SEC Filing | ZW Data Action Technologies Inc.

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cnet20210930_10q.htm

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

☐ 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		PAGE

Item 1. Interim Financial Statements

	Condensed Consolidated Balance Sheets as of September 30, 2021 (Unaudited) and December 31, 2020	1-2

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

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

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

	Notes to Condensed Consolidated Financial Statements (Unaudited)	9-30

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		31-40

Item 3. Quantitative and Qualitative Disclosures About Market Risk		40

Item 4. Controls and Procedures		40

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		41

Item 1A. Risk Factors		41

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		41

Item 3. Defaults Upon Senior Securities		41

Item 4. Mine Safety Disclosures		41

Item 5. Other Information		41

Item 6. Exhibits		42

Signatures		43

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)

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.

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	)

Summary of significant accounting policies

Basis of presentation

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

The unaudited condensed consolidated interim financial information as of September 30, 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		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.

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)

(Unaudited)

Warrant liabilities (Note 16)

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)

Warrant liabilities (Note 16)

1,505

Revenue recognition

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

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

Internet advertising and related services
--distribution of the right to use search engine marketing service		28,613		18,004		9,648		8,706
--online advertising placements		5,720		5,679		2,125		2,429
--data and technical services		-		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)

(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.

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)

Lease

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

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)

(Unaudited)

Long-term operating lease contracts

212

Short-term operating lease contracts

114

Total

257

121

103

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