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0001376321 ZW Data Action Technologies Inc. false --12-31 Q1 2023 4,070 3,760 0.001 0.001 20,000,000 20,000,000 7,174,506 7,174,506 7,174,506 7,174,506 7 62,017 62,017 1.31 0.92 1.59 5.55 0.19 0.04 0.15 5 0.02 0.07 1.68 1.81 0.22 2.5 1.02 0.06 1.48 0.05 0.05 0.02 2.0 0.08 0.62 1.65 1 1.03 0.62 0.62 15.38 10 19 0.02 0.03 10 10 5 5 3 3 3 10 10 5 5 3 3 3 0.30 0.53 0.90 1.19 0.35 0.18 0.12 32.0 31.8 16.0 15.4 13.0 12.7 0.30 0.32 13.68 13.31 0.04 0.07 6.73 0.98 0.09 0.01 1 186 32,227 0.04 22 167 328 368 717 0.06 1.75 0.14 0.04 0.02 0.02 0.05 Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g). Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2). Less than 10%. To reflect the actual inputs used for the determination of fair value of the Warrants, the stock prices and exercise prices presented were not retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g). Including approximately US$0.06 million share-based compensation expenses. 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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, 2023

 

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 1811, 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 22, 2023, the registrant had 7,204,506 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, 2023 (Unaudited) and December 31, 2022

1-2
     
 

Condensed Consolidated Statements of Operations and Comprehensive Loss for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

3
     
 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

4-5

     
 

Condensed Consolidated Statements of Changes in Equity for the Three Months Ended March 31, 2023 and 2022 (Unaudited)

6
     
 

Notes to Condensed Consolidated Financial Statements (Unaudited)

7-26
     

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

27-33
   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

38

     

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

 

The Public Company Accounting Oversight Board (the “PCAOB) had historically been unable to inspect our auditor in relation to their audit work performed for our financial statements and the inability of the PCAOB to conduct inspections over our auditor deprived our investors of the benefits of such inspections.

 

Our auditor, the independent registered public accounting firm that issues the audit report in our SEC filings, as an auditor of companies that are traded publicly in the United States and a firm registered with the PCAOB, is subject to laws in the United States pursuant to which the PCAOB conducts regular inspections to assess its compliance with the applicable professional standards. Our auditor is located in Hong Kong Special Administrative Region of the PRC ("Hong Kong"), China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. As a result, we and investors in our securities were deprived of the benefits of such PCAOB inspections. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong in 2022. However, the inability of the PCAOB to conduct inspections of auditors in Hong Kong in the past made it more difficult to evaluate the effectiveness of our independent registered public accounting firm’s audit procedures or quality control procedures as compared to auditors outside of China mainland and Hong Kong that have been subject to the PCAOB inspections, which could cause investors and potential investors in our securities to lose confidence in our audit procedures and reported financial information and the quality of our financial statements.

 

Our common stock may be delisted and prohibited from trading in the United States under the Holding Foreign Companies Accountable Act, or the HFCAA, as amended by the Accelerating Holding Foreign Companies Accountable Act, if the PCAOB is unable to inspect or investigate completely auditors located in China mainland and Hong Kong. The delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

 

On December 18, 2020, the Holding Foreign Companies Accountable Act, or the HFCAA, was signed into law that states if the SEC determines that issuers have filed audit reports issued by a registered public accounting firm that has not been subject to PCAOB inspection for three consecutive years beginning in 2021, the SEC shall prohibit its common stock from being traded on a national securities exchange or in the over-the-counter trading market in the U.S. Furthermore, on June 22, 2021, the U.S. Senate passed the Accelerating Holding Foreign Companies Accountable Act, to prohibit securities of any registrant from being listed on any of the U.S. securities exchanges or traded over-the-counter if the auditor of the registrant’s financial statements is not subject to PCAOB inspection for two consecutive years, instead of three consecutive years as enacted in the HFCAA. On December 2, 2021, the SEC adopted final amendments implementing the disclosure and submission requirements of the HFCAA, pursuant to which the SEC will identify an issuer as a “Commission-Identified Issuer” if the issuer has filed an annual report containing an audit report issued by a registered public accounting firm that the PCAOB has determined it is unable to inspect or investigate completely, and will then impose a trading prohibition on an issuer after it is identified as a Commission-Identified Issuer for three consecutive years. On December 29, 2022, the Accelerating Holding Foreign Companies Accountable Act was signed into law.

 

On December 16, 2021, the PCAOB issued a HFCAA Determination Report (the “2021 PCAOB Determinations”) to notify the SEC of its determination that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong because of positions taken by the Chinese authorities, and our auditor was subject to this determination. On May 13, 2022, the SEC conclusively identified us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 10-K for the fiscal year ended December 31, 2021.

 

On August 26, 2022, the PCAOB signed a Statement of Protocol on agreement governing on inspections of audit firms based in mainland China and Hong Kong, with China Securities Regulatory Commission (“CSRC”) and Ministry of Finance (“MOF”) of the PRC, in regarding to governing inspections and investigations of audit firms headquartered in mainland China and Hong Kong (the “Agreement”). As stated in the Agreement, the Chinese authorities committed that the PCAOB has direct access to view complete audit work papers under its inspections or investigations and has sole discretion to the selected audit firms and audit engagements. The Agreement opens access for the PCAOB to inspect and investigate the registered public accounting firms in mainland China and Hong Kong completely. The PCAOB then thoroughly tested compliance with every aspect of the Agreement necessary to determine complete access. This included sending a team of PCAOB staff to conduct on-site inspections and investigations in Hong Kong over a nine-week period from September to November 2022.

 

 

 

On December 15, 2022, the PCAOB issued its 2022 HFCAA Determination Report to notify the SEC of its determination that the PCAOB was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong completely in 2022. The PCAOB Board vacated its 2021 PCAOB Determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in China mainland and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of our annual report for the fiscal year ended December 31, 2022. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in China mainland and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control.

 

The PCAOB is continuing to demand complete access in China mainland and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB does not have to wait another year to reassess its determinations. Should the PRC authorities obstruct the PCAOB’s access to inspect or investigate completely in any way and at any point, the PCAOB will act immediately to consider the need to issue new determinations consistent with the HFCAA.

 

We cannot assure you that our auditor will not be determined as a register public accounting firm that the PCAOB is unable to inspect or investigate completely for two consecutive years because of positions taken by the Chinese authorities and/or any other causes in the future. If the PCAOB in the future again determines that it is unable to inspect and investigate completely auditors in China mainland and Hong Kong, we may be identified as a Commission-Identified Issuer accordingly. If this happens, Nasdaq may determine to delist our common stock, and there is no certainty that we will be able to continue listing our common stock on other non-U.S. stock exchanges or that an active market for our common stock will immediately develop outside of the U.S. The prohibiting from trading in the United States or delisting of our common stock or the threat of their being delisted could cause the value of our common stock to significantly decline or be worthless, and thus you could lose all or substantial portion of your investment.

 

 

 

 

 

 

 

 

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

  

March 31,

2023

  

December 31,
2022

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $1,592  $4,391 

Accounts receivable, net of allowance for credit loss of $4,070 and $3,760, respectively

  1,567   1,745 

Prepayment and deposit to suppliers

  4,390   4,567 

Other current assets, net

  3,327   1,610 

Total current assets

  10,876   12,313 
         

Long-term investments

  1,604   1,596 

Operating lease right-of-use assets

  1,680   1,761 

Property and equipment, net

  225   249 

Intangible assets, net

  2,964   3,264 

Long-term deposits and prepayments

  69   69 

Deferred tax assets, net

  413   406 

Total Assets

 $17,831  $19,658 
         

Liabilities and Equity

        

Current liabilities:

        

Accounts payable *

 $218  $205 

Advances from customers *

  720   739 

Accrued payroll and other accruals *

  266   438 

Taxes payable *

  3,280   3,248 

Operating lease liabilities *

  310   347 

Lease payment liabilities related to short-term leases *

  103   101 

Other current liabilities *

  341   437 

Warrant liabilities

  84   185 

Total current liabilities

  5,322   5,700 

 

 

 

 

1

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)

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

 

  

March 31,

2023

  

December 31,
2022

 
  

(US $)

  

(US $)

 
  

(Unaudited)

     

Long-term liabilities:

        

Operating lease liabilities-Non current

  1,500   1,535 

Long-term borrowing from a related party

  127   126 

Total Liabilities

  6,949   7,361 
         

Commitments and contingencies

          
         

Equity:

        

ZW Data Action Technologies Inc.’s stockholders’ equity

        

Common stock (US$0.001 par value; authorized 20,000,000 shares; issued and outstanding 7,174,506 shares at March 31, 2023 and December 31, 2022)

  7   7** 

Additional paid-in capital

  62,017   62,017** 

Statutory reserves

  2,598   2,598 

Accumulated deficit

  (54,859)  (53,525)

Accumulated other comprehensive income

  1,119   1,200 

Total stockholders equity

  10,882   12,297 
         

Total Liabilities and Equity

 $17,831  $19,658 

 

 

* Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).

 

**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

2

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

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

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

(US $)

  

(US $)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenues

 $6,316  $7,652 

Cost of revenues

  6,630   7,518 

Gross (loss)/profit

  (314)  134 
         

Operating expenses

        

Sales and marketing expenses

  48   69 

General and administrative expenses

  932   1,548 

Research and development expenses

  18   68 

Total operating expenses

  998   1,685 
         

Loss from operations

  (1,312)  (1,551)
         

Other income/(expenses)

        

Interest income

  72   46 

Other expenses, net

  (5)  (9)

Change in fair value of warrant liabilities

  101   795 

Total other income

  168   832 
         

Loss before income tax benefit

  (1,144)  (719)

Income tax benefit

  1   2 

Net loss

 $(1,143) $(717)
         
         

Net loss

 $(1,143) $(717)

Foreign currency translation loss

  (81)  (22)

Comprehensive loss

 $(1,224) $(739)
         

Loss per share

        

Loss per common share

        
         

Basic and diluted**

 $(0.16) $(0.10)
         

Weighted average number of common shares outstanding:

        
         

Basic and diluted**

  7,174,506   7,079,962 

 

 

**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).

 

 

 

 

 

See notes to condensed consolidated financial statements

 

 

3

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 
   

(US $)

   

(US $)

 
   

(Unaudited)

   

(Unaudited)

 

Cash flows from operating activities

               

Net loss

  $ (1,143 )   $ (717 )

Adjustments to reconcile net loss to net cash used in operating activities

               

Depreciation and amortization

    322       554  

Amortization of operating lease right-of-use assets

    106       60  

Share-based compensation expenses

    35       56  

Provision for allowance for credit losses

    301       -  

Deferred taxes

    (1 )     (2 )

Disposal of fixed assets

    3       -  

Change in fair value of warrant liabilities

    (101 )     (795 )

Other non-operating income

    (72 )     (45 )

Changes in operating assets and liabilities

               

Accounts receivable

    (56 )     (159 )

Prepayment and deposit to suppliers

    171       914  

Other current assets

    (1 )     13  

Accounts payable

    10       (373 )

Advances from customers

    (27 )     (203 )

Accrued payroll and other accruals

    (174 )     (66 )

Other current liabilities

    (184 )     (36 )

Taxes payable

    (8 )     7  

Lease payment liability related to short-term leases

    -       (42 )

Operating lease liabilities

    (97 )     (56 )

Net cash used in operating activities

    (916 )     (890 )
                 

Cash flows from investing activities

               

Repayment of short-term loans from ownership investee entities

    -       13  

Short-term loan to unrelated parties

    (2,000 )     (2,500 )

Repayment of short-term loans and interest income from unrelated parties

    123       1,029  

Net cash used in investing activities

    (1,877 )     (1,458 )

 

 

 

4

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)

(In thousands)

 

   

Three Months Ended March 31,

 
   

2023

   

2022

 
   

(US $)

   

(US $)

 
   

(Unaudited)

   

(Unaudited)

 

Cash flows from financing activities

               
                 

Net cash provided by/(used in) financing activities

    -       -  
                 

Effect of exchange rate fluctuation on cash and cash equivalents

    (6 )     (1 )
                 

Net decrease in cash and cash equivalents

    (2,799 )     (2,349 )
                 

Cash and cash equivalents at beginning of the period

    4,391       7,173  

Cash and cash equivalents at end of the period

  $ 1,592     $ 4,824  
                 

Supplemental disclosure of cash flow information

               
                 

Income taxes paid

  $ -     $ -  

Interest expense paid

  $ -     $ -  

 

 

See notes to condensed consolidated financial statements

 

 

 

 

 

5

 

 

ZW DATA ACTION TECHNOLOGIES INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

FOR THE THREE MONTHS ENDED MARCH 31, 2023 and 2022

(In thousands, except for number of shares)

 

  

Common stock

  

Additional
paid-in
capital

  

Statutory
reserves

  

Accumulated
deficit

  

Accumulated other
comprehensive
income/(loss)

  

Total
stockholders

equity

 
  

Number of
shares

  

Amount

                     
      

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

  

(US $)

 
                             

Balance, January 1, 2023

  7,174,506**  $7**  $62,017**  $2,598  $(53,525) $1,200  $12,297 

Cumulative effect adjustment related to adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)

  -   -   -   -   (191)  -   (191)

Net loss for the period

  -   -   -   -   (1,143)  -   (1,143)

Foreign currency translation adjustment

  -   -   -   -   -   (81)  (81)

Balance, March 31, 2023 (unaudited)

  7,174,506  $7  $62,017  $2,598  $(54,859) $1,119  $10,882 

 

   

Common stock**

   

Additional
paid-in
capital**

   

Statutory
reserves

   

Accumulated
deficit

   

Accumulated other
comprehensive
income/(loss)

   

Total
stockholders

equity

 
   

Number of
shares

   

Amount

                                         
           

(US $)

   

(US $)

   

(US $)

   

(US $)

   

(US $)

   

(US $)

 
                                                         

Balance, January 1, 2022

    7,075,506     $ 7     $ 61,813     $ 2,598     $ (43,734 )   $ 1,082     $ 21,766  

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

    19,000       -       16       -       -       -       16  

Net loss for the period

    -       -       -       -       (717 )     -       (717 )

Foreign currency translation adjustment

    -       -       -       -       -       (22 )     (22 )

Balance, March 31, 2022 (unaudited)

    7,094,506     $ 7     $ 61,829     $ 2,598     $ (44,451 )   $ 1,060     $ 21,043  

 

**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).

 

 

 

 

See notes to condensed consolidated financial statements

 

 

 

6

 

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. The Company also develops blockchain enabled web/mobile applications and provides software solutions, i.e., Software-as-a-Service (“SaaS”) services for clients.

 

 

2.

Variable interest entities

 

The Company is not an operating company in China, but a Nevada holding company with no equity ownership in the VIEs. The Company primarily conducts its operations in China through its PRC subsidiaries, the VIEs, with which the Company has entered into contractual arrangements, and their subsidiaries in China. 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, 2023 and December 31, 2022, respectively:

 

  

March 31,

2023

  

December 31,
2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     

Assets

        

Current assets:

        

Cash and cash equivalents

 $340  $578 

Accounts receivable, net

  1,567   1,745 

Prepayment and deposit to suppliers

  1,931   2,020 

Other current assets

  3   2 

Total current assets

  3,841   4,345 
         

Long-term investments

  167   165 

Operating lease right-of-use assets

  98   145 

Property and equipment, net

  104   113 

Deferred tax assets, net

  413   406 

Total Assets

 $4,623  $5,174 
         

Liabilities

        

Current liabilities:

        

Accounts payable

 $218  $205 

Advances from customers

  667   515 

Accrued payroll and other accruals

  39   63 

Taxes payable

  2,629   2,602 

Operating lease liabilities

  99   146 

Lease payment liabilities related to short-term leases

  103   101 

Other current liabilities

  204   320 

Total current liabilities

  3,959   3,952 
         

Total Liabilities

 $3,959  $3,952 

 

Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.

 

7

 

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 three months ended March 31, 2023 and 2022, respectively:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenues

 $6,148  $7,198 

Cost of revenues

  (6,327)  (7,518)

Total operating expenses

  (370)  (259)

Net loss before allocation to noncontrolling interests

  (550)  (585)

 

 

3.

Liquidity and Capital Resources

 

For the three months ended March 31, 2023, the Company incurred a loss from operations of US$1.31 million and a net operating cash outflow of US$0.92 million. As of March 31, 2023, the Company had cash and cash equivalents of US$1.59 million and working capital of US$5.55 million.

 

The Company experienced temporary decreases in revenues, incurred a gross loss, and did not generate a positive net cash flow from its core business, i.e., Internet advertising and related data service business for the three months ended March 31, 2023. This was primarily attributable to the peak infection of COVID-19 in China incurred from November 2022 through February 2023, which affected a significant number of the Company’s workforce and most of its clients, and in return adversely affected the Company’s normal business activities, and caused temporary decrease in or delay in ad spending from its clients during the first fiscal quarter of 2023. Although the COVID-19 outbreak had been largely under control within China with most of the travel restrictions and quarantine requirements lifted accordingly, and the WHO declared that COVID-19 is no longer a global health emergency on May 5, 2023, the three-year COVID-19 pandemic in China affected the SMEs owners’ confidence to further expand their businesses, and thus adversely affected the SMEs owners’ demands on the Company’s online advertising and marketing services in the short run. As a result, the Company has been relying on proceeds generated from financing activities for its liquidity in the first fiscal quarter of 2023. Although there remain uncertainties as to the future development and impact of the COVID-19 pandemic, the Company anticipates a slow recovery of performance and improvement of cash flow status of its core business in the next 12 months.

 

In order to improve operation performance, from early 2022, the Company started to introduce its SaaS services to customers. The Company’s SaaS services are provided based on technologies of its self-developed Blockchain Integrated Framework (“BIF”) platform. The subscriptions of the Company’s BIF platform enable its clients to utilize the BIF platform as an enterprise management software to record, share and storage operating data on-chain, and/or to generate unique designed Non-fungible Token (“NFTs”) for their IPs and certificates. Although the unexpected long-time quarantine and business shutdown measures for COVID-19 epidemic control incurred throughout fiscal 2022 adversely affected the Company’s promotion of the SaaS services, and revenues from the new SaaS services business and its profitability have not met the Company’s expectations, the Company still expects the new SaaS services business to bring in positive cash flow and help to improve liquidity, as these services are provided based on technologies of the Company’s self-developed software platform, which does not need any further material cash outflow to other third-party service providers.

 

In addition, to further improve its liquidity, the Company plans to negotiate with its major suppliers for more favorable payment terms, reduce its operating costs through optimizing the personnel structure among different offices, and reduce its office leasing spaces, if needed. The Company also intends to obtain revolving credit facilities to supplement its short-term working capital, as needed, from the commercial banks in the PRC. The Company has not experienced any difficulties in obtaining such credit facility before.

 

Based on the above discussion, the Company believes that its current cash and cash equivalents, its anticipated new cash flows from operations and from investing and financing activities, and other liquidity improving measures will ensure the Company has sufficient cash to meet its obligations as they become due with the next 12 months from the date hereof.

 

 

4.

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”).

 

8

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The unaudited condensed consolidated interim financial information as of March 31, 2023 and for the three months ended March 31, 2023 and 2022 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, 2022, previously filed with the SEC (the “2022 Form 10-K”) on April 17, 2023.

 

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, 2023, its condensed consolidated results of operations for the three months ended March 31, 2023 and 2022, and its condensed consolidated cash flows for the three months ended March 31, 2023 and 2022, 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:

 

  

March 31, 2023

  

December 31, 2022

 

Balance sheet items, except for equity accounts

  6.8717   6.9646 

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 

Items in the statements of operations and comprehensive loss

  6.8476   6.3504 

 

No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.

 

 

e)

Current expected credit losses

 

In  June 2016, the FASB issued ASU No. 2016-13, “Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments”. The amendments in this ASU require the measurement and recognition of expected credit losses for financial assets held at amortized cost, which replace the existing incurred loss impairment model with an expected loss methodology. The Company, as a SEC smaller reporting company, has adopted the amendments in this ASU from  January 1, 2023, using a modified retrospective transition method and did not restate the related accounts in the comparable period. Instead, the Company recognized a cumulative-effect adjustment to increase the opening balance of its accumulated deficit on January 1, 2023 by US$0.19 million, of which US$0.04 million was related to the cumulative-effect adjustment to allowance for credit loss of accounts receivable, and the remaining US$0.15 million was related to the cumulative-effect adjustment to allowance for credit loss of other current assets, which primarily consisted of short-term loans the Company provided to unrelated parties.

 

9

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The allowance for credit losses reflects the Company's current estimate of credit losses expected to be incurred over the life of the related financial assets. The allowance for credit losses is presented as a valuation account that is deducted from the amortized cost basis of financial asset(s) to present the net amount expected to be collected on the financial asset(s).

 

The Company considers various factors in establishing, monitoring, and adjusting its allowance for credit losses, including the aging and aging trends, customer/other parties’ creditworthiness and specific exposures related to particular customers/other parties. The Company also monitors other risk factors and forward-looking information, such as country specific risks and economic factors that may affect a customer/other party’s ability to pay in establishing and adjusting its allowance for credit losses. The Company assesses collectability by reviewing the financial assets on a collective basis where similar characteristics exist and on an individual basis when the Company identifies specific customers/other parties with known disputes or collectability issues. Accounts receivable and short-term loans to unrelated parties are written off after all collection efforts have ceased.

 

The following tables summarized the movements of the Company’s credit losses for the three months ended March 31, 2023 and 2022, respectively:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 

Credit loss for accounts receivable:

        

Balance as of beginning of the period

  3,760   2,236 

Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)

  36   - 

Provision for credit loss during the period

  223   - 

Written off during the period

  -   - 

Exchange translation adjustments

  51   9 

Balance as of end of the period

  4,070   2,245 

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 

Credit loss for other current assets:

        

Balance as of beginning of the period

  617   - 

Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326)

 

155

   - 

Provision for credit loss during the period

 

78

   - 

Written off during the period

  -   - 

Exchange translation adjustments

  -   - 

Balance as of end of the period

  850   - 

 

10

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

f)

Fair value measurement

 

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2023 and December 31, 2022 are as follows:

 

      

Fair value measurement at reporting date using

 
  

As of
March 31, 2023

  

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 14)

  84   -   -   84 

 

      

Fair value measurement at reporting date using

 
  

As of

December 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)

 
                 

Warrant liabilities (Note 14)

  185   -   -   185 

 

 

g)

Reverse stock split

 

The Board of Directors of the Company approved a reverse stock split of the Company’s issued and outstanding shares of common stock, par value $0.001 per share (the “Common Stock”) at a ratio of 1-for-5 (the “Reverse Stock Split”). The Reverse Stock Split became effective on January 18, 2023 (the “Effective Date”). As a result, the number of shares of the Company’s authorized Common Stock was reduced from 100,000,000 shares to 20,000,000 shares and the issued and outstanding number of shares of the Common Stock was correspondingly decreased. The Reverse Stock Split has no effect on the par value of the Company’s Common Stock or authorized shares of preferred stock.

 

When the Reverse Stock Split became effective, each five shares of issued and outstanding Common Stock were converted into one newly issued and outstanding share of Common Stock. No fractional shares were issued in connection with the Reverse Stock Split. Any fractional shares of Common Stock that would have otherwise resulted from the Reverse Stock Split were rounded up to the nearest full share. No cash or other consideration was paid in connection with any fractional shares that would otherwise have resulted from the Reverse Stock Split.

 

As a result of the Reverse Stock Split, 35,827,677 shares of Common Stock that were issued and outstanding at January 18, 2023 was reduced to 7,174,506 shares of Common Stock (taking into account the rounding of fractional shares).

 

Except where otherwise specified, all number of shares, number of warrants, share prices, exercise prices and per share data in the condensed consolidated financial statements and notes to the condensed consolidated financial statements have been retroactively restated as if the Reverse Stock Split occurred at the beginning of the periods presented.

 

 

h)

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,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 

Internet advertising and related services

        

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

  6,161   6,594 

--online advertising placements

  130   1,058 

Blockchain-based SaaS services

  25   - 

Total revenues

  6,316   7,652 

 

11

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Revenue recognized over time

  6,316   7,652 

Revenue recognized at a point in time

  -   - 

Total revenues

  6,316   7,652 

 

Contract balances

 

The table below summarized the movement of the Company’s contract liabilities (advance from customers) for the three months ended March 31, 2023:

 

  

Contract liabilities

 
  

US$(000)

 
     

Balance as of January 1, 2023

  739 

Exchange translation adjustment

  8 

Revenue recognized from beginning contract liability balance

  (550)

Advances received from customers related to unsatisfied performance obligations

  523 

Balance as of March 31, 2023 (Unaudited)

  720 

 

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, 2023 and 2022.

 

For the three months ended March 31, 2023 and 2022, there is no revenue recognized from performance obligations that were satisfied in prior periods.

 

 

i)

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, 2023 and 2022 were approximately US$0.02 million and US$0.07 million, respectively.

 

 

j)

Lease

 

As of March 31, 2023, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$1.68 million and US$1.81 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, 2023

  329 

Year ending December 31,

    

-2024

  317 

-2025

  333 

-2026

  349 

-2027

  367 

-2028

  385 

-thereafter

  65 

Total undiscounted lease payments

  2,145 

Less: imputed interest

  (335)

Total operating lease liabilities as of March 31, 2023

  1,810 
     

Including:

    

Operating lease liabilities

  310 

Operating lease liabilities-Non current

  1,500 
   1,810 

 

Operating lease expenses:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Long-term operating lease contracts

  133   90 

Short-term operating lease contracts

  6   15 

Total

  139   105 

 

Supplemental information related to operating leases:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

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

  122   86 

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

  -   - 

Weighted-average remaining lease term (years)

  5.62   6.90 

Weighted-average discount rate

  6%  6%

 

 

5.

Accounts receivable, net

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Accounts receivable

  5,637   5,505 

Allowance for credit loss

  (4,070)  (3,760)

Accounts receivable, net

  1,567   1,745 

 

All of the accounts receivable are non-interest bearing. The Company maintains an estimated allowance for credit losses to reduce its accounts receivable to the amount that it believes will be collected. The Company evaluates its accounts receivable on a collective (pool) basis and determines the allowance for credit loss based on aging data, historical collection experience, customer specific facts, current economic conditions and reasonable and supportable forecasts of future economic conditions. For the three months ended March 31, 2023, the Company provided approximately US$0.22 million credit losses for its accounts receivable.

 

13

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

6.

Prepayment and deposit to suppliers

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Deposits to advertising resources providers

  866   1,077 

Prepayments to advertising resources providers

  3,045   3,036 

Other deposits and prepayments

  479   454 
   4,390   4,567 

 

 

7.

Other current assets, net

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
         

Short-term loans to unrelated parties

  4,097   2,197 

Short-term loans interest receivables

  71   22 

Staff advances for business operations

  9   8 

Total other current assets

  4,177   2,227 

Allowance for credit loss

  (850)  (617)

Other current assets, net

  3,327   1,610 

 

As of March 31, 2023, the Company provided unsecured, interest-bearing short-term loans to two unrelated parties, which were set forth as below. These short-term loans were recorded as other current assets.

 

On January 5, 2022, the Company provided a short-term working capital loan of US$2.5 million to an unrelated party, which matured on May 5, 2022. The loan was unsecured and borne a fixed annualized interest rate of 7.5%. In April 2022, as agreed by both parties, the unrelated party repaid a portion of the loan principal of US$1.02 million, together with a loan interest of US0.06 million for the period from January 5, 2022 through April 30, 2022, based on the loan principal of US$2.5 million. The Company extended the term of the remaining loan principal of US$1.48 million to April 30, 2023 with a revised fixed annualized interest rate of 5%. In October 2022 and February 2023, the Company received loan interests of US$0.05 million in the aggregate for the period from May 1, 2022 through December 31, 2022. On April 30, 2023, the Company further extended the term of this loan to October 31, 2023. In May 2023, the Company received a loan interest of US$0.02 million for the period from January 1, 2023 through April 30, 2023.

 

On January 11, 2023, the Company provided a short-term of US$2.0 million to another unrelated party. The loan is unsecured and bears a fixed annualized interest rate of 12%. The loan and the related loan interest is required to be repaid in lump sum at maturity on July 17, 2023.

 

The Company evaluates its short-term loans provided to unrelated parties for expected credit losses on a regular basis, and maintains an estimated allowance for credit losses to reduce its short-term loans to the amount that it believes will be collected. The Company evaluates its short-term loans on an individual basis and determines the allowance for credit loss based on creditworthiness of the borrowers, aging information, past transaction history with the borrowers and their current condition, as well as the current economic conditions and reasonable and supportable forecasts of future economic conditions. For the three months ended March 31, 2023, the Company provided US$0.08 million credit losses on short-term loans provided to unrelated parties.

 

As of March 31,2023, other current assets also included a US$0.62 million remaining outstanding balance of a short-term loan that the Company provided to an unrelated party, Digital Sun Ventures Limited, a Hong Kong-based company (“Digital Sun”). In March 2021, the Company and Digital Sun reached an oral agreement, pursuant to which the Company provided a short-term loan of US$1.65 million to Digital Sun. The loan has a one-year term. The loan is unsecured, interest free and is required to be repaid in lump sum at maturity by March 2022. The Company provided this unsecured and interest free loan to Digital Sun in consideration of the promises and claims made by Digital Sun’s management that Digital Sun has close connections with international well-known media companies seeking for strategic cooperation partners in China, and Digital Sun will facilitate building strategic business partnerships among the Company and these media companies. As of March 31, 2022, Digital Sun had repaid US$1.03 million of this loan and defaults on the loan balance of US$0.62 million. The Company attempted to collect the outstanding loan balance. In June 2022, the Company fully allowanced the outstanding loan balance of US$0.62 million based on the Company’s assessment of the collectability of this outstanding balance. The Company had engaged a law firm and prepared and sent a legal letter to Digital Sun in March 2023, and the Company intends to take further actions to safeguard its rights against the default, including but not limited to, arranging meetings with the management of Digital Sun to negotiate the repayment plan in person and filing a lawsuit against Digital Sun after all other means of collection have been exhausted. As of the date hereof, the Company has not received any formal responses from Digital Sun.

 

14

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

8.

Long-term investments

 

  

Amount

 
  

US$(000)

 
     

Balance as of January 1, 2023

  1,596 

Exchange translation adjustment

  8 

Balance as of March 31, 2023 (Unaudited)

  1,604 

 

As of March 31, 2023, except for long-term investments which were fully impaired, the Company beneficially owned a 15.38%, 10%, 9.9%, 9% and 19% equity interest in each New Business Holdings Limited (“New Business”), Guang Dong WeFriend Co., Ltd. (“Guangdong WeFriend”), Guangdong Yong Fu Xiang Health Management Co., Ltd (“Yong Fu Xiang”); Guangzhou Yuan Qi Man Man Technology Co., Ltd. (“Yuan Qi Man Man") and Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), respectively.

 

The Company measures these investments which do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.

 

 

9.

Property and equipment, net

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Vehicles

  797   855 

Office equipment

  876   865 

Electronic devices

  584   575 

Leasehold improvement

  187   185 

Property and equipment, cost

  2,444   2,480 

Less: accumulated depreciation

  (2,219)  (2,231)

Property and equipment, net

  225   249 

 

Depreciation expenses were approximately US$0.02 million and US$0.03 million for the three months ended March 31, 2023 and 2022, respectively.

 

15

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

10.

Intangible assets, net

 

  

As of March 31, 2023 (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

  1,351   (937)  (414)  - 

Licensed products use right

  1,200   (405)  -   795 
                 

--5 years life:

                

Internet Ad tracking system

  1,160   (463)  -   697 

Live streaming technology

  1,500   (625)  (875)  - 
                 

--3 years life:

                

Blockchain integrated framework

  4,038   (1,556)  (1,010)  1,472 

Bo!News application

  349   (116)  (233)  - 

Other computer software

  114   (114)  -   - 

Total

 $9,712  $(4,216) $(2,532) $2,964 

 

  

As of December 31, 2022

 

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

  1,333   (924)  (409)  - 

Licensed products use right

  1,201   (374)  -   827 
                 

--5 years life:

                

Internet Ad tracking system

  1,160   (405)  -   755 

Live streaming technology

  1,500   (625)  (875)  - 
                 

--3 years life:

                

Blockchain integrated framework

  4,038   (1,346)  (1,010)  1,682 

Bo!News application

  345   (115)  (230)  - 

Other computer software

  113   (113)  -   - 

Total

 $9,690  $(3,902) $(2,524) $3,264 

 

Amortization expenses for the three months ended March 31, 2023 and 2022 were approximately US$0.30 million and US$0.53 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 3.34 years as of March 31, 2023, and assuming no further subsequent impairment of the underlying intangible assets, the estimated future amortization expenses is approximately US$0.90 million for the year ending December 31, 2023, approximately US$1.19 million for the year ending December 31, 2024, approximately US$0.35 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 each year for the years ending December 31, 2027 and 2028.

 

16

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

 

11.

Accrued payroll and other accruals

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Accrued payroll and staff welfare

  83   101 

Accrued operating expenses

  183   337 
   266   438 

 

 

12.

Taxation

 

As of March 31, 2023 and December 31, 2022, taxes payable consists of:

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Turnover tax and surcharge payable

  1,297   1,288 

Enterprise income tax payable

  1,983   1,960 

Total taxes payable

  3,280   3,248 

 

For the three months ended March 31, 2023 and 2022, the Company’s income tax benefit consisted of:

 

  

Three Months Ended March 31,

 
  

2023

  

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

  

(Unaudited)

 
         

Current

  -   - 

Deferred

  1   2 

Income tax benefit

  1   2 

 

The Company’s deferred tax assets as of March 31, 2023 and December 31, 2022 were as follows:

 

  

March 31,

2023

  

December 31,

2022

 
  

US$(000)

  

US$(000)

 
  

(Unaudited)

     
         

Tax effect of net operating losses carried forward

  11,812   11,537 

Operating lease cost

  33   30 

Impairment on long-term investments

  146   144 

Impairment on intangible assets

  369   368 

Bad debts provision

  1,133   1,018 

Valuation allowance

  (13,080)  (12,691)

Deferred tax assets, net

  413   406 

 

17

 

ZW DATA ACTION TECHNOLOGIES INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

The U.S. holding company has incurred aggregate net operating losses (NOLs) of approximately US$32.0 million and US$31.8 million at March 31, 2023 and December 31, 2022, respectively. The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely, subject to an annual limit of 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$16.0 million and US$15.4 million as of March 31, 2023 and December 31, 2022, respectively. The losses carryforwards gradually expire over time, the last of which will expire in 2028. The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.

 

The Company recorded approximately US$13.0 million and US$12.7 million valuation allowance as of March 31, 2023 and December 31, 2022, 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, 2023 and 2022, the Company recorded approximately US$0.30 million and US$0.32 million deferred tax valuation allowance, respectively.

 

 

13.

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.

 

 

14.

Warrant liabilities

 

The Company issued common stock purchase warrants to certain institutional investors and the Company’s placement agent in the registered direct offerings consummated in  February 2021 (the “2021 Financing”) and December 2020 (the “2020 Financing”). Warrants issued to the investors and placement agent in the 2021 Financing were referred to as the “2021 Investors Warrants” and the “2021 Placement Agent Warrants”, respectively. Warrants issued to the investors and placement agent in the 2020 Financing were referred to as the “2020 Investors Warrants” and the “2020 Placement Agent Warrants”, respectively. The warrants issued in the 2021 Financing and the 2020 Financing were referred to collectively as the “Warrants”. The Company accounted for the Warrants 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, 2023

  

December 31, 2022

  

March 31, 2023

  

December 31, 2022

 
                 

Stock price

 $1.70  $0.46# $1.70  $0.46#

Years to maturity

  1.38   1.63   1.38   1.63 

Risk-free interest rate

  4.44%  4.625%  4.44%  4.625%

Dividend yield

  -   -   -   - 

Expected volatility

  113%  99.74%  113%  99.74%

Exercise Price

 $17.95  $3.59# $22.4375  $4.4875#
                 

Fair value of the warrant

 $0.0937  $0.0329  $0.0727  $0.0256 
                 

Warrant liabilities (US$’000)

 $49  $86  $5  $9 

 

18

 
  

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