SEC Filing | ZW Data Action Technologies Inc.

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cnet20220630_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 June 30, 2022

☐ 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 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 August 19, 2022, the registrant had 35,827,677 shares of common stock outstanding.

TABLE OF CONTENTS

PART I. FINANCIAL INFORMATION	PAGE

Item 1. Interim Financial Statements

Condensed Consolidated Balance Sheets as of June 30, 2022 (Unaudited) and December 31, 2021	1-2

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Six and Three Months Ended June 30, 2022 and 2021 (Unaudited)	3-4

Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2022 and 2021 (Unaudited)	5-6

Condensed Consolidated Statements of Changes in Equity for the Six and Three Months Ended June 30, 2022 and 2021 (Unaudited)	7-8

Notes to Condensed Consolidated Financial Statements (Unaudited)	9-27

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	28-37

Item 3. Quantitative and Qualitative Disclosures About Market Risk	37

Item 4. Controls and Procedures	38

PART II. OTHER INFORMATION

Item 1. Legal Proceedings	38

Item 1A. Risk Factors	38

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	38

Item 3. Defaults Upon Senior Securities	38

Item 4. Mine Safety Disclosures	38

Item 5. Other Information	38

Item 6. Exhibits	39

Signatures	40

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)

	June 30, 2022		December 31, 2021
	(US $)		(US $)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents *	$	4,454	$	7,173
Accounts receivable, net of allowance for doubtful accounts of $2,454 and $2,236, respectively *		3,238		3,439
Prepayment and deposit to suppliers *		6,303		7,559
Due from related parties *		15		90
Other current assets, net *		1,602		1,657
Total current assets		15,612		19,918

Long-term investments *		2,216		2,280
Operating lease right-of-use assets *		2,038		2,019
Property and equipment, net *		307		375
Intangible assets, net		6,440		7,523
Long-term deposits and prepayments *		121		75
Deferred tax assets, net *		423		441
Total Assets	$	27,157	$	32,631

Liabilities and Equity
Current liabilities:
Accounts payable *	$	567	$	1,119
Advance from customers *		794		1,245
Accrued payroll and other accruals *		163		389
Taxes payable *		3,376		3,534
Operating lease liabilities *		391		202
Lease payment liability related to short-term leases *		105		152
Other current liabilities *		136		141
Warrant liabilities		257		2,039
Total current liabilities		5,789		8,821

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

	June 30, 2022			December 31, 2021
	(US $)			(US $)
	(Unaudited)
Long-term liabilities:
Operating lease liabilities-Non current *		1,748			1,907
Long-term borrowing from a related party		130			137
Total Liabilities		7,667			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 35,827,677 shares and 35,332,677 shares at June 30, 2022 and December 31, 2021, respectively)		36			35
Additional paid-in capital		61,956			61,785
Statutory reserves		2,598			2,598
Accumulated deficit		(46,165	)		(43,734	)
Accumulated other comprehensive income		1,065			1,082
Total ZW Data Action Technologies Inc.’s stockholders’ equity		19,490			21,766

Total equity		19,490			21,766

Total Liabilities and Equity	$	27,157		$	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 unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

	Six Months Ended June 30,						Three Months Ended June 30,
	2022			2021			2022			2021
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
Revenues
From unrelated parties	$	14,597		$	22,947		$	6,945		$	14,551
From a related party		-			-			-			-
Total revenues		14,597			22,947			6,945			14,551
Cost of revenues		14,544			23,882			7,026			14,769
Gross profit/(loss)		53			(935	)		(81	)		(218	)

Operating expenses
Sales and marketing expenses		147			101			78			73
General and administrative expenses		4,046			8,895			2,498			7,899
Research and development expenses		124			163			56			89
Total operating expenses		4,317			9,159			2,632			8,061

Loss from operations		(4,264	)		(10,094	)		(2,713	)		(8,279	)

Other income/(expenses)
Interest income		75			2			29			1
Other (expenses)/income, net		(28	)		302			(19	)		326
Loss on disposal of long-term investments		-			(38	)		-			(38	)
Change in fair value of warrant liabilities		1,782			6,829			987			4,322
Total other income		1,829			7,095			997			4,611

Loss before income tax benefit and noncontrolling interests		(2,435	)		(2,999	)		(1,716	)		(3,668	)
Income tax benefit		4			40			2			22
Net loss		(2,431	)		(2,959	)		(1,714	)		(3,646	)
Net income attributable to noncontrolling interests		-			(2	)		-			-
Net loss attributable to ZW Data Action Technologies Inc.	$	(2,431	)	$	(2,961	)	$	(1,714	)	$	(3,646	)

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(CONTINUED)

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

	Six Months Ended June 30,						Three Months Ended June 30,
	2022			2021			2022			2021
	(US $)			(US $)			(US $)			(US $)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Net loss	$	(2,431	)	$	(2,959	)	$	(1,714	)	$	(3,646	)
Foreign currency translation (loss)/gain		(17	)		(23	)		5			(4	)
Comprehensive loss	$	(2,448	)	$	(2,982	)	$	(1,709	)	$	(3,650	)
Comprehensive (income)/loss attributable to noncontrolling interests		-			(1	)		-			1
Comprehensive loss attributable to ZW Data Action Technologies Inc.	$	(2,448	)	$	(2,983	)	$	(1,709	)	$	(3,649	)

Loss per share
Loss per common share
Basic and diluted	$	(0.07	)	$	(0.10	)	$	(0.05	)	$	(0.11	)

Weighted average number of common shares outstanding:
Basic and diluted		35,442,345			30,727,546			35,528,776			32,925,488

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

	Six Months Ended June 30,
	2022			2021
	(US $)			(US $)
	(Unaudited)			(Unaudited)
Cash flows from operating activities
Net loss	$	(2,431	)	$	(2,959	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation and amortization		1,108			282
Amortization of operating lease right-of-use assets		134			92
Share-based compensation expenses		84			6,857
Provision for allowances for doubtful accounts		947			-
Loss on disposal of long-term investments		-			38
Deferred taxes		(4	)		(40	)
Change in fair value of warrant liabilities		(1,782	)		(6,829	)
Other non-operating income		(72	)		-
Changes in operating assets and liabilities
Accounts receivable		(290	)		(1,284	)
Prepayment and deposit to suppliers		1,100			(980	)
Due from related parties		60			-
Other current assets		29			8
Long-term deposits and prepayments		(51	)		(554	)
Accounts payable		(513	)		403
Advance from customers		(402	)		89
Accrued payroll and other accruals		(220	)		(197	)
Other current liabilities		311			(123	)
Taxes payable		8			(49	)
Lease payment liability related to short-term leases		(41	)		(54	)
Operating lease liabilities		(119	)		(31	)
Net cash used in operating activities		(2,144	)		(5,331	)

Cash flows from investing activities
Payment for leasehold improvements and purchase of vehicles, furniture and office equipment		-			(221	)
Cash effect of deconsolidation of VIEs’ subsidiaries		-			(8	)
Investments and advances to ownership investee entities		-			(463	)
Repayment from ownership investee entities		12			-
Short-term loans to unrelated parties		(2,600	)		(312	)
Repayment of short-term loans and interest income from unrelated parties		2,109			1,303
Payment for purchase of software technologies		-			(1,160	)
Deposit and prepayment paid for contracts of other investing activities		-			(3,500	)
Net cash used in investing activities		(479	)		(4,361	)

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

	Six Months Ended June 30,
	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		(96	)		36

Net (decrease)/increase in cash and cash equivalents		(2,719	)		7,455

Cash and cash equivalents at beginning of the period		7,173			4,297
Cash and cash equivalents at end of the period	$	4,454		$	11,752

Supplemental disclosure of cash flow information

Income taxes paid	$	-		$	-
Interest expense paid	$	-		$	-

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 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
Share-based compensation in exchange for services from nonemployees		400,000		1		139		-		-			-			140
Share-based compensation in exchange for services from employees and directors		-		-		16		-		-			-			16
Net loss for the period		-		-		-		-		(1,714	)		-			(1,714	)
Foreign currency translation adjustment		-		-		-		-		-			5			5
Balance, June 30, 2022 (unaudited)		35,827,677	$	36	$	61,956	$	2,598	$	(46,165	)	$	1,065		$	19,490

See notes to unaudited condensed consolidated financial statements

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2021

(In thousands, except for number of shares)

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

Balance, January 1, 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
Share-based compensation in exchange for services from employees and directors		3,985,735		4		6,676		-		-			-			-			6,680
Net loss for the period		-		-		-		-		(3,646	)		-			-			(3,646	)
Foreign currency translation adjustment		-		-		-		-		-			(3	)		(1	)		(4	)
Balance, June 30, 2021 (Unaudited)		35,290,650	$	35	$	61,656	$	2,598	$	(43,941	)	$	1,107		$	(65	)	$	21,390

See notes to unaudited condensed consolidated financial statements

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 June 30, 2022 and December 31, 2021, respectively:

	June 30, 2022		December 31, 2021
	US$(’000)		US$(’000)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	577	$	181
Accounts receivable, net		3,238		2,796
Prepayment and deposit to suppliers		3,429		5,287
Due from related parties		15		90
Other current assets, net		3		4
Total current assets		7,262		8,358

Long-term investments		471		496
Operating lease right-of-use assets		250		21
Property and equipment, net		138		168
Long-term deposits and prepayments		49		-
Deferred tax assets, net		423		441
Total Assets	$	8,593	$	9,484

Liabilities
Current liabilities:
Accounts payable	$	567	$	1,119
Advance from customers		735		1,113
Accrued payroll and other accruals		61		83
Taxes payable		2,714		2,849
Operating lease liabilities		195		9
Lease payment liability related to short-term leases		105		110
Other current liabilities		48		53
Total current liabilities		4,425		5,336

Operating lease liabilities-Non current		48		10
Total Liabilities	$	4,473	$	5,346

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

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 six and three months ended June 30, 2022 and 2021, respectively:

	Six Months Ended June 30,						Three Months Ended June 30,
	2022			2021			2022			2021
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	13,862		$	20,618		$	6,664		$	12,671
Cost of revenues		(14,544	)		(23,132	)		(7,026	)		(14,394	)
Total operating expenses		(848	)		(712	)		(589	)		(322	)
Net loss before allocation to noncontrolling interests		(1,553	)		(3,407	)		(968	)		(2,126	)

3.	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 June 30, 2022 and for the six and three months ended June 30, 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 June 30, 2022, its condensed consolidated results of operations for the six and three months ended June 30, 2022 and 2021, and its condensed consolidated cash flows for the six months ended June 30, 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.

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.

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.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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:

	June 30, 2022		December 31, 2021

Balance sheet items, except for equity accounts		6.7114		6.3757

	*Six Months Ended June 30,*
	*2022*		*2021*

Items in the statements of operations and comprehensive loss		6.4835		6.4718

	*Three Months Ended June 30,*
	*2022*		*2021*

Items in the statements of operations and comprehensive loss		6.6144		6.4596

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 June 30, 2022 and December 31, 2021 are as follows:

Fair value measurement at reporting date using

As of

June 30, 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)

(Unaudited)

Warrant liabilities (Note 15)

257

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)

Warrant liabilities (Note 15)

2,039

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Revenue recognition

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

	Six Months Ended June 30,				Three Months Ended June 30,
	2022		2021		2022		2021
	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		12,369		18,965		5,775		12,100
--online advertising placements		2,228		3,595		1,170		2,193
Ecommerce O2O advertising and marketing services		-		387		-		258
Total revenues	$	14,597	$	22,947	$	6,945	$	14,551

Six Months Ended June 30,

Three Months Ended June 30,

2022

2021

2022

2021

US$(’000)

(Unaudited)

Revenue recognized over time

14,597

22,947

6,945

14,551

Revenue recognized at a point in time

Total revenues

14,597

22,947

6,945

14,551

Contract costs

For the six and three months ended June 30, 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 liabilities

The table below summarized the movement of the Company’s contract liabilities for the six months ended June 30, 2022:

	Contract liabilities
	US$(’000)

Balance as of January 1, 2022		1,245
Exchange translation adjustment		(62	)
Revenue recognized from beginning contract liability balances		(1,150	)
Advances received from customers related to unsatisfied performance obligations		761
Balance as of June 30, 2022 (Unaudited)	$	794

Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for the six and three months ended June 30, 2022 and 2021.

For the six and three months ended June 30, 2022 and 2021, 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 six months ended June 30, 2022 and 2021 were approximately US$0.12 million and US$0.16 million, respectively. Expenses for research and development for the three months ended June 30, 2022 and 2021 were approximately US$0.06 million and US$0.09 million, respectively.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Lease

As of June 30, 2022, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$2.04 million and US$2.14 million, respectively.

Maturity of operating lease liabilities

	Operating leases
	US$(’000)
	(Unaudited)

Six months ending December 31, 2022		246
Year ending December 31,
-2023		465
-2024		324
-2025		341
-2026		358
-2027		376
-thereafter		461
Total undiscounted lease payments		2,571
Less: imputed interest		(432	)
Total operating lease liabilities as of June 30, 2022	$	2,139

Including:
Operating lease liabilities		391
Operating lease liabilities-Non current		1,748
	$	2,139

Operating lease expenses:

Six Months Ended June 30,

Three Months Ended June 30,

2022

2021

2022

2021

US$(’000)

(Unaudited)

Long-term operating lease contracts

193

124

103

Short-term operating lease contracts

Total

222

154

117

102

Supplemental information related to operating leases:

	Six Months Ended June 30, 2022
	(Unaudited)

Operating cash flows used for operating leases (US$’000)		178
Right-of-use assets obtained in exchange for new lease liabilities (US$’000)		259
Weighted-average remaining lease term (years)		6.06
Weighted-average discount rate		6	%

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

4.	Accounts receivable, net

	June 30, 2022			December 31, 2021
	US$(’000)			US$(’000)
	(Unaudited)

Accounts receivable		5,692			5,675
Allowance for doubtful accounts		(2,454	)		(2,236	)
Accounts receivable, net		3,238			3,439

All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of June 30, 2022 and December 31, 2021, the Company provided approximately US$2.45 million and US$2.24 million allowance for doubtful accounts, respectively, which were primarily related to the accounts receivable of the Company’s Internet advertising and related services segment and Ecommerce O2O Ad and marketing services segment with an aging over six months. The Company evaluates its accounts receivable with an aging over six months and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. For the six and three months ended June 30, 2022, the Company provided approximately US$0.33 million allowance for doubtful accounts. For the six and three months ended June 30, 2021, no allowance for doubtful accounts was provided.

5.	Prepayments and deposit to suppliers

	June 30, 2022		December 31, 2021
	US$(’000)		US$(’000)
	(Unaudited)

Deposits to advertising resources providers		599		934
Prepayments to advertising resources providers		4,207		5,185
Deposit and prepayment for other investing contracts		1,000		1,000
Other deposits and prepayments		497		440
		6,303		7,559

As of June 30, 2022, deposit and prepayment for other investing contracts represented a US$1.0 million refundable deposit paid for a potential acquisition transaction, which will be refunded if no definitive agreement is reached among the parties before the expected closing date, i.e., December 31, 2022. As of the date hereof, the Company is in the progress of the due diligence process of the target company.

6.	Due from related parties

	June 30, 2022		December 31, 2021
	US$(’000)		US$(’000)
	(Unaudited)

Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)		1		62
Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”)		14		28
Due from related parties		15		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.

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of June 30, 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 June 30, 2022 and December 31, 2021, due from Gong Xiang Technology was a short-term working capital loan provided to this investee entity. Such loan is expected to be fully repaid to the Company for the year ending December 31, 2022.

7.	Other current assets, net