | ( |
) | ( |
) | ||||||||||
| Net (income)/loss attributable to noncontrolling interests |
( |
) | ||||||||||||||
| Net (loss)/income attributable to ZW Data Action Technologies Inc. |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME（CONTINUED）
(In thousands, except for number of shares and per share data)
| Nine Months Ended September 30, |
Three Months Ended September 30, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| (US $) |
(US $) |
(US $) |
(US $) |
|||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
| Net (loss)/income |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Foreign currency translation loss |
( |
) | ( |
) | ( |
) | ( |
) | ||||||||
| Comprehensive (loss)/income |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Comprehensive (income)/loss attributable to noncontrolling interests |
( |
) | ||||||||||||||
| Comprehensive (loss)/income attributable to ZW Data Action Technologies Inc. |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| (Loss)/earnings per share |
||||||||||||||||
| (Loss)/earnings per common share |
||||||||||||||||
| Basic and diluted |
$ | ( |
) | $ | ( |
) | $ | $ | ( |
) | ||||||
| Weighted average number of common shares outstanding: |
||||||||||||||||
| Basic and diluted |
||||||||||||||||
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2021 |
2020 |
|||||||
| (US $) |
(US $) |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Cash flows from operating activities |
||||||||
| Net loss |
$ | ( |
) | $ | ( |
) | ||
| Adjustments to reconcile net loss to net cash (used in)/provided by operating activities |
||||||||
| Depreciation and amortization |
||||||||
| Amortization of operating lease right-of-use assets |
||||||||
| Share-based compensation expenses |
||||||||
| Provision for allowances for doubtful accounts |
||||||||
| Loss on disposal of long-term investments |
||||||||
| Deferred taxes |
( |
) | ( |
) | ||||
| Change in fair value of warrant liabilities |
( |
) | ( |
) | ||||
| Other losses |
||||||||
| Changes in operating assets and liabilities |
||||||||
| Accounts receivable |
( |
) | ||||||
| Prepayment and deposit to suppliers |
( |
) | ||||||
| Due from related parties |
||||||||
| Other current assets |
( |
) | ||||||
| Long-term deposits and prepayments |
( |
) | ( |
) | ||||
| Accounts payable |
||||||||
| Advance from customers |
( |
) | ||||||
| Accrued payroll and other accruals |
( |
) | ( |
) | ||||
| Other current liabilities |
( |
) | ( |
) | ||||
| Taxes payable |
( |
) | ||||||
| Lease payment liability related to short-term leases |
( |
) | ||||||
| Operating lease liabilities |
( |
) | ( |
) | ||||
| Net cash (used in)/provided by operating activities |
( |
) | ||||||
| Cash flows from investing activities |
||||||||
| Payment for leasehold improvements and purchase of vehicles, furniture and office equipment |
( |
) | ||||||
| Cash effect of deconsolidation of VIEs’ subsidiaries |
( |
) | ||||||
| Investments and advances to ownership investee entities |
( |
) | ( |
) | ||||
| Short-term loan to an unrelated party |
( |
) | ( |
) | ||||
| Repayment of short-term loan from an unrelated party |
||||||||
| Payment for purchase of software technologies |
( |
) | ||||||
| Deposit and prepayment paid for contracts of other investing activities |
( |
) | ||||||
| Payment for blockchain platform applications development costs |
( |
) | ||||||
| Net cash used in investing activities |
( |
) | ( |
) | ||||
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
| Nine Months Ended September 30, |
||||||||
| 2021 |
2020 |
|||||||
| (US $) |
(US $) |
|||||||
| (Unaudited) |
(Unaudited) |
|||||||
| Cash flows from financing activities |
||||||||
| Proceeds from issuance of common stock and warrant (net of cash offering cost of US$1,600) |
- | |||||||
| Repayment of short-term bank loan |
( |
) | ||||||
| Net cash provided by/(used in) financing activities |
( |
) | ||||||
| Effect of exchange rate fluctuation on cash and cash equivalents |
||||||||
| Net increase/(decrease) in cash and cash equivalents |
( |
) | ||||||
| Cash and cash equivalents at beginning of the period |
||||||||
| Cash and cash equivalents at end of the period |
$ | $ | ||||||
| Supplemental disclosure of cash flow information |
||||||||
| Income taxes paid |
$ | $ | ||||||
| Interest expense paid |
$ | $ | ||||||
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021
(In thousands, except for number of shares)
| Common stock | Additional paid-in capital | Statutory reserves | Accumulated deficit | Accumulated other comprehensive income | Noncontrolling interests | Total equity | ||||||||||||||||||||||||||
| Number of shares | Amount | |||||||||||||||||||||||||||||||
| (US $) | (US $) | (US $) | (US $) | (US $) | (US $) | (US $) | ||||||||||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Issuance of common stock for private placement, net of million proceeds allocated to investor warrants labilities and million direct offering costs (including million proceeds allocated to placement agent warrants liabilities), respectively | ||||||||||||||||||||||||||||||||
| Share-based compensation in exchange for services from employees and directors | ||||||||||||||||||||||||||||||||
| Net (loss)/income for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, June 30, 2021 (unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Share-based compensation in exchange for services from employees and directors | ||||||||||||||||||||||||||||||||
| Cashless exercise of warrants | ||||||||||||||||||||||||||||||||
| Net income/(loss) for the period | - | ( | ) | |||||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2020
(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 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
| Share-based compensation in exchange for services from nonemployees | ||||||||||||||||||||||||||||||||
| Share-based compensation in exchange for services from employees and directors | ||||||||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Foreign currency translation adjustment | - | |||||||||||||||||||||||||||||||
| Balance, June 30, 2020 (unaudited) | ( | ) | ( | ) | ||||||||||||||||||||||||||||
| Share-based compensation in exchange for services from nonemployees | ||||||||||||||||||||||||||||||||
| Net loss for the period | - | ( | ) | ( | ) | |||||||||||||||||||||||||||
| Foreign currency translation adjustment | - | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||
| Balance, September 30, 2020 (Unaudited) | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | |||||||||||||||||||||
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 1. | Organization and nature of operations |
ZW Data Action Technologies Inc. (f/k/a ChinaNet Online Holdings, Inc.) (the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing Internet advertising, precision marketing, Ecommerce online to offline (O2O) advertising and marketing services as well as the related data and technical services to small and medium enterprises (SMEs) in the PRC.
| 2. | Variable interest entities |
Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of September 30, 2021 and December 31, 2020, respectively:
| September 30, 2021 | December 31, | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable, net | ||||||||
| Prepayment and deposit to suppliers | ||||||||
| Due from related parties | ||||||||
| Other current assets | ||||||||
| Total current assets | ||||||||
| Long-term investments | ||||||||
| Operating lease right-of-use assets | ||||||||
| Property and equipment, net | ||||||||
| Intangible assets, net | ||||||||
| Long-term deposits and prepayments | ||||||||
| Deferred tax assets, net | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | $ | ||||||
| Advance from customers | ||||||||
| Accrued payroll and other accruals | ||||||||
| Taxes payable | ||||||||
| Operating lease liabilities | ||||||||
| Lease payment liability related to short-term leases | ||||||||
| Other current liabilities | ||||||||
| Total current liabilities | ||||||||
| Operating lease liabilities-Non current | ||||||||
| Total Liabilities | $ | $ | ||||||
All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive loss for the nine and three months ended September 30, 2021 and 2020, respectively:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenues | $ | $ | $ | $ | ||||||||||||
| Cost of revenues | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Total operating expenses | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss before allocation to noncontrolling interests | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| 3. | Summary of significant accounting policies |
| a) | Basis of presentation |
The unaudited condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The unaudited condensed consolidated interim financial information as of September 30, 2021 and for the nine and three months ended September 30, 2021 and 2020 have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2020, previously filed with the SEC (the “2020 Form 10-K”) on April 13, 2021.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of September 30, 2021, its condensed consolidated results of operations for the nine and three months ended September 30, 2021 and 2020, and its condensed consolidated cash flows for the nine months ended September 30, 2021 and 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) | 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.
| |
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.
| |
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:
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| September 30, 2021 | December 31, 2020 | |||||||
| Balance sheet items, except for equity accounts | ||||||||
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Items in the statements of operations and comprehensive loss | ||||||||
| Three Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Items in the statements of operations and comprehensive loss | ||||||||
No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.
| e) | Fair value measurement |
Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of September 30, 2021 and December 31, 2020 are as follows:
| Fair value measurement at reporting date using | ||||||||||||||||
| As of September 30, 2021 | Quoted Prices | Significant | Significant | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | ||||||||||||||||
| Warrant liabilities (Note 16) | ||||||||||||||||
| Fair value measurement at reporting date using | ||||||||||||||||
| As of December 31, 2020 | Quoted Prices | Significant | Significant | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| Warrant liabilities (Note 16) | ||||||||||||||||
| f) | Revenue recognition |
The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Internet advertising and related services | ||||||||||||||||
| --distribution of the right to use search engine marketing service | ||||||||||||||||
| --online advertising placements | ||||||||||||||||
| --data and technical services | ||||||||||||||||
| Ecommerce O2O advertising and marketing services | ||||||||||||||||
| Technical solution services | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Revenue recognized over time | ||||||||||||||||
| Revenue recognized at a point in time | ||||||||||||||||
| Total revenues | $ | $ | $ | $ | ||||||||||||
Contract costs
For the nine and three months ended September 30, 2021 and 2020, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, which shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.
Contract liabilities
The table below summarized the movement of the Company’s contract liabilities for the nine months ended September 30, 2021:
| Contract liabilities | ||||
| US$(’000) | ||||
| Balance as of January 1, 2021 | ||||
| Exchange translation adjustment | ||||
| Revenue recognized from beginning contract liability balances | ( | ) | ||
| Advances received from customers related to unsatisfied performance obligations | ||||
| Balance as of September 30, 2021 (Unaudited) | $ | |||
Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for the nine and three months ended September 30, 2021 and 2020.
For the nine and three months ended September 30, 2021 and 2020, there is
| g) | Research and development expenses |
The Company accounts for expenses for the enhancement, maintenance and technical support to the Company’s Internet platforms and intellectual properties that are used in its daily operations in research and development expenses. Research and development costs are charged to expense when incurred. Expenses for research and development for the nine months ended September 30, 2021 and 2020 were approximately million and million, respectively. Expenses for research and development for the three months ended September 30, 2021 and 2020 were approximately million and million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| |
h) | Lease |
As of September 30, 2021, operating lease right-of-use assets and total operating lease liabilities recognized was approximately million and million, respectively.
Maturity of operating lease liabilities
| Operating leases | |||||
| US$(’000) | |||||
| (Unaudited) | |||||
| Three months ending December 31, 2021 | |||||
| Year ending December 31, | |||||
| -2022 | |||||
| -2023 | |||||
| -2024 | |||||
| -2025 | |||||
| -2026 | |||||
| -thereafter | |||||
| Total undiscounted lease payments | |||||
| Less: imputed interest | ( | ) | |||
| Total operating lease liabilities as of September 30, 2021 | $ | ||||
| Including: | |||||
| Operating lease liabilities | |||||
| Operating lease liabilities-Non current | |||||
| $ | |||||
Operating lease expenses:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Long-term operating lease contracts | ||||||||||||||||
| Short-term operating lease contracts | ||||||||||||||||
| Total | $ | $ | $ | $ | ||||||||||||
Supplemental information related to operating leases:
| Nine Months Ended September 30, 2021 | ||||
| (Unaudited) | ||||
| Operating cash flows used for operating leases (US$’000) | ||||
| Right-of-use assets obtained in exchange for new lease liabilities (US$’000) | ||||
| Weighted-average remaining lease term (years) | ||||
| Weighted-average discount rate | % | |||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 4. | Accounts receivable, net |
| September 30, 2021 | December 31, 2020 | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Accounts receivable | ||||||||
| Allowance for doubtful accounts | ( | ) | ( | ) | ||||
| Accounts receivable, net | ||||||||
All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of September 30, 2021 and December 31, 2020, the Company provided approximately million and million allowance for doubtful accounts, respectively, which were primarily related to the accounts receivable of the Company’s Internet advertising and related services segment with an aging over months. The Company evaluates its accounts receivable with an aging over six months and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. For the nine and three months ended September 30, 2021,
| 5. |
Prepayments and deposit to suppliers |
| September 30, 2021 |
December 31, 2020 |
|||||||
| US$(’000) |
US$(’000) |
|||||||
| (Unaudited) |
||||||||
| Deposits to advertising resources providers |
||||||||
| Prepayments to advertising resources providers |
||||||||
| Deposit and prepayment for other investing contracts |
||||||||
| Other deposits and prepayments |
||||||||
As of September 30, 2021, deposit and prepayment for other investing contracts consisted of a 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. December 31, 2021, and a 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 million before the end of fiscal 2021.
| 6. | Due from related parties |
| September 30, 2021 | December 31, 2020 | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”) | ||||||||
| Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”) | ||||||||
| Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”) | ||||||||
| Due from related parties | ||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Related parties of the Company represented the Company’s direct or indirect unconsolidated investee companies and entities that the Company’s officers or directors can exercise significant influence.
As of September 30, 2021 and December 31, 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.
As of September 30, 2021, due from Gong Xiang Technology and Business Opportunity Chain Guangzhou were short-term working capital loans provided to these investee entities, which are expected to be repaid to the Company for the year ending December 31, 2021.
| 7. | Other current assets |
| September 30, 2021 | December 31,2020 | |||||||||||||||||||||||
| Gross | Allowance for doubtful accounts | Net | Gross | Allowance for doubtful accounts | Net | |||||||||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | ||||||||||||||||||||||
| Staff advances for business operations | ||||||||||||||||||||||||
| Short-term loan to an unrelated party | ||||||||||||||||||||||||
| Total | ||||||||||||||||||||||||
As of September 30, 2021, other current assets primarily include a temporary working capital loan that the Company provided to an unrelated party. This loan is unsecured, interest free, and is expected to be fully repaid to the Company in March 2022.
| 8. | Long-term investments |
| Amount | ||||
| US$(’000) | ||||
| Balance as of January 1, 2021 | ||||
| Cash investments during the year | ||||
| Disposed during the year | ( | ) | ||
| Balance as of September 30, 2021 (Unaudited) | ||||
As of September 30, 2021, except for long-term investments which were fully impaired, the Company beneficially owned a
The Company measures these investments which do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine months ended September 30, 2021, the Company made a cash investment of approximately million, million, million, million and million to each New Business, Guangdong WeFriend, Gong Xiang Technology, Business Opportunity Chain Guangzhou and Xiao Peng Education, respectively.
In May 2021, the Company disposed the
| 9. |
Property and equipment, net |
| September 30, 2021 |
December 31, 2020 |
|||||||
| US$(’000) |
US$(’000) |
|||||||
| (Unaudited) |
||||||||
| Vehicles |
||||||||
| Office equipment |
||||||||
| Electronic devices |
||||||||
| Property and equipment, cost |
||||||||
| Less: accumulated depreciation |
( |
) | ( |
) | ||||
| Property and equipment, net |
||||||||
Depreciation expenses for the nine months ended September 30, 2021 and 2020 were approximately million and million, respectively. Depreciation expenses for the three months ended September 30, 2021 and 2020 were approximately million and million, respectively.
| 10. | Intangible assets, net |
| As of September 30, 2021 (Unaudited) | ||||||||||||||||
| Items | Gross Carrying Value | Accumulated Amortization | Impairment | Net Carrying Value | ||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| Intangible assets subject to amortization: | ||||||||||||||||
| Cloud compute software technology | ( | ) | ( | ) | ||||||||||||
| Internet Ad tracking system | ( | ) | ||||||||||||||
| Live streaming technology | ( | ) | ||||||||||||||
| Licensed products use right | ( | ) | ||||||||||||||
| Other computer software | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
| 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 | ( | ) | ( | ) | ||||||||||||
| Live streaming technology | ( | ) | ||||||||||||||
| Licensed products use right | ( | ) | ||||||||||||||
| Other computer software | ( | ) | ||||||||||||||
| Total | $ | $ | ( | ) | $ | ( | ) | $ | ||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amortization expenses for the nine months ended September 30, 2021 and 2020 were approximately million and million, respectively. Amortization expenses for the three months ended September 30, 2021 and 2020 were approximately million and 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
| 11. | Blockchain software application platform development costs |
In 2018, the Company entered into technical development contracts with two unrelated entities for the development of two blockchain technology-based platform applications with a contract amount of million and million (approximately million), respectively. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of September 30, 2021, in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company capitalized approximately million development costs in the aggregate under these two contracts. During 2020, the Company further developed its Blockchain Integrated Framework (“BIF”) for retail business, which provides a framework platform for more accessible and efficient integration of small and medium sized retail business users. As of September 30, 2021, the Company had finalized the upgrade and integration of the Bo!News application, which provides a digitalized franchise management system for the SMEs, and the BIF for the SMEs’ smart retail business, which provides blockchain Software-as-a-Service (“SaaS”) services, including: OMG membership card management, trusted and decentralized payment management and Non-Fungible Token (“NFT”) management services. The Company expects to fully launch these applications during the fourth fiscal quarter of 2021, after completing the test run processes.
| 12. | Long-term deposits and prepayments |
As of September 30, 2021, long-term deposits and prepayments consisted of an approximately million of the Company’s operating deposits and prepayments that were not expected to be refunded or consumed within one year of September 30, 2021, and an approximately million prepayment for the leasehold improvement project of the Company’s Guangzhou office, which has been completed by the end of October 2021.
| 13. | Accrued payroll and other accruals |
| September 30, 2021 | December 31, 2020 | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Accrued payroll and staff welfare | ||||||||
| Accrued operating expenses | ||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 14. | Taxation |
As of September 30, 2021 and December 31, 2020, taxes payable consists of:
| September 30, 2021 | December 31, 2020 | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Turnover tax and surcharge payable | ||||||||
| Enterprise income tax payable | ||||||||
| Total taxes payable | ||||||||
For the nine and three months ended September 30, 2021 and 2020, the Company’s income tax benefit consisted of:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Current | ||||||||||||||||
| Deferred | ||||||||||||||||
| Income tax benefit | ||||||||||||||||
The Company’s deferred tax assets as of September 30, 2021 and December 31, 2020 were as follows:
| September 30, 2021 | December 31, 2020 | |||||||
| US$(’000) | US$(’000) | |||||||
| (Unaudited) | ||||||||
| Tax effect of net operating losses carried forward | ||||||||
| Operating lease cost | ||||||||
| Bad debts provision | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Deferred tax assets, net | ||||||||
The U.S. holding company has incurred aggregate NOLs of approximately million and million as of September 30, 2021 and December 31, 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
The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately million and million as of September 30, 2021 and December 31, 2020, respectively. The losses carryforwards gradually expire over time, the last of which expires in 2031 due to certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.
The Company recorded approximately million and million valuation allowance as of September 30, 2021 and December 31, 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.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine and three months ended September 30, 2021, the Company recorded approximately million and million deferred tax valuation allowance, respectively. For the nine and three months ended September 30, 2020, the Company recorded approximately million and million deferred tax valuation allowance, respectively.
| 15. |
Long-term borrowing from a related party |
Long-term borrowing from a related party is a non-interest bearing loan from a related party of the Company relating to the original paid-in capital contribution in the Company’s wholly-owned subsidiary Rise King Century Technology Development (Beijing) Co., Ltd. (“Rise King WFOE”), which is not expected to be repaid within one year.
| 16. | The Financing and warrant liabilities |
The February 2021 Financing:
On February 18, 2021 (the “Closing Date”), the Company consummated a registered direct offering of
The placement agent of the February 2021 Financing received (i) a placement fee in the amount equal to
The initial exercise prices of the 2021 Warrants are subject to anti-dilution provisions that require adjustment of the number of shares of common stock that may be acquired upon exercise of the 2021 Warrants, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights offerings, pro-rata distributions, and certain fundamental transactions. The 2021 Warrants also contain “full ratchet” price protection in the event of subsequent issuances below the applicable exercise price (the “Down round feature”).
The 2021 Warrants may not be exercised if it would result in the holder beneficially owning more than
Accounting for securities issued in the February 2021 Financing
The Company determined that the Company’s common stock issued in the February 2021 Financing should be classified as permanent equity as there was no redemption provision at the option of the holders that is not within the control the Company on or after an agreed upon date.
The Company analyzed the 2021 Warrants issued in the February 2021 Financing in accordance with ASC Topic 815 “Derivatives and Hedging”. In accordance with ASC Topic 815, the Company determined that the 2021 Warrants should not be considered index to its own stock, as the strike price of the 2021 Warrants is dominated in a currency (U.S. dollar) other than the functional currency of the Company (Renminbi or Yuan). As a result, the 2021 Warrants does not meet the scope exception of ASC Topic 815, therefore, should be accounted for as derivative liabilities and measure at fair value with changes in fair value be recorded in earnings in each reporting period.
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 | 2021 Placement Agent | |||||||
| Stock price | $ | $ | ||||||
| Years to maturity | ||||||||
| Risk-free interest rate | % | % | ||||||
| Dividend yield | ||||||||
| Expected volatility | % | % | ||||||
| Exercise Price | $ | $ | ||||||
| Fair value of the warrant | $ | $ | ||||||
| Warrant liabilities (US$’000) | $ | $ | ||||||
Stock price is the closing bid price of the Company’s common stock at the respective valuation date. Years to maturity is the respective remaining contract life of the warrants. Yield-to-maturities in continuous compounding of the United States Government Bonds with the time-to-maturities same as the respective warrant are adopted as the risk-free rate. Annualized historical stock price volatility of the Company at the respective valuation date is deemed to be appropriate to serve as the expected volatility of the stock price of the Company. The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. Exercise price is the contractual exercise price of the 2021 Warrants.
Allocation of gross proceeds from the February 2021 Financing
The Company allocated the total proceeds from the February 2021 Financing as summarized below:
| Initial measurement | ||||
| (USD’000) | ||||
| Investor Warrants | ||||
| Common Stock (par value and additional paid in capital) | ||||
| Total proceeds from the Financing | ||||
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 million consisting of cash payment of approximately million placement fee, approximately million other direct offering cost of professional service fees and fair value of the 2021 Placement Agent Warrants of approximately million, which were charged to additional paid-in-capital.
Subsequent measurement and changes in fair value of the warrant liabilities
The Company issued warrants to certain institutional investors and the Company’s placement agent in the registered direct offerings consummated in February 2021, December 2020 and January 2018, which warrants were accounted for as derivative liabilities and measured at fair value with changes in fair value be recorded in earnings in each reporting period.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine and three months ended September 30, 2021:
Warrants issued in the February 2021 Financing:
| 2021 Investor Warrants | 2021 Placement Agent Warrants | |||||||||||||||
| September 30, 2021 | June 30, 2021 | September 30, 2021 | June 30, 2021 | |||||||||||||
| Stock price | $ | $ | $ | $ | ||||||||||||
| Years to maturity | ||||||||||||||||
| Risk-free interest rate | % | % | % | % | ||||||||||||
| Dividend yield | ||||||||||||||||
| Expected volatility | % | % | % | % | ||||||||||||
| Exercise Price | $ | $ | $ | $ | ||||||||||||
| Fair value of the warrant | $ | $ | $ | $ | ||||||||||||
| Warrant liabilities (US$’000) | $ | $ | $ | $ | ||||||||||||
Warrants issued in the 2020 Financing:
On December 14, 2020, the Company consummated a registered direct offering of
| 2020 Investor Warrants and 2020 Placement Agent Warrants | ||||||||||||
| September 30, 2021 | June 30, 2021 | December 31, 2020 | ||||||||||
| Stock price | $ | $ | $ | |||||||||
| Years to maturity | ||||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Dividend yield | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Exercise Price | $ | $ | $ | |||||||||
| Fair value of the warrant | $ | $ | $ | |||||||||
| Investor warrants liabilities (US$’000) | $ | $ | $ | |||||||||
| Placement agent warrants liabilities (US$’000) | $ | $ | $ | |||||||||
Warrants issued in the 2018 Financing:
On January 17, 2018, the Company consummated a registered direct offering of
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 2018 Placement Agent Warrants | ||||||||||||
| July 2, 2021* | June 30, 2021 | December 31, 2020 | ||||||||||
| Stock price | $ | $ | $ | |||||||||
| Years to maturity | ||||||||||||
| Risk-free interest rate | % | % | % | |||||||||
| Dividend yield | ||||||||||||
| Expected volatility | % | % | % | |||||||||
| Exercise Price | $ | $ | $ | |||||||||
| Fair value of the warrant | $ | $ | $ | |||||||||
| Warrant liabilities (US$’000) | $ | $ | $ | |||||||||
* The 2018 Placement Agent Warrants were cashless exercised on July 2, 2021. As a result, the Company issued approximately
For the nine and three months ended September 30, 2020:
Warrants issued in the 2018 Financing:
| 2018 Investors warrants | 2018 Placement agent warrants | |||||||||||||||||||||||
| September 30, 2020 # | June 30, 2020 | December 31, 2019 | September 30, 2020 | June 30, 2020 | December 31, 2019 | |||||||||||||||||||
| Stock price | $ | $ | $ | $ | $ | |||||||||||||||||||
| Years to maturity | ||||||||||||||||||||||||
| Risk-free interest rate | % | % | % | % | % | |||||||||||||||||||
| Dividend yield | ||||||||||||||||||||||||
| Expected volatility | % | % | % | % | % | |||||||||||||||||||
| Exercise Price | $ | $ | $ | $ | $ | |||||||||||||||||||
| Fair value of the warrant | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
| Warrant Liabilities (US$’000) | $ | $ | $ | $ | $ | $ | ||||||||||||||||||
# The 2018 investors warrants had expired during the three months ended September 30, 2020.
Changes in fair value of warrant liabilities
Nine and Three Months Ended September 30, 2021 (Unaudited)
| Change in Fair Value (gain)/loss | ||||||||||||||||||||||||||||
| As of September 30, 2021 | As of July 2, 2021 | As of June 30, 2021 | As of February 18, 2021 | As of December 31, 2020 | Nine Months Ended September 30, 2021 | Three Months Ended September 30, 2021 | ||||||||||||||||||||||
| (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||||||||
| Warrants issued in the February 2021 Financing: | ||||||||||||||||||||||||||||
| --Investor Warrants | * | * | ( | ) | ( | ) | ||||||||||||||||||||||
| --Placement Agent Warrants | * | * | ( | ) | ( | ) | ||||||||||||||||||||||
| Warrants issued in the 2020 Financing: | ||||||||||||||||||||||||||||
| --Investor Warrants | * | * | ( | ) | ||||||||||||||||||||||||
| --Placement Agent Warrants | * | * | ( | ) | ||||||||||||||||||||||||
| Warrants issued in the 2018 Financing: | ||||||||||||||||||||||||||||
| --Placement Agent Warrants | * | ( | ) | |||||||||||||||||||||||||
| ( | ) | ( | ) | |||||||||||||||||||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Nine and Three Months Ended September 30, 2020 (Unaudited)
|
|
|
| Change in Fair Value (gain)/loss | |||||||||||||||||
| As of September 30, 2020 | As of June 30, 2020 | As of December 31, 2019 | Nine Months Ended September 30, 2020 | Three Months Ended September 30, 2020 | ||||||||||||||||
| (US$’000) | (US$’000) | (US$’000) | (US$’000) | (US$’000) | ||||||||||||||||
| Warrants issued in the 2018 Financing: | ||||||||||||||||||||
| --Investor Warrants | ( | ) | ( | ) | ||||||||||||||||
| --Placement Agent Warrants | ||||||||||||||||||||
| ( | ) | |||||||||||||||||||
Warrants issued and outstanding as of September 30, 2021 and their movements during the nine months then ended are as follows:
| Warrant Outstanding | Warrant Exercisable | |||||||||||||||||||||||
|
| Number of underlying shares | Weighted | Weighted | Number of underlying shares | Weighted | Weighted | ||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | ||||||||||||||||||||||
| Granted/Vested | $ | $ | ||||||||||||||||||||||
| Forfeited | - | |||||||||||||||||||||||
| Exercised | ( | ) | $ | 1.4927 | (129,000 | ) | $ | 1.4927 | ||||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | ||||||||||||||||||||||
| 17. | Restricted net assets |
As substantially all of the Company’s operations are conducted through its PRC subsidiaries and VIEs, the Company’s ability to pay dividends is primarily dependent on receiving distributions of funds from its PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by its PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries and VIEs included in the Company’s consolidated net assets are also non-distributable for dividend purposes.
In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least
In accordance with these PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. As of September 30, 2021 and December 31, 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 approximately million and million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The current PRC Enterprise Income Tax (“EIT”) Law also imposes a
The ability of the Company’s PRC subsidiaries and VIEs to make dividends and other payments to the Company may also be restricted by changes in applicable foreign exchange and other laws and regulations.
Foreign currency exchange regulation in China is primarily governed by the following rules:
| ● | Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules; |
| ● | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.
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. |
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 million and million for the nine months ended September 30, 2021 and 2020, respectively. The total amounts for such employee benefits were approximately million and million for the three months ended September 30, 2021 and 2020, respectively.
| 19. | Concentration of risk |
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable, and deposits and loans to unrelated parties. As of September 30, 2021,
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Concentration of customers
The following tables summarized the information about the Company’s concentration of customers for the nine and three months ended September 30, 2021 and 2020, respectively:
| Customer A | Customer B | Customer C | Customer D | Customer E | Customer F | Customer G | |||||||
| Nine Months Ended September 30, 2021 | |||||||||||||
| Revenues, customer concentration risk | | | * | * | * | - | - | ||||||
| Three Months Ended September 30, 2021 | |||||||||||||
| Revenues, customer concentration risk | | * | * | * | * | - | - | ||||||
| Nine Months Ended September 30, 2020 | |||||||||||||
| Revenues, customer concentration risk | | - | * | - | * | * | * | ||||||
| Three Months Ended September 30, 2020 | |||||||||||||
| Revenues, customer concentration risk | | - | * | - | * | * | * | ||||||
| As of September 30, 2021 | |||||||||||||
| Accounts receivable, customer concentration risk | * | - | | | | - | - | ||||||
| As of December 31, 2020 | |||||||||||||
| Accounts receivable, customer concentration risk | * | - | | - | - | 27% | 21% |
* Less than 10%.
- No transaction incurred for the reporting period/no balance existed as of the reporting date.
Concentration of suppliers
The following tables summarized the information about the Company’s concentration of suppliers for the nine and three months ended September 30, 2021 and 2020, respectively:
| Supplier A | Supplier B | |||
| Nine Months Ended September 30, 2021 | ||||
| Cost of revenues, supplier concentration risk | | * | ||
| Three Months Ended September 30, 2021 | ||||
| Cost of revenues, supplier concentration risk | | * | ||
| Nine Months Ended September 30, 2020 | ||||
| Cost of revenues, supplier concentration risk | - | | ||
| Three Months Ended September 30, 2020 | ||||
| Cost of revenues, supplier concentration risk | - | |
* Less than 10%.
- No transaction incurred for the reporting period.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| 20. | Commitments and contingencies |
In September 2021, in accordance with an investment contract entered into among the Company, Shenzhen Global Best Products Import & Export Co., Ltd., (“Global Best Products”), and its shareholders, the Company obtained a
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 million. As of September 30, 2021, the Company had paid approximately million in the aggregate. The remaining unpaid contract amount is expected to be paid during the year ending December 31, 2021.
The Company is currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings arising in its ordinary course of business.
| 21. | Segment reporting |
The Company follows ASC Topic 280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.
Nine Months Ended September 30, 2021 (Unaudited)
| Internet Ad and related service | Ecommerce | Blockchain technology | Corporate | Inter-segment and reconciling item | Total | |||||||||||||||||||
| US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | |||||||||||||||||||
| Revenues | - | - | - | |||||||||||||||||||||
| Cost of revenues | - | - | - | |||||||||||||||||||||
| Total operating expenses | (1) | - | ||||||||||||||||||||||
| Depreciation and amortization expense included in total operating expenses | - | |||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||
| Change in fair value of warrant liabilities | - | - | - | - | ||||||||||||||||||||
| Net (loss)/income | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||
| Expenditure for long-term assets | - | - | - | |||||||||||||||||||||
| Total assets-September 30, 2021 | ( | ) | ||||||||||||||||||||||
| Total assets-December 31, 2020 | ( | ) | ||||||||||||||||||||||
| (1) | Including approximately million share-based compensation expenses. |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended September 30, 2021 (Unaudited)
| Internet Ad. and related service | Ecommerce | Blockchain technology | Corporate | Inter-segment and reconciling item | Total | |||||||||||||||||||
| US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | |||||||||||||||||||
| Revenues | - | - | - | |||||||||||||||||||||
| Cost of revenues | - | - | - | |||||||||||||||||||||
| Total operating expenses | (1) | - | ||||||||||||||||||||||
| Depreciation and amortization expense included in total operating expenses | - | - | ||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | - | ( | ) | - | ( | ) | ||||||||||||||
| Change in fair value of warrant liabilities | - | - | - | - | ||||||||||||||||||||
| Net (loss)/income | ( | ) | ( | ) | - | - | ||||||||||||||||||
| Expenditure for long-term assets | - | - | - | |||||||||||||||||||||
| (1) | Including approximately million share-based compensation expenses. |
Nine Months Ended September 30, 2020 (Unaudited)
| Internet Ad and related service | Ecommerce | Blockchain technology | Corporate | Inter-segment and reconciling item | Total | |||||||||||||||||||
| US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | |||||||||||||||||||
| Revenues | - | - | ||||||||||||||||||||||
| Cost of revenues | - | - | ||||||||||||||||||||||
| Total operating expenses | (1) | - | ||||||||||||||||||||||
| Depreciation and amortization expense included in total operating expenses | - | - | ||||||||||||||||||||||
| Operating (loss)/income | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||
| Change in fair value of warrant liabilities | - | - | - | - | ||||||||||||||||||||
| Expenditure for long-term assets | - | - | - | - | ||||||||||||||||||||
| Net (loss)/income | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||||
| (1) | Including approximately million share-based compensation expenses. |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended September 30, 2020 (Unaudited)
| Internet Ad. and related service | Ecommerce | Blockchain technology | Corporate | Inter-segment and reconciling item | Total | |||||||||||||||||||
| US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | US$ (‘000) | |||||||||||||||||||
| Revenues | - | - | ||||||||||||||||||||||
| Cost of revenues | - | - | ||||||||||||||||||||||
| Total operating expenses | (1) | - | ||||||||||||||||||||||
| Depreciation and amortization expense included in total operating expenses | - | - | ||||||||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||
| Change in fair value of warrant liabilities | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
| Net loss | ( | ) | ( | ) | ( | ) | ( | ) | - | ( | ) | |||||||||||||
| (1) | Including approximately million share-based compensation expenses. |
| 22. | (Loss)/earnings per share |
Basic and diluted (loss)/earnings per share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are presented in thousands of U.S. dollars):
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Net (loss)/income attributable to ZW Data Action Technologies Inc. (numerator for basic and diluted loss per share) | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
| Weighted average number of common shares outstanding -Basic and diluted | ||||||||||||||||
| (Loss)/earnings per share-Basic and diluted | $ | ( | ) | $ | ( | ) | $ | $ | ( | ) | ||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the nine and three months ended September 30, 2021 and 2020, the diluted (loss)/earnings per share calculation did not include any outstanding warrants and options to purchase the Company’s common stock, because their effect was anti-dilutive.
| 23. | Share-based compensation expenses |
In May 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued
In March 2021, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued
For the nine and three months ended September 30, 2021, the Company also amortized an approximately million and 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 nine months of 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued in the aggregate of approximately
During the first nine months of 2020, the Company granted and issued
The table below summarized share-based compensation expenses recorded for the nine and three months ended September 30, 2021 and 2020, respectively:
| Nine Months Ended September 30, | Three Months Ended September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| US$(’000) | US$(’000) | US$(’000) | US$(’000) | |||||||||||||
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| Sales and marketing expenses | ||||||||||||||||
| General and administrative expenses | ||||||||||||||||
| Research and development expenses | ||||||||||||||||
| Total | ||||||||||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The aggregate unrecognized share-based compensation expenses as of September 30, 2021 was approximately million, of which approximately million will be recognized for the year ending December 31, 2021 and approximately million will be recognized for the year ending December 31, 2022.
Options issued and outstanding as of September 30, 2021 and their movements during the nine months then ended are as follows:
| Option Outstanding | Option Exercisable | |||||||||||||||||||||||
|
| Number of underlying shares | Weighted | Weighted | Number of underlying shares | Weighted | Weighted | ||||||||||||||||||
| Balance, January 1, 2021 | $ | $ | ||||||||||||||||||||||
| Granted/Vested | - | |||||||||||||||||||||||
| Expired | - | |||||||||||||||||||||||
| Exercised | - | |||||||||||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | ||||||||||||||||||||||
| 24. | Subsequent events |
The Company primarily conducts its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19) surfaced in Wuhan City, Hubei province of the PRC, and spread all over the country during the first fiscal quarter of 2020. The spread of COVID-19 resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. The Company’s principal business activity is to provide advertising and marketing services to small and medium enterprises in the PRC, which is particularly sensitive to changes in general economic conditions. The pandemic of COVID-19 in the PRC had caused and may continue to cause decreases in or delays in advertising spending, and had negatively impacted and may continue to negatively impact the Company’s short-term ability to grow revenues. Although the Chinese government had declared the COVID-19 outbreak largely under control within its border since the second fiscal quarter of 2020, the Company will continue to assess its financial impacts for the future periods. There can be no assurance that this assessment will enable the Company to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in the Company’s sector in particular.
Except for the above mentioned matters, no other material event which are required to be adjusted or disclosed as of the date of this consolidated financial statements.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
Our company was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is engaged in providing Internet advertising, precision marketing, other ecommerce O2O advertising and marketing services and the related data and technical services to SMEs in the PRC.
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 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.
During the third quarter of 2021, the Company finalized its blockchain infrastructure (“BIF”) platform for business applications of Non-Fungible Token (“NFT”) to provide micro, small and medium enterprises (“MSMEs”) one-stop enterprise-level blockchain network and application services. Upon test launch of its BIF automation platform, the Company cooperated with one of its strategic partners to provide digital transformations and solutions of NFT through BIF platform. The Company expects to fully launch the platform to MSMEs during the fourth fiscal quarter of 2021.
Meanwhile, the Company completed an upgrade to its official website reflecting the Company’s recent developments on its BIF platform and related business transformation. The Company is integrating its value-added blockchain service platform into its existing information services and expects to become an integrated digital operation service provider with Information + transaction + Blockchain in the near future.
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 2020 Form 10-K.
A. RESULTS OF OPERATIONS FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021 AND 2020
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, |
|||||||||||||||
| 2021 |
2020 |
2021 |
2020 |
|||||||||||||
| (US $) |
(US $) |
(US $) |
(US $) |
|||||||||||||
| (Unaudited) |
(Unaudited) |
(Unaudited) |
(Unaudited) |
|||||||||||||
| Revenues |
||||||||||||||||
| From unrelated parties |
$ | 34,843 | $ | 27,086 | $ | 11,896 | $ | 12,300 | ||||||||
| From a related party |
4 | 18 | 4 | 4 | ||||||||||||
| Total revenues |
34,847 | 27,104 | 11,900 | 12,304 | ||||||||||||
| Cost of revenues |
35,739 | 26,548 | 11,857 | 12,945 | ||||||||||||
| Gross (loss)/profit |
(892 | ) | 556 | 43 | (641 | ) | ||||||||||
| Operating expenses |
||||||||||||||||
| Sales and marketing expenses |
159 | 293 | 58 | 58 | ||||||||||||
| General and administrative expenses |
10,366 | 4,520 | 1,471 | 592 | ||||||||||||
| Research and development expenses |
251 | 443 | 88 | 113 | ||||||||||||
| Total operating expenses |
10,776 | 5,256 | 1,617 | 763 | ||||||||||||
| Loss from operations |
(11,668 | ) | (4,700 | ) | (1,574 | ) | (1,404 | ) | ||||||||
| Other income (expenses) |
||||||||||||||||
| Interest income/(expense), net |
3 | - | 1 | 1 | ||||||||||||
| Other income/(expense), net |
265 | (4 | ) | (37 | ) | (21 | ) | |||||||||
| Loss on disposal of long-term investments |
(38 | ) | - | - | - | |||||||||||
| Change in fair value of warrant liabilities |
9,682 | 4 | 2,853 | (64 | ) | |||||||||||
| Total other income/expenses) |
9,912 | - | 2,817 | (84 | ) | |||||||||||
| (Loss)/income before income tax benefit and noncontrolling interests |
(1,756 | ) | (4,700 | ) | 1,243 | (1,488 | ) | |||||||||
| Income tax benefit |
171 | 87 | 131 | 155 | ||||||||||||
| Net (loss)/income |
(1,585 | ) | (4,613 | ) | 1,374 | (1,333 | ) | |||||||||
| Net (income)/loss attributable to noncontrolling interests |
(1 | ) | 2 | 1 | - | |||||||||||
| Net (loss)/income attributable to ZW Data Action Technologies Inc. |
$ | (1,586 | ) | $ | (4,611 | ) | $ | 1,375 | $ | (1,333 | ) | |||||
Revenues
The following tables set forth a breakdown of our total revenues, disaggregated by type of services for the periods indicated, with inter-company transactions eliminated:
| Nine Months Ended September 30, |
||||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Revenue type |
(Amounts expressed in thousands of US dollars, except percentages) |
|||||||||||||||
| -Internet advertising and related data service |
$ | 5,720 | 16.4 | % | $ | 5,679 | 21.0 | % | ||||||||
| -Distribution of the right to use search engine marketing service |
28,613 | 82.1 | % | 18,004 | 66.4 | % | ||||||||||
| -Data and technical services |
- | - | 900 | 3.3 | % | |||||||||||
| Internet advertising and related services |
34,333 | 98.5 | % | 24,583 | 90.7 | % | ||||||||||
| Ecommerce O2O advertising and marketing services |
514 | 1.5 | % | 1,276 | 4.7 | % | ||||||||||
| Technical solution services |
- | - | 1,245 | 4.6 | % | |||||||||||
| Total |
$ | 34,847 | 100 | % | $ | 27,104 | 100 | % | ||||||||
| Three Months Ended September 30, |
||||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| Revenue type |
(Amounts expressed in thousands of US dollars, except percentages) |
|||||||||||||||
| -Internet advertising and related data service |
$ | 2,125 | 17.8 | % | $ | 2,429 | 19.7 | % | ||||||||
| -Distribution of the right to use search engine marketing service |
9,648 | 81.1 | % | 8,706 | 70.8 | % | ||||||||||
| -Data and technical services |
- | - | 300 | 2.4 | % | |||||||||||
| Internet advertising and related services |
11,773 | 98.9 | % | 11,435 | 92.9 | % | ||||||||||
| Ecommerce O2O advertising and marketing services |
127 | 1.1 | % | 269 | 2.2 | % | ||||||||||
| Technical solution services |
- | - | 600 | 4.9 | % | |||||||||||
| Total |
$ | 11,900 | 100 | % | $ | 12,304 | 100 | % | ||||||||
Total Revenues: Our total revenues were US$34.85 million and US$11.90 million for the nine and three months ended September 30, 2021, respectively, compared with US$27.10 million and US$12.30 million for the same periods last year, respectively.
| ● |
Internet advertising revenues for the nine and three months ended September 30, 2021 was approximately US$5.72 million and US$2.13 million, respectively, compared with US$5.68 million and US$2.43 million for the nine and three months ended September 30, 2020, respectively. Management expects no significant fluctuation on service revenues from this business category in fiscal 2021, compared with that in last fiscal year. |
|
| ● |
Revenue generated from distribution of the right to use search engine marketing service for the nine and three months ended September 30, 2021 was approximately US$28.61 million and US$9.65 million, respectively, compared with approximately US$18.00 million and US$8.71 million for the nine and three months ended September 30, 2020, respectively. The increase in revenues from this business category for both the nine and three months ended September 30, 2021 were directly attributable to the 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 continue to grow in the fourth fiscal quarter of 2021, compared with that in the same period last year. |
|
| ● |
For the nine and three months ended September 30, 2021, we generated an approximately US$0.51 million and US$0.13 million Ecommerce O2O advertising and marketing service revenues, respectively, compared with an approximately US$1.28 million and US$0.27 million service revenues generated for the nine and three months ended September 30, 2020, respectively. We generated these revenues from distribution of the advertising spaces in outdoor billboards we purchased from a third party for the reporting periods. |
Cost of revenues
Our cost of revenues consisted of costs directly related to the offering of our Internet advertising, precision marketing and related data and technical services, and cost related to our Ecommerce O2O advertising and marketing service. The following table sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the periods indicated, with inter-company transactions eliminated:
| Nine Months Ended September 30, |
||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||
| (Amounts expressed in thousands of US dollars, except percentages) |
||||||||||||||||||||||||
| Revenue |
Cost |
GP ratio |
Revenue |
Cost |
GP ratio |
|||||||||||||||||||
| -Internet advertising and related data service |
$ | 5,720 | $ | 5,112 | 11 | % | $ | 5,679 | $ | 4,904 | 14 | % | ||||||||||||
| -Distribution of the right to use search engine marketing service |
28,613 | 29,502 | -3 | % | 18,004 | 19,147 | -6 | % | ||||||||||||||||
| -Data and technical services |
- | - | - | 900 | 796 | 12 | % | |||||||||||||||||
| Internet advertising and related services |
34,333 | 34,614 | -1 | % | 24,583 | 24,847 | -1 | % | ||||||||||||||||
| Ecommerce O2O advertising and marketing services |
514 | 1,125 | -119 | % | 1,276 | 1,125 | 12 | % | ||||||||||||||||
| Technical solution services |
- | - | - | 1,245 | 576 | 54 | % | |||||||||||||||||
| Total |
$ | 34,847 | $ | 35,739 | -3 | % | $ | 27,104 | $ | 26,548 | 2 | % | ||||||||||||
| Three Months Ended September 30, |
||||||||||||||||||||||||
| 2021 |
2020 |
|||||||||||||||||||||||
| (Amounts expressed in thousands of US dollars, except percentages) |
||||||||||||||||||||||||
| Revenue |
Cost |
GP ratio |
Revenue |
Cost |
GP ratio |
|||||||||||||||||||
| -Internet advertising and related data service |
$ | 2,125 | $ | 1,867 | 12 | % | $ | 2,429 | $ | 1,998 | 18 | % | ||||||||||||
| -Distribution of the right to use search engine marketing service |
9,648 | 9,615 | 0.3 | % | 8,706 | 9,731 | -12 | % | ||||||||||||||||
| -Data and technical services |
- | - | - | 300 | 265 | 12 | % | |||||||||||||||||
| Internet advertising and related services |
11,773 | 11,482 | 2 | % | 11,435 | 11,994 | -5 | % | ||||||||||||||||
| Ecommerce O2O advertising and marketing services |
127 | 375 | -195 | % | 269 | 375 | -39 | % | ||||||||||||||||
| Technical solution services |
- | - | - | 600 | 576 | 4 | % | |||||||||||||||||
| Total |
$ | 11,900 | $ | 11,857 | 0.4 | % | $ | 12,304 | $ | 12,945 | -5 | % | ||||||||||||
Cost of revenues: our total cost of revenues was US$35.74 million and US$11.86 million for the nine and three months ended September 30, 2021, respectively, compared with US$26.55 million and US$12.95 million for the nine and three months ended September 30, 2020, respectively. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, cost of outdoor advertising resources and other direct costs associated with providing our services.
| ● |
Costs for Internet advertising and data service primarily consist of cost of internet traffic flow and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to promote business opportunity advertisements placed on our own ad portals. For the nine and three months ended September 30, 2021, our total cost of revenues for Internet advertising and data service was approximately US$5.11 million and US$1.87 million, respectively, compared with approximately US$4.90 million and US$2.00 million for the nine and three months ended September 30, 2020, respectively. The gross margin rate of our Internet advertising and data service was 11% and 12% for the nine and three months ended September 30, 2021, compared with 14% and 18% for the nine and three months ended September 30, 2020, respectively. We anticipate the gross margin rate will continue to improve in the fourth fiscal quarter of 2021. |
|
| ● |
Costs for distribution of the right to use search engine marketing service was direct search engine resources consumed for the right to use search engine marketing service that we purchased from key search engines and distributed to our customers. We purchased these search engine resources from well-known search engines in China, for example, Baidu, Qihu 360 and Sohu (Sogou) etc. We purchased the resources in relatively large amounts under our own name at a relatively lower rate compared to the market rates. We charged our clients the actual cost they consumed on search engines for the use of this service and a premium at certain percentage of that actual consumed cost. For the nine and three months ended September 30, 2021, our total cost of revenues for distribution of the right to use search engine marketing service was US$29.50 million and US$9.62 million, respectively, compared with US$19.15 million and US$9.73 million for the same periods last year, respectively. Gross margin rate of this business category was -3% and 0.3% for the nine and three months ended September 30, 2021, respectively, significantly improved from -6% and -12% gross margin rate incurred for the same periods last year, respectively. We anticipate the gross margin rate will continue to improve in the fourth fiscal quarter of 2021, as we anticipate continuous increase in service revenues and the related cost consumption from this business category, which may put us in a better position to negotiate a lower rate with the suppliers in future periods. |
|
| ● |
For the nine months ended September 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service was both approximately US$1.13 million, and for the three months ended September 30, 2021 and 2020, cost for our Ecommerce O2O advertising and marketing service was both approximately US$0.38 million, which costs represented the amortized cost of the related outdoor billboards ad spaces we pre-purchased during the periods. |
Gross (loss)/profit
As a result of the foregoing, for the nine months ended September 30, 2021, we incurred a gross loss of approximately US$0.89 million, compared with a gross profit of approximately US$0.56 million for the nine months ended September 30, 2020. For the three months ended September 30, 2021, we recognized an approximately US$0.04 million gross profit, compared with a gross loss of approximately US$0.64 million for the three months ended September 30, 2020. Our overall gross margin was -3% and 0.4% for the nine and three months ended September 30, 2021, respectively, compared with 2% and -5% for the same periods last year, respectively. The improvement of our overall gross margin rate for the three months ended September 30, 2021, as compared with those for the first and second fiscal quarters of 2021, was directly attributable to the gross margin rate improvement of our main stream of service revenues, i.e. distribution of the right to use search engine marketing services, which accounted for approximately 82.1% and 81.1% of our total revenues for the nine and three months ended September 30, 2021, respectively. Our gross margin for distribution of the right to use search engine marketing services improved to 0.3% for the three months ended September 30, 2021 from -9% and -3% for the first and second fiscal quarter of 2021, respectively, as a result of better discount rate obtained from suppliers.
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, |
||||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| (Amounts expressed in thousands of US dollars, except percentages) |
||||||||||||||||
| Amount |
% of total revenue |
Amount |
% of total revenue |
|||||||||||||
| Total revenues |
$ | 34,847 | 100 | % | $ | 27,104 | 100 | % | ||||||||
| Gross (loss)/profit |
(892 | ) | -3 | % | 556 | 2 | % | |||||||||
| Sales and marketing expenses |
159 | - | 293 | 1 | % | |||||||||||
| General and administrative expenses |
10,366 | 30 | % | 4,520 | 17 | % | ||||||||||
| Research and development expenses |
251 | 1 | % | 443 | 2 | % | ||||||||||
| Total operating expenses |
$ | 10,776 | 31 | % | $ | 5,256 | 19 | % | ||||||||
| Three Months Ended September 30, |
||||||||||||||||
| 2021 |
2020 |
|||||||||||||||
| (Amounts expressed in thousands of US dollars, except percentages) |
||||||||||||||||
| Amount |
% of total revenue |
Amount |
% of total revenue |
|||||||||||||
| Total revenues |
$ | 11,900 | 100 | % | $ | 12,304 | 100 | % | ||||||||
| Gross profit/(loss) |
43 | 0.4 | % | (641 | ) | -5 | % | |||||||||
| Sales and marketing expenses |
58 | - | 58 | - | ||||||||||||
| General and administrative expenses |
1,471 | 13 | % | 592 | 5 | % | ||||||||||
| Research and development expenses |
88 | 1 | % | 113 | 1 | % | ||||||||||
| Total operating expenses |
$ | 1,617 | 14 | % | $ | 763 | 6 | % | ||||||||
Operating Expenses: Our total operating expenses was approximately US$10.78 million and US$1.62 million for the nine and three months ended September 30, 2021, respectively, compared with approximately US$5.26 million and US$0.76 million for the nine and three months ended September 30, 2020, respectively.
| ● |
Sales and marketing expenses: Sales and marketing expenses was US$0.16 million and US$0.06 million for the nine and three months ended September 30, 2021, respectively, compared with approximately US$0.29 million and US$0.06 million for the nine and three months ended September 30, 2020, respectively. Our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals and our services, staff salaries and benefits, performance bonuses, travel expenses, communication expenses and other general office expenses of our sales department. Due to certain aspects of our business nature, the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with the fluctuation of our net revenues. For the nine months ended September 30, 2021, the decrease in our sales and marketing expenses was primarily due to the decrease in share-based compensation expenses of approximately US$0.12 million, related to restricted shares granted and issued to our sales staff during the first fiscal quarter of last year. For the three months ended September 30, 2021, there was no significant fluctuation of our sales and marketing expenses, compared with that for the same period last year. |
| ● |
General and administrative expenses: General and administrative expenses was US$10.37 million and US$1.47 million for the nine and three months ended September 30, 2021, respectively, compared with US$4.52 million and US$0.59 million for the nine and three months ended September 30, 2020, respectively. Our general and administrative expenses primarily consist of salaries and benefits of management, accounting, human resources and administrative personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities and other general office expenses of our supporting and administrative departments. For the nine months ended September 30, 2021, the change in our general and administrative expenses was primarily due to the following reasons: (1) the increase in share-based compensation expenses of approximately US$5.15 million, due to more shares of the Company’s restricted common stock were granted and issued to management and employees in the second fiscal quarter of 2021, compared with that granted and issued in the first fiscal quarter of last year; (2) the increase in general office administrative expense of approximately US$1.45 million, primarily attributable to the increase in lease and other administrative costs of our new office in Guangzhou and recovery from the COVID-19 epidemic, which resulted in the office shutdown during the first fiscal quarter of last year; and (3) the decrease in allowance for doubtful accounts of approximately US$0.75 million, due to improved collection management. For the three months ended September 30, 2021, the increase in our general and administrative expenses was primarily due to the increase in general departmental expenses of approximately US$0.88 million, which were primarily related to the expansion of our new office in Guangzhou. |
|
| ● | Research and development expenses: Research and development expenses was approximately US$0.25 million and US$0.09 million for the nine and three months ended September 30, 2021, respectively, compared with approximately US$0.44 million and US$0.11 million for the nine and three months ended September 30, 2020, respectively. Our research and development expenses primarily consist of salaries and benefits of our staff in the research and development department, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department. For the nine months ended September 30, 2021, the decrease in our research and development expenses was primarily due to the decrease in share-based compensation expenses of approximately US$0.15 million, related to restricted shares granted and issued to our research and development staff during the first fiscal quarter of last year. For the three months ended September 30, 2021, the decrease in our research and development expenses was primarily due to a reduction in headcount in our research and development department, compared with the same period last year. |
Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$11.67 million and US$4.70 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021 and 2020, we incurred a loss from operations of approximately US$1.57 million and US$1.40 million, respectively.
Change in fair value of warrant liabilities: We issued warrants in financing activities. We determined that these warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency (Renminbi or Yuan). As a result, a gain of change in fair value of these warrant liabilities of approximately US$9.68 million and US$2.85 million was recorded for the nine and three months ended September 30, 2021, respectively, compared with a gain of change in fair value of these warrant liabilities of approximately US$0.004 million and a loss of approximately US$0.06 million recorded for the nine and three months ended September 30, 2020, respectively.
(Loss)/income before income tax benefit and noncontrolling interests: As a result of the foregoing, our loss before income tax benefit and noncontrolling interest was approximately US$1.76 million and US$4.70 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, we recognized an approximately US$1.24 million income before income tax benefit and noncontrolling interest, compared with an approximately US$1.49 million loss before income tax benefit and noncontrolling interest for the three months ended September 30, 2020.
Income Tax benefit: For the nine months ended September 30, 2021, we recognized an approximately US$0.27 million income tax benefit in relation to the net operating loss incurred by one of our operating VIEs for the period, which we consider likely to be utilized with respect to future earnings of this entity, which amount was partially offset by an approximately US$0.08 million and an approximately US$0.02 million income tax expense recognized in relation to additional deferred tax assets provision provided and utilization of prior period recognized deferred tax assets by two other operating VIEs during the period, respectively. For the three months ended September 30, 2021, we recognized an approximately US$0.13 million income tax benefit in relation to the net operating loss incurred by one of our operating VIEs for the period. For the nine and three months ended September 30, 2020, we recognized an approximately US$0.09 million and US$0.16 million income tax benefit, respectively, in relation to deferred tax assets we expect to be able to utilized in future periods.
Net (loss)/income: As a result of the foregoing, for the nine months ended September 30, 2021 and 2020, we incurred a total net loss of approximately US$1.59 million and US$4.61 million, respectively. For the three months ended September 30, 2021, we recognized a net income of approximately US$1.37 million, compared with a net loss of approximately US$1.33 million for the three months ended September 30, 2020.
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 owned 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 Qiweilian Guangzhou to unrelated parties. For the nine months ended September 30, 2021, net income allocated to the noncontrolling interest shareholder of Qiweilian Guangzhou, before we deconsolidated the entity, offset by the net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$0.001 million, compared with a net loss allocated to the noncontrolling interest shareholder of Business Opportunity Chain of approximately US$0.001 million for the three months ended September 30, 2021. For the nine and three months ended September 30, 2020, net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$0.002 million and US$nil, respectively.
Net (loss)/income attributable to ZW Data Action Technologies Inc.: Total net (loss)/income as adjusted by net income/(loss) attributable to the noncontrolling interest shareholders as discussed above yields the net (loss)/income attributable to ZW Data Action Technologies Inc. Net loss attributable to ZW Data Action Technologies Inc. was approximately US$1.59 million and US$4.61 million for the nine months ended September 30, 2021 and 2020, respectively. For the three months ended September 30, 2021, net income attributable to ZW Data Action Technologies Inc. was approximately US$1.38 million, compared with a net loss attributable to ZW Data Action Technologies Inc. of approximately US$1.33 million for the three months ended September 30, 2020.
B. LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents. As of September 30, 2021, we had cash and cash equivalents of approximately US$8.73 million.
Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to search engine resources and other advertising resources providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the 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, 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.
The following table provides detailed information about our net cash flow for the periods indicated:
| Nine Months Ended September 30, |
||||||||
| 2021 |
2020 |
|||||||
| Amounts in thousands of US dollars |
||||||||
| Net cash (used in)/provided by operating activities |
$ | (6,600 | ) | $ | 595 | |||
| Net cash used in investing activities |
(6,097 | ) | (1,273 | ) | ||||
| Net cash provided by/(used in) financing activities |
17,111 | (429 | ) | |||||
| Effect of foreign currency exchange rate changes |
20 | 4 | ||||||
| Net increase/(decrease) in cash and cash equivalents |
$ | 4,434 | $ | (1,103 | ) | |||
Net cash (used in)/provided by operating activities
For the nine months ended September 30, 2021, our net cash used in operating activities of approximately US$6.60 million were primarily attributable to:
| (1) |
net loss excluding approximately US$0.45 million of non-cash expenses of depreciation and amortizations; approximately US$0.15 million amortization of operating lease right-of-use assets, approximately US$6.95 million share-based compensation; approximately US$9.68 million gain from change in fair value of warrant liabilities, approximately US$0.06 million loss on disposal of long-term investment and other non-operating loss, and approximately US$0.17 million deferred tax benefit, yielded the non-cash items excluded net loss of approximately US$3.83 million. |
| (2) |
the receipt of cash from operations from changes in operating assets and liabilities such as: |
| - |
accounts payable increased by approximately US$0.14 million, due to more favorable payment terms granted by a new supplier; 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$0.26 million; |
| - |
prepayment and deposit to suppliers increased by approximately US$1.70 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$0.31 million, which were made for the purchase of advertising resources and lease of our new office spaces during the period, and these amounts were not expected to be consumed or refunded within one year of September 30, 2021; |
| - |
advance from customers decreased by approximately US$0.13 million, primarily due to recognition of revenue from opening contract liabilities during the period; and |
| - |
accruals, tax payables, operating lease liabilities, short-term lease payment payables and other current liabilities decreased by approximately US$0.52 million in the aggregate, due to settlement of these operating liabilities during the period. |
For the nine months ended September 30, 2020, our net cash provided by operating activities of approximately US$0.60 million were primarily attributable to:
| (1) |
net loss excluding approximately US$0.63 million of non-cash expenses of depreciation and amortization; approximately US$2.07 million share-based compensation expenses; approximately US$0.75 million allowance for doubtful accounts, approximately US$0.004 million gain in fair value of warrant liabilities and approximately US$0.09 million deferred tax benefit yielded the non-cash item excluded net loss of approximately US$1.26 million. |
| (2) |
the receipt of cash from operations from changes in operating assets and liabilities such as: |
| - |
accounts receivable decreased by approximately US$0.25 million in the aggregate; |
| - |
prepayment and deposit to suppliers decreased by approximately US$1.08 million, primarily due to utilization of the prepayment made to suppliers in fiscal 2019 through Ad resources and other services received from suppliers during the nine months ended September 30, 2020; |
| - |
advance from customers increased by approximately US$0.75 million, primarily due to new advance payments received that related to 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$0.23 million in the aggregate, primarily due to the factors that some of the payments were temporarily delayed as a result of the COVID-19 outbreak and some of the payments were not due until later periods, and |
| - |
amount due from related parties decreased by approximately US$0.02 million. |
| (3) |
offset by the use from operations from changes in operating assets and liabilities such as: |
| - |
long-term prepayment increased by approximately US$0.38 million, which was made for the purchase of ad resources during the first fiscal quarter of 2020, and this amount was not expected to be consumed within one year of September 30, 2020; |
| - |
accruals decreased by approximately US$0.06 million; |
| - |
other current liabilities decreased by approximately US$0.04 million; and |
| - |
we also prepaid approximately US$0.01 million lease payment during the period. |
Net cash used in investing activities
For the nine months ended September 30, 2021, (1) we paid an aggregate of approximately US$0.31 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$1.89 million cash investment to our investee entities, including an US$1.0 million investment for a 15.38% equity interest in an entity, for jointly developing blockchain, key opinion leader and e-sports platform and jointly operating IP data for e-sports and games with strategic partners, and we also provided an additional approximately US$0.04 million temporary loans in the aggregate to two of our 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$2.95 million in the aggregate, of which an approximately US$1.51 million was provided during the first nine months of 2021. The borrower repaid an approximately US$1.30 million during the first nine months of 2021, and the remaining balance of approximately US$1.65 million is expected to be fully repaid in March 2022; (5) cash decreased by approximately US$0.01 as a result of deconsolidation of VIEs’ subsidiaries during the period; and (6) we made an aggregate of US$2.50 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 December 31, 2021; and (ii) a US$1.5 million prepayment in accordance with a cryptocurrency mining machine purchase agreement, which had been cancelled due to the industry banning policies announced by the government, and the prepayment is expected to be refunded before the end of fiscal 2021. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$6.10 million for the nine months ended September 30, 2021.
For the nine months ended September 30, 2020, (1) we invested 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 provided to an unrelated 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 nine months ended September 30, 2020.
Net cash provided by/(used in) financing activities
For the nine months ended September 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 nine months ended September 30, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January 2020.
Restricted Net Assets
As substantially all of our operations are conducted through our PRC subsidiaries and VIEs, our ability to pay dividends is primarily dependent on receiving distributions of funds from our PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries and VIEs included in our consolidated net assets are also not distributable for dividend purposes.
In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of our other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.
In accordance with these PRC laws and regulations, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to us. As of September 30, 2021 and December 31, 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 approximately US$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.
The ability of our PRC subsidiaries to make dividends and other payments to us may also be restricted by changes in applicable foreign exchange and other laws and regulations.
Foreign currency exchange regulation in China is primarily governed by the following rules:
| ● |
Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules; |
|
| ● |
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.
Although the current Exchange Rules allow 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 fiscal quarter ended September 30, 2021, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal executive officer and principal financial officer have concluded that during the period covered by this report, the Company’s disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There was no change in our internal control over financial reporting that occurred during the fiscal quarter of 2021 covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
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.
This information has been omitted based on the Company’s status as a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
None.
The exhibits listed on the Exhibit Index below are provided as part of this report.
| Exhibit No. |
Document Description |
|
| 101 |
The following materials are filed herewith: (i) Inline XBRL Instance, (ii) Inline XBRL Taxonomy Extension Schema, (iii) Inline XBRL Taxonomy Extension Calculation, (iv) XBRL Taxonomy Extension Labels, (v) XBRL Taxonomy Extension Presentation, and (vi) Inline XBRL Taxonomy Extension Definition. |
|
| 104 |
Cover Page Interactive Data 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. |
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. |
||
| Date: November 15, 2021 |
By: |
/s/ Handong Cheng |
| Name: Handong Cheng |
||
| Title: Chief Executive Officer (Principal Executive Officer) |
||
| By: |
/s/ Mark Li |
|
| Name: Mark Li |
||
| Title: Chief Financial Officer (Principal Accounting and Financial Officer) |
||
Exhibit 31.1
CERTIFICATION
I, Handong Cheng, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ZW Data Action Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 15, 2021
/s/ Handong Cheng
Handong Cheng
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Mark Li certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ZW Data Action Technologies Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
November 15, 2021
/s/ Mark Li
Mark Li
Chief Financial Officer
(Principal Accounting and Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of ZW Data Action Technologies Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Quarterly Report of the Company on Form 10-Q for the quarter ended September 30, 2021 fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
November 15, 2021
/s/ Handong Cheng
Handong Cheng
Chief Executive Officer
(Principal Executive Officer)
/s/ Mark Li
Mark Li
Chief Financial Officer
(Principal Accounting and Financial Officer)