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0001376321 ZW Data Action Technologies Inc. false --12-31 Q1 2022 2,245 2,236 0.001 0.001 100,000,000 100,000,000 35,427,677 35,427,677 35,332,677 35,332,677 1,600 10,476 3,045 1,445 1,600 0 0.07 2.06 2.2 6 0 3.12 1.02 0.05 15.38 10 17 19 0.03 0.001 10 10 5 5 3 3 3 10 10 5 5 3 3 3 0.53 0.11 1.59 2.12 2.12 0.63 0.18 0.12 31.5 31.0 19.3 18.3 12.6 12.3 0.32 0.31 1.4927 1.4927 3.02 3.02 3.02 15.2 13.2 0.07 0.05 5.0 0.79 2.0 0.32 3.0 0.47 0.06 0.10 0.02 0.04 0.05 The investor warrants issued in the 2018 Financing expired in July 2020. The placement agent warrants issued in the 2018 Financing were cashless exercised in July 2021. Closing date of the 2021 Financing. Including approximately US$0.06 million share-based compensation expenses. Less than 10%. Including approximately US$0.10 million share-based compensation expenses. All of the VIEs' assets can be used to settle obligations of their primary beneficiary. 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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 March 31, 2022

 

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, China 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 filerSmaller 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 May 16, 2022, the registrant had 35,427,677 shares of common stock outstanding.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

PAGE

     

Item 1. Interim Financial Statements

 
     
 

Condensed Consolidated Balance Sheets as of March 31, 2022 (Unaudited) and December 31, 2021

1-2
     
 

Condensed Consolidated Statements of Operations and Comprehensive (Loss)/Income for the Three Months Ended March 31, 2022 and 2021 (Unaudited)

3-4
     
 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021 (Unaudited)

5-6
     
 

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2022 and 2021 (Unaudited)

7-8
     
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

9-25
     

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

26-33
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

33
     

Item 4. Controls and Procedures

33
     

PART II. OTHER INFORMATION

 
     

Item 1. Legal Proceedings

34
     

Item 1A. Risk Factors

34
   

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

34
     

Item 3. Defaults Upon Senior Securities

34
   

Item 4. Mine Safety Disclosures

34
     

Item 5. Other Information

34
     

Item 6. Exhibits

35
     

Signatures

36

 

 

 

 

 

 

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)

 

  

March 31,

2022

  

December 31,

2021

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents *

 $4,824  $7,173 

Accounts receivable, net of allowance for doubtful accounts of $2,245 and $2,236, respectively *

  3,611   3,439 

Prepayment and deposit to suppliers *

  6,613   7,559 

Due from related parties *

  78   90 

Other current assets *

  3,173   1,657 

Total current assets

  18,299   19,918 
         

Long-term investments *

  2,285   2,280 

Operating lease right-of-use assets *

  1,968   2,019 

Property and equipment, net *

  351   375 

Intangible assets, net

  6,989   7,523 

Long-term deposits and prepayments

  76   75 

Deferred tax assets, net *

  445   441 

Total Assets

 $30,413  $32,631 
         

Liabilities and Equity

        

Current liabilities:

        

Accounts payable *

 $751  $1,119 

Advances from customers *

  1,047   1,245 

Accrued payroll and other accruals *

  323   389 

Taxes payable *

  3,555   3,534 

Operating lease liabilities *

  210   202 

Lease payment liabilities related to short-term leases *

  111   152 

Other current liabilities *

  138   141 

Warrant liabilities

  1,244   2,039 

Total current liabilities

  7,379   8,821 

 

 

 

1

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

 

  

March 31,

2022

  

December 31,

2021

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Long-term liabilities:

        

Operating lease liabilities-Non current

  1,853   1,907 

Long-term borrowing from a related party

  138   137 

Total Liabilities

  9,370   10,865 
         

Commitments and contingencies

          
         

Equity:

        

ZW Data Action Technologies Inc.’s stockholders’ equity

        

Common stock (US$0.001 par value; authorized 100,000,000 shares; issued and outstanding 35,427,677 shares and 35,332,677 shares at March 31, 2022 and December 31, 2021, respectively)

  35   35 

Additional paid-in capital

  61,801   61,785 

Statutory reserves

  2,598   2,598 

Accumulated deficit

  (44,451)  (43,734)

Accumulated other comprehensive income

  1,060   1,082 

Total ZW Data Action Technologies Inc.’s stockholders’ equity

  21,043   21,766 
         

Total equity

  21,043   21,766 
         

Total Liabilities and Equity

 $30,413  $32,631 

 

 

*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 condensed consolidated financial statements

 

 

2

 

 

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)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenues

        

From unrelated parties

 $7,652  $8,396 

From related parities

  -   - 

Total revenues

  7,652   8,396 

Cost of revenues

  7,518   9,113 

Gross profit/(loss)

  134   (717)
         

Operating expenses

        

Sales and marketing expenses

  69   28 

General and administrative expenses

  1,548   996 

Research and development expenses

  68   74 

Total operating expenses

  1,685   1,098 
         

Loss from operations

  (1,551)  (1,815)
         

Other income/(expenses)

        

Interest income

  46   1 

Other expenses, net

  (9)  (24)

Change in fair value of warrant liabilities

  795   2,507 

Total other income

  832   2,484 
         

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

  (719)  669 

Income tax benefit

  2   18 

Net (loss)/income

  (717)  687 

Net income attributable to noncontrolling interests

  -   (2)

Net (loss)/income attributable to ZW Data Action Technologies Inc.

 $(717) $685 

 

 

 

 

 

3

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)/INCOMECONTINUED

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

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

 
         
         

Net (loss)/income

 $(717) $687 

Foreign currency translation loss

  (22)  (19)

Comprehensive (loss)/income

  (739)  668 

Comprehensive income attributable to noncontrolling interests

  -   (2)

Comprehensive (loss)/income attributable to ZW Data Action Technologies Inc.

 $(739) $666 
         

(Loss)/earnings per share

        

(Loss)/earnings per common share

        
         

Basic and diluted

 $(0.02) $0.02 
         

Weighted average number of common shares outstanding:

        
         

Basic and diluted

  35,354,954   28,505,181 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

4

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

 

Cash flows from operating activities

        

Net (loss)/income

 $(717) $687 

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

        

Depreciation and amortization

  554   112 

Amortization of operating lease right-of-use assets

  60   36 

Share-based compensation expenses

  56   100 

Deferred taxes

  (2)  (18)

Change in fair value of warrant liabilities

  (795)  (2,507)

Other non-operating income

  (45)  - 

Changes in operating assets and liabilities

        

Accounts receivable

  (159)  700 

Prepayment and deposit to suppliers

  914   (2,630)

Other current assets

  13   7 

Long-term deposits and prepayments

  -   (794)

Accounts payable

  (373)  628 

Advances from customers

  (203)  169 

Accrued payroll and other accruals

  (66)  (188)

Other current liabilities

  (36)  25 

Taxes payable

  7   (18)

Lease payment liability related to short-term leases

  (42)  (1)

Operating lease liabilities

  (56)  (14)

Net cash used in operating activities

  (890)  (3,706)
         

Cash flows from investing activities

        

Cash effect of deconsolidation of VIEs’ subsidiaries

  -   (8)

Investments and advances to ownership investee entities

  -   (385)

Repayment from ownership investee entities

  13   - 

Short-term loan to unrelated parties

  (2,500)  (312)

Repayment of short-term loan from unrelated parties

  1,029   - 

Payment for purchase of software technologies

  -   (1,160)

Net cash used in investing activities

  (1,458)  (1,865)

 

 

 

 

5

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

(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 

Net cash provided by financing activities

  -   17,111 
         

Effect of exchange rate fluctuation on cash and cash equivalents

  (1)  (52)
         

Net (decrease)/increase in cash and cash equivalents

  (2,349)  11,488 
         

Cash and cash equivalents at beginning of the period

  7,173   4,297 

Cash and cash equivalents at end of the period

 $4,824  $15,785 
         

Supplemental disclosure of cash flow information

        
         

Income taxes paid

 $-  $- 

Interest expense paid

 $-  $- 

 

 

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

6

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2022

(In thousands, except for number of shares)

 

 

 

  

Common stock

  

Additional paid-in capital

  

Statutory reserves

  

Accumulated deficit

  

Accumulated other comprehensive income (loss)

  

Total equity

 
  

Number of shares

  

Amount

                     
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                             

Balance, January 1, 2022

  35,332,677  $35  $61,785  $2,598  $(43,734) $1,082  $21,766 

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

  95,000   -   16   -   -   -   16 

Net loss for the period

  -   -   -   -   (717)  -   (717)

Foreign currency translation adjustment

  -   -   -   -   -   (22)  (22)

Balance, March 31, 2022 (unaudited)

  35,427,677  $35  $61,801  $2,598  $(44,451) $1,060  $21,043 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

 

 

7

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2021

(In thousands, except for number of shares)

 

  

Common stock

  

Additional paid-in capital

  

Statutory reserves

  

Accumulated deficit

  

Accumulated other comprehensive income (loss)

  

Noncontrolling interests

  

Total equity

 
  

Number of shares

  

Amount

                         
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                                 

Balance, January 1, 2021

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

Issuance of common stock for private placement, net of $10,476 proceeds allocated to investor warrants labilities and $3,045 direct offering costs (including $1,445 proceeds allocated to placement agent warrants liabilities and $1,600 cash offering cost, respectively), respectively

  5,212,000   5   5,185   -   -   -   -   5,190 

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

  30,000   -   23   -   -   -   -   23 

Net income for the period

  -   -   -   -   685   -   2   687 

Foreign currency translation adjustment

  -   -   -   -   -   (19)  -   (19)

Balance, March 31, 2021 (unaudited)

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

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

 

 

8

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

1.

Organization and nature of operations

 

ZW Data Action Technologies 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, e-commerce 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

 

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

 

Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively:

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $873  $181 

Accounts receivable, net

  3,285   2,796 

Prepayment and deposit to suppliers

  4,329   5,287 

Due from related parties

  78   90 

Other current assets

  3   4 

Total current assets

  8,568   8,358 
         

Long-term investments

  498   496 

Operating lease right-of-use assets

  19   21 

Property and equipment, net

  157   168 

Deferred tax assets, net

  445   441 

Total Assets

 $9,687  $9,484 
         

Liabilities

        

Current liabilities:

        

Accounts payable

 $751  $1,119 

Advances from customers

  936   1,113 

Accrued payroll and other accruals

  79   83 

Taxes payable

  2,868   2,849 

Operating lease liabilities

  9   9 

Lease payment liabilities related to short-term leases

  111   110 

Other current liabilities

  51   53 

Total current liabilities

  4,805   5,336 
         

Operating lease liabilities-Non current

  -   10 

Total Liabilities

 $4,805  $5,346 

 

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.

 

9

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive (loss)/income for the three months ended March 31, 2022 and 2021, respectively:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenues

 $7,198  $7,947 

Cost of revenues

  (7,518)  (8,738)

Total operating expenses

  (259)  (390)

Net loss before allocation to noncontrolling interests

  (585)  (1,281)

 

 

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 March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the SEC (the “2021 Form 10-K”) on April 15, 2022.

 

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 March 31, 2022, its condensed consolidated results of operations for the three months ended March 31, 2022 and 2021, and its condensed consolidated cash flows for the three months ended March 31, 2022 and 2021, 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:

 

10

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  

March 31, 2022

  

December 31, 2021

 
         

Balance sheet items, except for equity accounts

  6.3482   6.3757 

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 

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

  6.3504   6.4844 

 

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 March 31, 2022 and December 31, 2021 are as follows:

 

      

Fair value measurement at reporting date using

 
  

As of

March 31, 2022

  

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 15)

  1,244   -   -   1,244 

 

      

Fair value measurement at reporting date using

 
  

As of

December 31, 2021

  

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

  

Significant
Other
Observable Inputs
(Level 2)

  

Significant
Unobservable
Inputs
(Level 3)

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 
                 

Warrant liabilities (Note 15)

  2,039   -   -   2,039 

 

 

f)

Revenue recognition

 

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

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 

Internet advertising and related services

        

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

  6,594   6,865 

--online advertising placements

  1,058   1,402 

Ecommerce O2O advertising and marketing services

  -   129 

Total revenues

  7,652   8,396 

 

 

11

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenue recognized over time

  7,652   8,396 

Revenue recognized at a point in time

  -   - 

Total revenues

  7,652   8,396 

 

Contract costs

 

For the three months ended March 31, 2022 and 2021, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.

 

Contract balances

 

The table below summarized the movement of the Company’s contract liabilities (advance from customers) for the three months ended March 31, 2022:

 

  

Contract liabilities

 
  

US$(000)

 
     

Balance as of January 1, 2022

  1,245 

Exchange translation adjustment

  5 

Revenue recognized from beginning contract liability balance

  (971)

Advances received from customers related to unsatisfied performance obligations

  768 

Balance as of March 31, 2022 (Unaudited)

  1,047 

 

Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for both the three months ended March 31, 2022 and 2021.

 

For the three months ended March 31, 2022 and 2021, 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 three months ended March 31, 2022 and 2021 were approximately US$0.07 million for both periods.

 

 

h)

Lease

 

As of March 31, 2022, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$1.97 million and US$2.06 million, respectively.

 

12


 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Maturity of operating lease liabilities

 

  

Operating leases

 
  

US$(000)

 
  

(Unaudited)

 
     

Nine months ending December 31, 2022

  235 

Year ending December 31,

    

-2023

  337 

-2024

  343 

-2025

  360 

-2026

  378 

-2027

  397 

-thereafter

  489 

Total undiscounted lease payments

  2,539 

Less: imputed interest

  (476)

Total operating lease liabilities as of March 31, 2022

  2,063 
     

Including:

    

Operating lease liabilities

  210 

Operating lease liabilities-Non current

  1,853 
   2,063 

 

Operating lease expenses:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Long-term operating lease contracts

  90   37 

Short-term operating lease contracts

  15   15 

Total

  105   52 

 

Supplemental information related to operating leases:

 

  

Three Month Ended March 31, 2022

 
  

(Unaudited)

 
     

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

  86 

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

  - 

Weighted-average remaining lease term (years)

  6.90 

Weighted-average discount rate

  6%

 

 

4.

Accounts receivable, net

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Accounts receivable

  5,856   5,675 

Allowance for doubtful accounts

  (2,245)  (2,236)

Accounts receivable, net

  3,611   3,439 

 

 

13

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of March 31, 2022 and December 31, 2021, the Company provided approximately US$2.2 million allowance for doubtful accounts, which were primarily related to the accounts receivable of the Company’s Internet advertising and related services segment with an aging over six months. The Company evaluates its accounts receivable with an aging over six months and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. No allowance for doubtful accounts was provided for either the three months ended March 31, 2022 or 2021.

 

 

5.

Prepayments and deposit to suppliers

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Deposits to advertising resources providers

  633   934 

Prepayments to advertising resources providers

  4,579   5,185 

Deposit and prepayment for other investing contracts

  1,000   1,000 

Other deposits and prepayments

  401   440 
   6,613   7,559 

 

 

6.

Due from related parties, net

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

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

  63   62 

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

  15   28 

Due from related parties, net

  78   90 

 

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 March 31, 2022 and December 31, 2021, due from Zhongwang Xiyue represented the outstanding receivables for the advertising and marketing service that the Company provided to this related party in its normal course of business, which is on the same terms as those provided to its unrelated clients.

 

As of March 31, 2022, due from Gong Xiang Technology was a short-term working capital loan provided to this investee entity, which loan is expected to be repaid to the Company for the year ending December 31, 2022.

 

 

7.

Other current assets, net

 

As of March 31, 2022, other current assets primarily include an aggregate principal amount of US$3.12 million unsecured working capital loans that the Company provided to unrelated parties, of which US$1.02 million has been collected in April 2022, and an approximately US$0.05 million interest receivable accrued for one of the working capital loans, which has been received in April 2022. The remaining balances of these loans are expected to be fully repaid to the Company before December 31, 2022.

 

 

8.

Long-term investments

 

  

Amount

 
  

US$(000)

 
     

Balance as of January 1, 2022

  2,280 

Exchange translation adjustment

  5 

Cash investments during the year

  - 

Disposed during the year

  - 

Balance as of March 31, 2022 (Unaudited)

  2,285 

 

14

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

As of March 31, 2022, except for long-term investments which were fully impaired, the Company beneficially owned a 15.38%, 10%, 9.09%,15%, 17% and 19% equity interest in each New Business Holdings Limited (“New Business”), Guang Dong WeFriend Co., Ltd. (“Guangdong WeFriend”), Shenzhen Global Best Products Import & Export Co., Ltd. (“Global Best Products”), Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”), Xiao Peng Education Technology (Hubei) Co., Ltd. (“Xiao Peng Education”) and Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), respectively.

 

The Company measures each investment which does 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.

 

 

9.

Property and equipment, net

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Vehicles

  937   933 

Office equipment

  948   944 

Electronic devices

  632   629 

Leasehold improvement

  203   202 

Property and equipment, cost

  2,720   2,708 

Less: accumulated depreciation

  (2,369)  (2,333)

Property and equipment, net

  351   375 

 

Depreciation expenses for the three months ended March 31, 2022 and 2021 were approximately US$0.03 million and US$0.001 million, respectively.

 

 

10.

Intangible assets, net

 

  

As of March 31, 2022 (Unaudited)

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 

Intangible assets subject to amortization:

                

--10 years life:

                

Cloud compute software technology

  1,462   (1,014)  (448)  - 

Licensed products use right

  1,201   (285)  -   916 
                 

--5 years life:

                

Internet Ad tracking system

  1,155   (229)  -   926 

Live streaming technology

  1,500   (400)  -   1,100 
                 

--3 years life:

                

Blockchain integrated framework

  4,038   (337)  -   3,701 

Bo!News application

  378   (32)  -   346 

Other computer software

  123   (123)  -   - 

Total

 $9,857  $(2,420) $(448) $6,989 

 

 

15

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  

As of December 31, 2021

 

Items

 

Gross

Carrying

Value

  

Accumulated

Amortization

  

Impairment

  

Net

Carrying

Value

 
  

US$(000)

  

US$(000)

  

US$(000)

  

US$(000)

 

Intangible assets subject to amortization:

                

--10 years life:

                

Cloud compute software technology

  1,456   (1,010)  (446)  - 

Licensed products use right

  1,205   (255)  -   950 
                 

--5 years life:

                

Internet Ad tracking system

  1,158   (174)  -   984 

Live streaming technology

  1,500   (325)  -   1,175 
                 

--3 years life:

                

Blockchain integrated framework

  4,038      -   4,038 

Bo!News application

  376   -   -   376 

Other computer software

  123   (123)  -   - 

Total

  9,856   (1,887)  (446)  7,523 

 

Amortization expenses for the three months ended March 31, 2022 and 2021 were approximately US$0.53 million and US$0.11 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 3.69 years as of March 31, 2022, and assuming no further subsequent impairment of the underlying intangible assets, the estimated future amortization expenses is approximately US$1.59 million for the year ending December 31, 2022, approximately US$2.12 million each year for the year ending December 31, 2023 and 2024, approximately US$0.63 million for the year ending December 31, 2025, approximately US$0.18 million for the year ending December 31, 2026, and approximately US$0.12 million for the year ending December 31, 2027.

 

 

11.

Long-term deposits and prepayments

 

As of  March 31, 2022 and December 31, 2021, long-term deposits and prepayments represented the Company’s operating deposits and prepayments that were not expected to be refunded or consumed within one year of the respective reporting date.

 

 

12.

Accrued payroll and other accruals

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Accrued payroll and staff welfare

  138   142 

Accrued operating expenses

  185   247 
   323   389 

 

 

 

16

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

13.

Taxation

 

As of March 31, 2022 and December 31, 2021, taxes payable consists of:

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Turnover tax and surcharge payable

  1,427   1,414 

Enterprise income tax payable

  2,128   2,120 

Total taxes payable

  3,555   3,534 

 

For the three months ended March 31, 2022 and 2021, the Company’s income tax benefit consisted of:

 

  

Three Months Ended March 31,

 
  

2022

  

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Current

  -   - 

Deferred

  2   18 

Income tax benefit

  2   18 

 

The Company’s deferred tax assets as of March 31, 2022 and December 31, 2021 were as follows:

 

  

March 31,

2022

  

December 31,

2021

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Tax effect of net operating losses carried forward

  12,471   12,130 

Operating lease cost

  26   23 

Bad debts provision

  561   559 

Valuation allowance

  (12,613)  (12,271)

Deferred tax assets, net

  445   441 

 

The U.S. holding company has incurred aggregate net operating losses (NOLs) of approximately US$31.5 million and US$31.0 million at March 31, 2022 and December 31, 2021, 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. Furthermore, the Act imposes an annual limit of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets.

 

The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately US$19.3 million and US$18.3 million as of March 31, 2022 and December 31, 2021, respectively. The losses carryforwards gradually expire over time, the last of which will expire in 2027. 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.

 

17

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The Company recorded approximately US$12.6 million and US$12.3 million valuation allowance as of March 31, 2022 and December 31, 2021, respectively, because it is considered more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses related.

 

For the three months ended March 31, 2022 and 2021, the Company recorded approximately US$0.32 million and US$0.31 million deferred tax valuation allowance, respectively.

 

 

14.

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.

 

 

15.

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 (the “2021 Financing”), December 2020 (the “2020 Financing”), and January 2018 (the “2018 Financing”), 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.

 

Warrants issued in the 2021 Financing:

 

  

2021 Investor Warrants

  

2021 Placement Agent Warrants

 
  

March 31, 2022

  

December 31, 2021

  

March 31, 2022

  

December 31, 2021

 
                 

Stock price

 $0.73  $1.00  $0.73  $1.00 

Years to maturity

  2.38   2.63   2.38   2.63 

Risk-free interest rate

  2.35%  0.87%  2.35%  0.87%

Dividend yield

  -   -   -   - 

Expected volatility

  121%  115%  121%  115%

Exercise Price

 $3.59  $3.59  $4.4875  $4.4875 
                 

Fair value of the warrant

 $0.24  $0.37  $0.23  $0.36 
                 

Warrant liabilities (US$’000)

 $626  $964  $84  $132 

 

  

2021 Investor Warrants

  

2021 Placement Agent Warrants

 
  

March 31, 2021

  

February 18, 2021*

  

March 31, 2021

  

February 18, 2021*

 
                 

Stock price

 $2.64  $4.48  $2.64  $4.48 

Years to maturity

  3.38   3.50   3.38   3.50 

Risk-free interest rate

  0.41%  0.26%  0.41%  0.26%

Dividend yield

  -   -   -   - 

Expected volatility

  168%  168%  168%  168%

Exercise Price

 $3.59  $3.59  $4.4875  $4.4875 
                 

Fair value of the warrant

 $2.28  $4.02  $2.24  $3.96 
                 

Warrant liabilities (US$’000)

 $5,942  $10,476  $817  $1,445 

 

* Closing date of the 2021 Financing.

 

18


 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

Warrants issued in the 2020 Financing:

 

  

2020 Investor Warrants

  

2020 Placement Agent Warrants

 
  

March 31, 2022

  

December 31, 2021

  

March 31, 2022

  

December 31, 2021

 
                 

Stock price

 $0.73  $1.00  $0.73  $1.00 

Years to maturity

  1.70   1.95   1.70   1.95 

Risk-free interest rate

  2.23%  0.72%  2.23%  0.72%

Dividend yield

  -   -   -   - 

Expected volatility

  127%  128%  127%  128%

Exercise Price

 $2.03  $2.03  $2.03  $2.03 
                 

Fair value of the warrant

 $0.26  $0.46  $0.28  $0.49 
                 

Warrant liabilities (US$’000)

 $449  $795  $85  $148 

 

  

2020 Investor Warrants

  

2020 Placement Agent Warrants

 
  

March 31, 2021

  

December 31, 2020

  

March 31, 2021

  

December 31, 2020

 
                 

Stock price

 $2.64  $1.35  $2.64  $1.35 

Years to maturity

  2.70   2.95   2.70   2.95 

Risk-free interest rate

  0.29%  0.17%  0.29%  0.17%

Dividend yield

  -   -   -   - 

Expected volatility

  120%  102%  120%  102%

Exercise Price

 $2.03  $2.03  $2.03  $2.03 
                 

Fair value of the warrant

 $