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ZW Data Action Technologies Inc.
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Including approximately US$2.07 million share-based compensation expenses.
Including approximately US$0.09 million share-based compensation expenses.
Less than 10%.
Including approximately US$0.08 million share-based compensation expenses.
Including approximately US$6.95 million share-based compensation expenses.
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).
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 001-34647
ZW Data Action Technologies Inc.
(Exact name of registrant as specified in its charter)
Nevada | 20-4672080 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
Room 1106, Xinghuo Keji Plaza, No. 2 Fufeng Road, Fengtai District, Beijing, PRC 100070
(Address of principal executive offices) (Zip Code)
+86-10-6084-6616
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | | Trading Symbol(s) | | Name of each exchange on which registered |
Common Stock, par value $0.001 | | CNET | | Nasdaq Capital Market |
Indicate by check whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days: Yes ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer ☐ | Accelerated filer ☐ |
Non-accelerated filer ☒ | Smaller reporting company ☒ |
| Emerging growth company ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒
As of November 15, 2021, the registrant had 35,332,677 shares of common stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares and per share data)
| | September 30, 2021 | | | December 31, 2020 | |
| | (US $) | | | (US $) | |
| | (Unaudited) | | | | | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents * | | $ | 8,731 | | | $ | 4,297 | |
Accounts receivable, net of allowance for doubtful accounts of $2,198 and $4,247, respectively * | | | 2,669 | | | | 2,407 | |
Prepayment and deposit to suppliers * | | | 8,673 | | | | 4,657 | |
Due from related parties * | | | 96 | | | | 61 | |
Other current assets * | | | 1,658 | | | | 1,462 | |
Total current assets | | | 21,827 | | | | 12,884 | |
| | | | | | | | |
Long-term investments * | | | 1,911 | | | | 67 | |
Operating lease right-of-use assets * | | | 2,042 | | | | 48 | |
Property and equipment, net * | | | 190 | | | | 60 | |
Intangible assets, net * | | | 3,275 | | | | 2,557 | |
Blockchain platform applications development costs | | | 4,408 | | | | 4,406 | |
Long-term deposits and prepayments * | | | 481 | | | | 39 | |
Deferred tax assets, net * | | | 781 | | | | 606 | |
Total Assets | | $ | 34,915 | | | $ | 20,667 | |
| | | | | | | | |
Liabilities and Equity | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable * | | $ | 750 | | | $ | 608 | |
Advance from customers * | | | 1,311 | | | | 1,436 | |
Accrued payroll and other accruals * | | | 350 | | | | 489 | |
Taxes payable * | | | 3,414 | | | | 3,430 | |
Operating lease liabilities * | | | 193 | | | | 18 | |
Lease payment liability related to short-term leases * | | | 150 | | | | 203 | |
Other current liabilities * | | | 136 | | | | 333 | |
Warrant liabilities | | | 3,686 | | | | 1,505 | |
Total current liabilities | | | 9,990 | | | | 8,022 | |
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 * | | | 1,923 | | | | 32 | |
Long-term borrowing from a related party | | | 135 | | | | 134 | |
Total Liabilities | | | 12,048 | | | | 8,188 | |
| | | | | | | | |
Commitments and contingencies | | | | | | | | |
| | | | | | | | |
Equity: | | | | | | | | |
ZW Data Action Technologies Inc.’s stockholders’ equity | | | | | | | | |
Common stock (US$0.001 par value; authorized 100,000,000 and 50,000,000 shares at September 30, 2021 and December 31, 2020, respectively; issued and outstanding 35,332,677 shares and 26,062,915 shares at September 30, 2021 and December 31, 2020, respectively) | | | 35 | | | | 26 | |
Additional paid-in capital | | | 61,761 | | | | 49,772 | |
Statutory reserves | | | 2,598 | | | | 2,598 | |
Accumulated deficit | | | (42,566 | ) | | | (40,980 | ) |
Accumulated other comprehensive income | | | 1,104 | | | | 1,129 | |
Total ZW Data Action Technologies Inc.’s stockholders’ equity | | | 22,932 | | | | 12,545 | |
| | | | | | | | |
Noncontrolling interests | | | (65 | ) | | | (66 | ) |
Total equity | | | 22,867 | | | | 12,479 | |
| | | | | | | | |
Total Liabilities and Equity | | $ | 34,915 | | | $ | 20,667 | |
*All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).
See notes to unaudited condensed consolidated financial statements
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 |
|
$ |
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/(expenses), 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 |
) |
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOME(CONTINUED)
(In thousands, except for number of shares and per share data)
|
|
Nine Months Ended September 30, |
|
|
Three Months Ended September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
2021 |
|
|
2020 |
|
|
|
(US $) |
|
|
(US $) |
|
|
(US $) |
|
|
(US $) |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
(Unaudited) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income |
|
$ |
(1,585 |
) |
|
$ |
(4,613 |
) |
|
$ |
1,374 |
|
|
$ |
(1,333 |
) |
Foreign currency translation loss |
|
|
(25 |
) |
|
|
(135 |
) |
|
|
(2 |
) |
|
|
(203 |
) |
Comprehensive (loss)/income |
|
$ |
(1,610 |
) |
|
$ |
(4,748 |
) |
|
$ |
1,372 |
|
|
$ |
(1,536 |
) |
Comprehensive (income)/loss attributable to noncontrolling interests |
|
|
(1 |
) |
|
|
3 |
|
|
|
- |
|
|
|
2 |
|
Comprehensive (loss)/income attributable to ZW Data Action Technologies Inc. |
|
$ |
(1,611 |
) |
|
$ |
(4,745 |
) |
|
$ |
1,372 |
|
|
$ |
(1,534 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss)/earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
(0.05 |
) |
|
$ |
(0.22 |
) |
|
$ |
0.04 |
|
|
$ |
(0.06 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
|
32,279,304 |
|
|
|
21,271,301 |
|
|
|
35,332,220 |
|
|
|
21,720,259 |
|
See notes to unaudited condensed consolidated financial statements
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 |
|
$ |
(1,585 |
) |
|
$ |
(4,613 |
) |
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
450 |
|
|
|
622 |
|
Amortization of operating lease right-of-use assets |
|
|
149 |
|
|
|
7 |
|
Share-based compensation expenses |
|
|
6,945 |
|
|
|
2,066 |
|
Provision for allowances for doubtful accounts |
|
|
- |
|
|
|
751 |
|
Loss on disposal of long-term investments |
|
|
38 |
|
|
|
- |
|
Deferred taxes |
|
|
(171 |
) |
|
|
(87 |
) |
Change in fair value of warrant liabilities |
|
|
(9,682 |
) |
|
|
(4 |
) |
Other losses |
|
|
24 |
|
|
|
- |
|
Changes in operating assets and liabilities |
|
|
|
|
|
|
|
|
Accounts receivable |
|
|
(257 |
) |
|
|
254 |
|
Prepayment and deposit to suppliers |
|
|
(1,698 |
) |
|
|
1,077 |
|
Due from related parties |
|
|
- |
|
|
|
24 |
|
Other current assets |
|
|
6 |
|
|
|
(5 |
) |
Long-term deposits and prepayments |
|
|
(314 |
) |
|
|
(375 |
) |
Accounts payable |
|
|
142 |
|
|
|
137 |
|
Advance from customers |
|
|
(133 |
) |
|
|
754 |
|
Accrued payroll and other accruals |
|
|
(126 |
) |
|
|
(55 |
) |
Other current liabilities |
|
|
(230 |
) |
|
|
(38 |
) |
Taxes payable |
|
|
(31 |
) |
|
|
8 |
|
Lease payment liability related to short-term leases |
|
|
(54 |
) |
|
|
81 |
|
Operating lease liabilities |
|
|
(73 |
) |
|
|
(9 |
) |
Net cash (used in)/provided by operating activities |
|
|
(6,600 |
) |
|
|
595 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Payment for leasehold improvements and purchase of vehicles, furniture and office equipment |
|
|
(306 |
) |
|
|
- |
|
Cash effect of deconsolidation of VIEs’ subsidiaries |
|
|
(8 |
) |
|
|
- |
|
Investments and advances to ownership investee entities |
|
|
(1,919 |
) |
|
|
(27 |
) |
Short-term loan to an unrelated party |
|
|
(1,507 |
) |
|
|
(944 |
) |
Repayment of short-term loan from an unrelated party |
|
|
1,303 |
|
|
|
- |
|
Payment for purchase of software technologies |
|
|
(1,160 |
) |
|
|
- |
|
Deposit and prepayment paid for contracts of other investing activities |
|
|
(2,500 |
) |
|
|
- |
|
Payment for blockchain platform applications development costs |
|
|
- |
|
|
|
(302 |
) |
Net cash used in investing activities |
|
|
(6,097 |
) |
|
|
(1,273 |
) |
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
|
|
Nine Months Ended September 30, |
|
|
|
2021 |
|
|
2020 |
|
|
|
(US $) |
|
|
(US $) |
|
|
|
(Unaudited) |
|
|
(Unaudited) |
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrant (net of cash offering cost of US$1,600) |
|
|
17,111 |
|
|
|
- |
|
Repayment of short-term bank loan |
|
|
- |
|
|
|
(429 |
) |
Net cash provided by/(used in) financing activities |
|
|
17,111 |
|
|
|
(429 |
) |
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuation on cash and cash equivalents |
|
|
20 |
|
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents |
|
|
4,434 |
|
|
|
(1,103 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period |
|
|
4,297 |
|
|
|
1,603 |
|
Cash and cash equivalents at end of the period |
|
$ |
8,731 |
|
|
$ |
500 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid |
|
$ |
- |
|
|
$ |
- |
|
Interest expense paid |
|
$ |
- |
|
|
$ |
2 |
|
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2021
(In thousands, except for number of shares)
| | Common stock | | | Additional paid-in capital | | | Statutory reserves | | | Accumulated deficit | | | Accumulated other comprehensive income | | | Noncontrolling interests | | | Total equity | |
| | Number of shares | | | Amount | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2021 | | | 26,062,915 | | | $ | 26 | | | $ | 49,772 | | | $ | 2,598 | | | $ | (40,980 | ) | | $ | 1,129 | | | $ | (66 | ) | | $ | 12,479 | |
Issuance of common stock for private placement, net of $10.48 million proceeds allocated to investor warrants labilities and $3.05 million direct offering costs (including $1.45 million proceeds allocated to placement agent warrants liabilities), respectively | | | 5,212,000 | | | | 5 | | | | 5,185 | | | | - | | | | - | | | | - | | | | - | | | | 5,190 | |
Share-based compensation in exchange for services from employees and directors | | | 4,015,735 | | | | 4 | | | | 6,699 | | | | - | | | | - | | | | - | | | | - | | | | 6,703 | |
Net (loss)/income for the period | | | - | | | | - | | | | - | | | | - | | | | (2,961 | ) | | | - | | | | 2 | | | | (2,959 | ) |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | (22 | ) | | | (1 | ) | | | (23 | ) |
Balance, June 30, 2021 (unaudited) | | | 35,290,650 | | | $ | 35 | | | $ | 61,656 | | | $ | 2,598 | | | $ | (43,941 | ) | | $ | 1,107 | | | $ | (65 | ) | | $ | 21,390 | |
Share-based compensation in exchange for services from employees and directors | | | - | | | | - | | | | 23 | | | | - | | | | - | | | | - | | | | - | | | | 23 | |
Cashless exercise of warrants | | | 42,027 | | | | - | | | | 82 | | | | - | | | | - | | | | - | | | | - | | | | 82 | |
Net income/(loss) for the period | | | - | | | | - | | | | - | | | | - | | | | 1,375 | | | | - | | | | (1 | ) | | | 1,374 | |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | (3 | ) | | | 1 | | | | (2 | ) |
Balance, September 30, 2021 (Unaudited) | | | 35,332,677 | | | $ | 35 | | | $ | 61,761 | | | $ | 2,598 | | | $ | (42,566 | ) | | $ | 1,104 | | | $ | (65 | ) | | $ | 22,867 | |
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE NINE AND THREE MONTHS ENDED SEPTEMBER 30, 2020
(In thousands, except for number of shares)
| | Common stock | | | Additional paid-in capital | | | Statutory reserves | | | Accumulated deficit | | | Accumulated other comprehensive income | | | Noncontrolling interests | | | Total equity | |
| | Number of shares | | | Amount | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | | | (US $) | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2020 | | | 19,629,403 | | | $ | 20 | | | $ | 43,111 | | | $ | 2,607 | | | $ | (35,773 | ) | | $ | 1,505 | | | $ | (57 | ) | | $ | 11,413 | |
Share-based compensation in exchange for services from nonemployees | | | 430,000 | | | | - | | | | 477 | | | | - | | | | - | | | | - | | | | - | | | | 477 | |
Share-based compensation in exchange for services from employees and directors | | | 1,632,523 | | | | 2 | | | | 1,905 | | | | - | | | | - | | | | - | | | | - | | | | 1,907 | |
Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | (3,278 | ) | | | - | | | | (2 | ) | | | (3,280 | ) |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | 67 | | | | 1 | | | | 68 | |
Balance, June 30, 2020 (unaudited) | | | 21,691,926 | | | | 22 | | | | 45,493 | | | | 2,607 | | | | (39,051 | ) | | | 1,572 | | | | (58 | ) | | | 10,585 | |
Share-based compensation in exchange for services from nonemployees | | | 50,000 | | | | - | | | | 76 | | | | - | | | | - | | | | - | | | | - | | | | 76 | |
Net loss for the period | | | - | | | | - | | | | - | | | | - | | | | (1,333 | ) | | | - | | | | - | | | | (1,333 | ) |
Foreign currency translation adjustment | | | - | | | | - | | | | - | | | | - | | | | - | | | | (201 | ) | | | (2 | ) | | | (203 | ) |
Balance, September 30, 2020 (Unaudited) | | | 21,741,926 | | | $ | 22 | | | $ | 45,569 | | | $ | 2,607 | | | $ | (40,384 | ) | | $ | 1,371 | | | $ | (60 | ) | | $ | 9,125 | |
See notes to unaudited condensed consolidated financial statements
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, 2020 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 143 | | | $ | 277 | |
Accounts receivable, net | | | 2,155 | | | | 1,142 | |
Prepayment and deposit to suppliers | | | 4,233 | | | | 2,818 | |
Due from related parties | | | 96 | | | | 61 | |
Other current assets | | | 3 | | | | 10 | |
Total current assets | | | 6,630 | | | | 4,308 | |
| | | | | | | | |
Long-term investments | | | 449 | | | | 67 | |
Operating lease right-of-use assets | | | 23 | | | | 48 | |
Property and equipment, net | | | 86 | | | | 32 | |
Intangible assets, net | | | - | | | | 9 | |
Long-term deposits and prepayments | | | 88 | | | | - | |
Deferred tax assets, net | | | 436 | | | | 536 | |
Total Assets | | $ | 7,712 | | | $ | 5,000 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 750 | | | $ | 270 | |
Advance from customers | | | 1,108 | | | | 1,436 | |
Accrued payroll and other accruals | | | 75 | | | | 168 | |
Taxes payable | | | 2,737 | | | | 2,755 | |
Operating lease liabilities | | | 9 | | | | 18 | |
Lease payment liability related to short-term leases | | | 109 | | | | 108 | |
Other current liabilities | | | 73 | | | | 213 | |
Total current liabilities | | | 4,861 | | | | 4,968 | |
| | | | | | | | |
Operating lease liabilities-Non current | | | 10 | | | | 32 | |
Total Liabilities | | $ | 4,871 | | | $ | 5,000 | |
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 | | $ | 30,932 | | | $ | 23,683 | | | $ | 10,314 | | | $ | 11,135 | |
Cost of revenues | | | (34,614 | ) | | | (24,051 | ) | | | (11,482 | ) | | | (11,729 | ) |
Total operating expenses | | | (1,184 | ) | | | (1,515 | ) | | | (472 | ) | | | (123 | ) |
Net loss before allocation to noncontrolling interests | | | (5,062 | ) | | | (1,802 | ) | | | (1,655 | ) | | | (642 | ) |
| 3. | Summary of significant accounting policies |
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.
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 | | | 6.4854 | | | | 6.5249 | |
| | Nine Months Ended September 30, | |
| | 2021 | | | 2020 | |
| | | | | | | | |
Items in the statements of operations and comprehensive loss | | | 6.4714 | | | | 6.9917 | |
| | Three Months Ended September 30, | |
| | 2021 | | | 2020 | |
| | | | | | | | |
Items in the statements of operations and comprehensive loss | | | 6.4707 | | | | 6.9205 | |
No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.
| e) | 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 in Active Markets for Identical Assets/Liabilities (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (Note 16) | | | 3,686 | | | | - | | | | - | | | | 3,686 | |
| | | | | | Fair value measurement at reporting date using | |
| | As of December 31, 2020 | | | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (Note 16) | | | 1,505 | | | | - | | | | - | | | | 1,505 | |
The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
| | Nine Months Ended September 30, | | | Three Months Ended September 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | | | |
Internet advertising and related services | | | | | | | | | | | | | | | | |
--distribution of the right to use search engine marketing service | | | 28,613 | | | | 18,004 | | | | 9,648 | | | | 8,706 | |
--online advertising placements | | | 5,720 | | | | 5,679 | | | | 2,125 | | | | 2,429 | |
--data and technical services | | | - | | | | 900 | | | | - | | | | 300 | |
Ecommerce O2O advertising and marketing services | | | 514 | | | | 1,276 | | | | 127 | | | | 269 | |
Technical solution services | | | - | | | | 1,245 | | | | - | | | | 600 | |
Total revenues | | $ | 34,847 | | | $ | 27,104 | | | $ | 11,900 | | | $ | 12,304 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | Nine Months Ended September 30, | | | Three Months Ended September 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | | | |
Revenue recognized over time | | | 34,847 | | | | 25,859 | | | | 11,900 | | | | 11,704 | |
Revenue recognized at a point in time | | | - | | | | 1,245 | | | | - | | | | 600 | |
Total revenues | | $ | 34,847 | | | $ | 27,104 | | | $ | 11,900 | | | $ | 12,304 | |
Contract costs
For the nine and three months ended September 30, 2021 and 2020, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, which shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.
Contract liabilities
The table below summarized the movement of the Company’s contract liabilities for the nine months ended September 30, 2021:
| | Contract liabilities | |
| | US$(’000) | |
| | | | |
Balance as of January 1, 2021 | | | 1,436 | |
Exchange translation adjustment | | | 9 | |
Revenue recognized from beginning contract liability balances | | | (1,305 | ) |
Advances received from customers related to unsatisfied performance obligations | | | 1,171 | |
Balance as of September 30, 2021 (Unaudited) | | $ | 1,311 | |
Advance from customers related to unsatisfied performance obligations are 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 no revenue recognized from performance obligations that were satisfied in prior periods.
| 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 US$0.25 million and US$0.44 million, respectively. Expenses for research and development for the three months ended September 30, 2021 and 2020 were approximately US$0.09 million and US$0.11 million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of September 30, 2021, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$2.04 million and US$2.12 million, respectively.
Maturity of operating lease liabilities
| | | Operating leases | |
| | | US$(’000) | |
| | | (Unaudited) | |
| | | | | |
Three months ending December 31, 2021 | | | | 73 | |
Year ending December 31, | | | | | |
-2022 | | | | 315 | |
-2023 | | | | 330 | |
-2024 | | | | 336 | |
-2025 | | | | 353 | |
-2026 | | | | 370 | |
-thereafter | | | | 866 | |
Total undiscounted lease payments | | | | 2,643 | |
Less: imputed interest | | | | (527 | ) |
Total operating lease liabilities as of September 30, 2021 | | | $ | 2,116 | |
| | | | | |
Including: | | | | | |
Operating lease liabilities | | | | 193 | |
Operating lease liabilities-Non current | | | | 1,923 | |
| | | $ | 2,116 | |
Operating lease expenses:
| | Nine Months Ended September 30, | | | Three Months Ended September 30, | |
| | 2021 | | | 2020 | | | 2021 | | | 2020 | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | | | (Unaudited) | | | (Unaudited) | |
| | | | | | | | | | | | | | | | |
Long-term operating lease contracts | | | 212 | | | | 7 | | | | 88 | | | | 2 | |
Short-term operating lease contracts | | | 45 | | | | 114 | | | | 15 | | | | 35 | |
Total | | $ | 257 | | | $ | 121 | | | $ | 103 | | | $ | 37 | |
Supplemental information related to operating leases:
| | Nine Months Ended September 30, 2021 | |
| | (Unaudited) | |
| | | | |
Operating cash flows used for operating leases (US$’000) | | | 136 | |
Right-of-use assets obtained in exchange for new lease liabilities (US$’000) | | | 2,179 | |
Weighted-average remaining lease term (years) | | | 7.38 | |
|