UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM
For the quarterly period ended
or
For the transition period from ____ to _____
Commission File Number:
(Exact name of registrant as specified in its charter)
|
|
|
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
(Address of principal executive offices) (Zip Code)
+
(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 |
||
|
|
|
|
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:
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).
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 ☐ |
| 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
As of July 29, 2024, the registrant had
TABLE OF CONTENTS
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, 2024 |
December 31, 2023 |
|||||||
|
(US $) |
(US $) |
|||||||
|
(Unaudited) |
||||||||
|
Assets |
||||||||
|
Current assets: |
||||||||
|
Cash and cash equivalents |
$ | $ | ||||||
|
Accounts receivable, net of allowance for credit loss of $ |
||||||||
|
Prepayment and deposit to suppliers |
||||||||
|
Other current assets, net |
||||||||
|
Total current assets |
||||||||
|
Long-term investments |
||||||||
|
Operating lease right-of-use assets |
||||||||
|
Property and equipment, net |
||||||||
|
Intangible assets, net |
||||||||
|
Goodwill |
||||||||
|
Deferred tax assets, net |
||||||||
|
Total Assets |
$ | $ | ||||||
|
Liabilities and Equity |
||||||||
|
Current liabilities: |
||||||||
|
Accounts payable * |
$ | $ | ||||||
|
Advance from customers * |
||||||||
|
Accrued payroll and other accruals * |
||||||||
|
Taxes payable * |
||||||||
|
Operating lease liabilities * |
||||||||
|
Lease payment liability related to short-term leases * |
||||||||
|
Other current liabilities * |
||||||||
|
Warrant liabilities |
||||||||
|
Total current liabilities |
||||||||
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (CONTINUED)
(In thousands, except for number of shares and per share data)
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
(US $) |
(US $) |
|||||||
|
(Unaudited) |
||||||||
|
Long-term liabilities: |
||||||||
|
Deferred tax liabilities |
||||||||
|
Long-term borrowing from a related party |
||||||||
|
Total Liabilities |
||||||||
|
Commitments and contingencies |
|
|
||||||
|
Equity: |
||||||||
|
ZW Data Action Technologies Inc.’s stockholders’ equity |
||||||||
|
Common stock (US$ |
||||||||
|
Additional paid-in capital |
||||||||
|
Statutory reserves |
||||||||
|
Accumulated deficit |
( |
) | ( |
) | ||||
|
Accumulated other comprehensive income |
||||||||
|
Total shareholders’ equity |
||||||||
|
Noncontrolling interests |
||||||||
|
Total equity |
||||||||
|
Total Liabilities and Equity |
$ | $ | ||||||
* 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 statement
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, |
||||||||
|
2024 |
2023 |
|||||||
|
(US $) |
(US $) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Revenues |
$ | $ | ||||||
|
Cost of revenues |
||||||||
|
Gross (loss)/profit |
( |
) | ||||||
|
Operating expenses |
||||||||
|
Sales and marketing expenses |
||||||||
|
General and administrative expenses |
||||||||
|
Research and development expenses |
||||||||
|
Total operating expenses |
||||||||
|
Loss from operations |
( |
) | ( |
) | ||||
|
Other income/(expenses) |
||||||||
|
Interest income |
||||||||
|
Other expenses, net |
( |
) | ( |
) | ||||
|
Change in fair value of warrant liabilities |
||||||||
|
Total other income |
||||||||
|
Loss before income tax benefit |
( |
) | ( |
) | ||||
|
Income tax benefit |
||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Foreign currency translation income/(loss) |
( |
) | ||||||
|
Comprehensive loss |
$ | ( |
) | $ | ( |
) | ||
|
Loss per share |
||||||||
|
Loss per common share |
||||||||
|
Basic and diluted |
$ | ( |
) | $ | ( |
) | ||
|
Weighted average number of common shares outstanding: |
||||||||
|
Basic and diluted |
|
|||||||
See notes to unaudited condensed consolidated financial statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
(US $) |
(US $) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Cash flows from operating activities |
||||||||
|
Net loss |
$ | ( |
) | $ | ( |
) | ||
|
Adjustments to reconcile net loss to net cash used in operating activities |
||||||||
|
Depreciation and amortization |
||||||||
|
Amortization of operating lease right-of-use assets |
||||||||
|
Share-based compensation expenses |
||||||||
|
Provision for allowances for credit losses |
||||||||
|
Loss on disposal of fixed assets |
||||||||
|
Deferred taxes |
( |
) | ( |
) | ||||
|
Change in fair value of warrant liabilities |
( |
) | ||||||
|
Other non-operating income |
( |
) | ( |
) | ||||
|
Changes in operating assets and liabilities |
||||||||
|
Accounts receivable |
( |
) | ( |
) | ||||
|
Prepayment and deposit to suppliers |
( |
) | ||||||
|
Other current assets |
( |
) | ( |
) | ||||
|
Accounts payable |
||||||||
|
Advance from customers |
( |
) | ||||||
|
Accrued payroll and other accruals |
( |
) | ||||||
|
Other current liabilities |
( |
) | ||||||
|
Taxes payable |
( |
) | ||||||
|
Operating lease liabilities |
( |
) | ( |
) | ||||
|
Net cash used in operating activities |
( |
) | ( |
) | ||||
|
Cash flows from investing activities |
||||||||
|
Cash acquired during the period |
||||||||
|
Short-term loans to unrelated parties |
( |
) | ||||||
|
Repayment of short-term loans and interest income from unrelated parties |
||||||||
|
Net cash used in investing activities |
( |
) | ||||||
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(In thousands)
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
(US $) |
(US $) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Cash flows from financing activities |
||||||||
|
Net cash provided by financing activities |
||||||||
|
Effect of exchange rate fluctuation on cash and cash equivalents |
( |
) | ( |
) | ||||
|
Net decrease in cash and cash equivalents |
( |
) | ( |
) | ||||
|
Cash and cash equivalents at beginning of the period |
||||||||
|
Cash and cash equivalents at end of the period |
$ | $ | ||||||
|
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 THREE MONTHS ENDED MARCH 31, 2024 and 2023
(In thousands, except for number of shares)
|
Common stock |
Additional paid-in capital |
Statutory reserves |
Accumulated deficit |
Accumulated other comprehensive income/(loss) |
Non-controlling Interest |
Total stockholders’ equity |
||||||||||||||||||||||||||
|
Number of shares |
Amount |
|||||||||||||||||||||||||||||||
|
(US $) |
(US $) |
(US $) |
(US $) |
(US $) |
(US $) |
(US $) |
||||||||||||||||||||||||||
|
Balance, January 1, 2024 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
|
Noncontrolling equity interests in an acquired VIE |
- | |||||||||||||||||||||||||||||||
|
Net loss for the period |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
|
Foreign currency translation adjustment |
- | |||||||||||||||||||||||||||||||
|
Balance, March 31, 2024 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
|
Common stock** |
Additional paid-in capital** |
Statutory reserves |
Accumulated deficit |
Accumulated other comprehensive income/(loss) |
Non-controlling Interest |
Total stockholders’ equity |
||||||||||||||||||||||||||
|
Number of shares |
Amount |
|||||||||||||||||||||||||||||||
|
(US $) |
(US $) |
(US $) |
(US $) |
(US $) |
(US $) |
|||||||||||||||||||||||||||
|
Balance, January 1, 2023 |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
|
Share-based compensation in exchange for services from employees and directors |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
|
Net loss for the period |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
|
Foreign currency translation adjustment |
- | ( |
) | ( |
) | |||||||||||||||||||||||||||
|
Balance, March 31, 2023 (unaudited) |
$ | $ | $ | $ | ( |
) | $ | $ | $ | |||||||||||||||||||||||
**Retrospectively restated for effect of the 1-for-5 reverse stock split effective on January 18, 2023, see Note 4(g).
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, 2024 and December 31, 2023, respectively:
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Assets |
||||||||
|
Current assets: |
||||||||
|
Cash and cash equivalents |
$ | $ | ||||||
|
Accounts receivable, net |
||||||||
|
Prepayment and deposit to suppliers |
||||||||
|
Other current assets, net |
||||||||
|
Total current assets |
||||||||
|
Goodwill, net |
||||||||
|
Intangible assets, net |
||||||||
|
Property and equipment, net |
||||||||
|
Deferred tax assets, net |
||||||||
|
Total Assets |
$ | $ | ||||||
|
Liabilities |
||||||||
|
Current liabilities: |
||||||||
|
Accounts payable |
$ | $ | ||||||
|
Advance from customers |
||||||||
|
Accrued payroll and other accruals |
||||||||
|
Taxes payable |
||||||||
|
Lease payment liability related to short-term leases |
||||||||
|
Other current liabilities |
||||||||
|
Total current liabilities |
||||||||
|
Long-term liabilities: |
||||||||
|
Deferred tax liabilities |
||||||||
|
Total Liabilities |
$ | $ | ||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 three months ended March 31, 2024 and 2023, respectively:
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Revenues |
$ | $ | ||||||
|
Cost of revenues |
( |
) | ( |
) | ||||
|
Total operating expenses |
( |
) | ( |
) | ||||
|
Net loss |
( |
) | ( |
) | ||||
|
3. |
Liquidity and Capital Resources |
The Company incurred operating losses and may continue to incur operating losses, and as a result, generate negative cash flows as the Company implements its future business plan. For the three months ended March 31, 2024, the Company incurred a loss from operations of US$
The Company plans to optimize its internet resources cost investment strategy to improve the gross profit margin of its core business and to further strengthen the accounts receivables collection management, and negotiate with major suppliers for more favorable payment terms, all of which will help to substantially increase the cashflows from operations. In addition, to further improve its liquidity, the Company plans to reduce its operating costs through optimizing the personnel structure among different offices, and reduce its office leasing spaces, if needed. Beginning in early 2022, the Company introduced 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 BIF platform enables the Company’s 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. While the COVID-19 epidemic and the associated extended quarantine and business shutdown measures throughout fiscal 2022 adversely affected the Company’s SaaS services promotion, and revenues from the new SaaS services business and its profitability have not met the Company’s expectations, the Company still expects these services to generate positive cash flow and improve liquidity since they rely on technologies of its self-developed software platform, thus reducing the need for substantial cash outflow to third-party service providers. In March 2024, the Company acquired a
If the Company fails to achieve these goals, the Company may need additional financing to execute its business plan. If additional financing is required, the Company cannot predict whether this additional financing will be in the form of equity, debt, or another form, and the Company may not be able to obtain the necessary additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that the Company is unsuccessful in increasing its gross profit margin and reducing operating losses, the Company may be unable to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Company’s business, prospects, financial condition and results of operations. These factors raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial statements are issued.
The unaudited condensed consolidated financial statements as of March 31, 2024 have been prepared under the assumption that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. The Company's ability to continue as a going concern is dependent upon its uncertain ability to increase gross profit margin and reduce operating loss from its core business and/or obtain additional equity and/or debt financing. The accompanying financial statements as of March 31, 2024 do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on the financial statements.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
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”).
The unaudited condensed consolidated interim financial information as of March 31, 2024 and for the three months ended March 31, 2024 and 2023 have been prepared pursuant to the rules and regulations of the U.S. Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2023, previously filed with the SEC (the “2023 Form 10-K”) on June 28, 2024.
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, 2024, its condensed consolidated results of operations for the three months ended March 31, 2024 and 2023, and its condensed consolidated cash flows for the three months ended March 31, 2024 and 2023, 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, 2024 |
December 31, 2023 |
|||||||
|
Balance sheet items, except for equity accounts |
||||||||
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
Items in the statements of operations and comprehensive loss |
||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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$
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, 2024 and 2023, respectively:
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Credit loss for accounts receivable: |
||||||||
|
Balance as of beginning of the period |
||||||||
|
Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326) |
||||||||
|
Provision for/(reverse of) credit loss during the period |
||||||||
|
Written off during the period |
||||||||
|
Exchange translation adjustments |
( |
) | ||||||
|
Balance as of end of the period |
||||||||
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Credit loss for other current assets: |
||||||||
|
Balance as of beginning of the period |
||||||||
|
Cumulative-effect adjustment upon adoption of ASU No. 2016-13, Financial Instruments-Credit losses (Topic 326) |
||||||||
|
Provision for credit loss during the period |
||||||||
|
Written off during the period |
||||||||
|
Exchange translation adjustments |
||||||||
|
Balance as of end of the period |
||||||||
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, 2024 and December 31, 2023 are as follows:
|
Fair value measurement at reporting date using |
||||||||||||||||
|
As of March 31, 2024 |
Quoted Prices |
Significant |
Significant |
|||||||||||||
|
US$(’000) |
US$(’000) |
US$(’000) |
US$(’000) |
|||||||||||||
|
(Unaudited) |
||||||||||||||||
|
Warrant liabilities (Note 14) |
||||||||||||||||
|
Fair value measurement at reporting date using |
||||||||||||||||
|
As of December 31, 2023 |
Quoted Prices |
Significant |
Significant |
|||||||||||||
|
US$(’000) |
US$(’000) |
US$(’000) |
US$(’000) |
|||||||||||||
|
Warrant liabilities (Note 14) |
||||||||||||||||
|
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 $
When the Reverse Stock Split became effective, each shares of issued and outstanding Common Stock were converted into one newly issued and outstanding share of Common Stock. 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,
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
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 table present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Internet advertising and related services |
||||||||
|
--distribution of the right to use search engine marketing service |
||||||||
|
--online advertising placements |
||||||||
|
Blockchain-based SaaS services |
||||||||
|
Total revenues |
$ | $ | ||||||
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Revenue recognized over time |
||||||||
|
Revenue recognized at a point in time |
||||||||
|
Total revenues |
$ | $ | ||||||
|
|
Contract balances |
The table below summarized the movement of the Company’s contract liabilities for the three months ended March 31, 2024:
|
Contract liabilities |
||||
|
US$(’000) |
||||
|
Balance as of January 1, 2024 |
||||
|
Exchange translation adjustment |
( |
) | ||
|
Revenue recognized from beginning contract liability balances |
( |
) | ||
|
Advances received from customers related to unsatisfied performance obligations |
||||
|
Balance as of March 31, 2024(Unaudited) |
||||
Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for the three months ended March 31, 2024 and 2023.
For the three months ended March 31, 2024 and 2023, there were revenue recognized from performance obligations that were satisfied in prior periods.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
i) |
Business combination |
We account for our business combinations using the acquisition method in accordance with ASC Topic 805, Business Combinations. The acquisition method requires that the consideration transferred to be allocated to the assets, including separately identifiable assets and liabilities we acquired, based on their estimated fair values. The consideration transferred in an acquisition is measured as the aggregate of the fair values at the date of exchange of the assets given, liabilities incurred, and equity instruments issued as well as the contingent considerations as of the acquisition date. The costs directly attributable to the acquisition are expensed as incurred. Identifiable assets, liabilities and contingent liabilities acquired or assumed are measured separately at their fair value as of the acquisition date, irrespective of the extent of any noncontrolling interests. The excess of (i) the total of cost of acquisition, fair value of the noncontrolling interests and acquisition date fair value of any previously held equity interests in the acquiree over (ii) the fair value of the identifiable net assets of the acquiree, is recorded as goodwill. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognized directly in earnings.
|
|
Acquisition of Yi En (Beijing) Technology Co., Ltd. |
In order to further diversify the channels of the Company’s internet advertising services and improve profitability, the Company acquired a
The acquisition was using the acquisition method of accounting. Accordingly, the acquired assets and liabilities were recorded at their fair value at the date of acquisition. The purchase price allocation was based on a valuation analysis that utilized and considered generally accepted valuation methodologies such as the income and cost approach. The Group engaged a third-party valuation firm to assist with the valuation of assets acquired and liabilities assumed in this business combination. The determination and allocation of fair values to the identifiable assets acquired and liabilities assumed are based on various assumptions and valuation methodologies requiring considerable judgment from management. The most significant variables in these valuations are discount rates, terminal values, the number of years on which to base the cash flow projections, as well as the assumptions and estimates used to determine the cash inflows and outflows. The Company determine discount rates to be used based on the risk inherent in the related activity’s current business model and industry comparisons. Terminal values are based on the expected life of assets, forecasted life cycle and forecasted cash flows over that period.
The table below presented the allocation of purchase price to the major classes of assets and liabilities acquired as of March 26, 2024 (the acquisition date of Beijing Yi En):
|
Fair Value |
Amortization Period |
|||||||
|
US$(’000) |
(Years) |
|||||||
|
(Unaudited) |
||||||||
|
Cash and cash equivalents |
||||||||
|
Prepayment to suppliers |
||||||||
|
Other current liabilities |
( |
) | ||||||
|
Goodwill |
||||||||
|
Acquired intangible assets |
||||||||
|
Customer Relationship |
||||||||
|
Related deferred tax liability |
( |
) | ||||||
|
Total Value |
$ | |||||||
|
Purchase Price |
||||||||
|
Fair value of non-controlling interest |
||||||||
|
Total amount to be allocated |
||||||||
|
j) |
Lease |
As of March 31, 2024, there were operating lease right-of-use assets and total operating lease liabilities recognized.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
Operating lease expenses: |
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Long-term operating lease contracts |
||||||||
|
Short-term operating lease contracts |
||||||||
|
Total |
$ | $ | ||||||
|
|
Supplemental information related to operating leases: |
|
Three Months Ended March 31, |
||||||||
|
2024 |
2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
(Unaudited) |
|||||||
|
Operating cash flows used for operating leases (US$’000) |
||||||||
|
Weighted-average remaining lease term (years) |
- | |||||||
|
Weighted-average discount rate |
% | |||||||
|
5. |
Accounts receivable, net |
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Accounts receivable |
||||||||
|
Allowance for credit loss |
( |
) | ( |
) | ||||
|
Accounts receivable, net |
||||||||
All of the accounts receivable are non-interest bearing. The Company maintains an estimated allowance for credit losses to reduce its accounts receivable to the amount that it believes will be collected. The Company evaluates its accounts receivable on a collective (pool) basis and determines the allowance for credit loss based on aging data, historical collection experience, customer specific facts, current economic conditions and reasonable and supportable forecasts of future economic conditions. For the three months ended March 31, 2024 and 2023, the Company provided approximately US$
|
6. |
Prepayments and deposit to suppliers |
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Deposits to advertising resources providers |
||||||||
|
Prepayments to advertising resources providers |
||||||||
|
Other deposits and prepayments |
||||||||
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
7. |
Other current assets |
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Short-term loans to unrelated parties |
||||||||
|
Short-term loans interest receivables |
||||||||
|
Staff advances for business operations |
||||||||
|
Total other current assets |
||||||||
|
Allowance for credit loss |
( |
) | ( |
) | ||||
|
Other current assets, net |
||||||||
As of March 31, 2024, 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$
On January 11, 2023, the Company provided a short-term loan of US$
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, 2024, the Company provided US$
As of March 31, 2024, other current assets also included a US$
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
8. |
Long-term investments |
|
Amount |
||||
|
US$(’000) |
||||
|
Balance as of January 1, 2024 |
||||
|
Exchange translation adjustment |
||||
|
Cash investments during the year |
||||
|
Disposed during the year |
||||
|
Impairment losses provided during the year |
||||
|
Balance as of March 31, 2024 (Unaudited) |
||||
As of March 31, 2024, except for long-term investments which were fully impaired, the Company beneficially owned a
The Company measures each investment which does not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
For the three months ended March 31, 2024, the Company provided no impairment loss against its long-term investments.
|
9. |
Property and equipment, net |
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Vehicles |
||||||||
|
Office equipment |
||||||||
|
Electronic devices |
||||||||
|
Leasehold improvement |
||||||||
|
Property and equipment, cost |
||||||||
|
Less: accumulated depreciation |
( |
) | ( |
) | ||||
|
Property and equipment, net |
||||||||
Depreciation expenses for the three months ended March 31, 2024 and 2023 were approximately US$
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
10. |
Intangible assets, net |
|
As of March 31, 2024 (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 |
( |
) | ( |
) | ||||||||||||
|
Licensed products use right |
( |
) | ( |
) | ||||||||||||
|
--5 years life: |
||||||||||||||||
| Customer Relationship | 15 | - | - | 15 | ||||||||||||
|
Internet Ad tracking system |
( |
) | ( |
) | ||||||||||||
|
Live streaming technology |
( |
) | ( |
) | ||||||||||||
|
--3 years life: |
||||||||||||||||
|
Blockchain Integrated Framework |
( |
) | ( |
) | ||||||||||||
|
Bo!News application |
( |
) | ( |
) | ||||||||||||
|
Other computer software |
( |
) | ||||||||||||||
|
Total |
$ | $ | ( |
) | $ | ( |
) | $ | ||||||||
|
As of December 31, 2023 |
||||||||||||||||
|
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 |
( |
) | ( |
) | ||||||||||||
|
Licensed products use right |
( |
) | ( |
) | ||||||||||||
|
--5 years life: |
||||||||||||||||
|
Internet Ad tracking system |
( |
) | ( |
) | ||||||||||||
|
Live streaming technology |
( |
) | ( |
) | ||||||||||||
|
--3 years life: |
||||||||||||||||
|
Blockchain Integrated Framework |
( |
) | ( |
) | ||||||||||||
|
Bo!News application |
( |
) | ( |
) | ||||||||||||
|
Other computer software |
( |
) | ||||||||||||||
|
Total |
$ | $ | ( |
) | $ | ( |
) | $ | ||||||||
Amortization expenses for the three months ended March 31, 2024 and 2023 were approximately US$
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
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
11. |
Accrued payroll and other accruals |
|
March 31, 2024 |
December 31, 2023 |
|||||||
|
US$(’000) |
US$(’000) |
|||||||
|
(Unaudited) |
||||||||
|
Accrued payroll and staff welfare |
||||||||
|
Accrued operating expenses |
||||||||
|
12. |
Taxation |
As of March 31, 2024 and December 31, 2023, taxes payable consists of:
|
March 31, 2024 |
December 31, 2023 |
|||||||