*All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets (Note 2).
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. | Organization and nature of operations |
ZW Data Action Technologies Inc. (the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing Internet advertising, precision marketing, e-commerce online to offline (O2O) advertising and marketing services as well as the related data and technical services to small and medium enterprises (SMEs) in the PRC.
2. | Variable interest entities |
To satisfy PRC laws and regulations, the Company conducts certain business in the PRC through its PRC subsidiaries and operating entities (the “VIEs”).
Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of March 31, 2022 and December 31, 2021, respectively:
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
Assets | | | | | | | | |
Current assets: | | | | | | | | |
Cash and cash equivalents | | $ | 873 | | | $ | 181 | |
Accounts receivable, net | | | 3,285 | | | | 2,796 | |
Prepayment and deposit to suppliers | | | 4,329 | | | | 5,287 | |
Due from related parties | | | 78 | | | | 90 | |
Other current assets | | | 3 | | | | 4 | |
Total current assets | | | 8,568 | | | | 8,358 | |
| | | | | | | | |
Long-term investments | | | 498 | | | | 496 | |
Operating lease right-of-use assets | | | 19 | | | | 21 | |
Property and equipment, net | | | 157 | | | | 168 | |
Deferred tax assets, net | | | 445 | | | | 441 | |
Total Assets | | $ | 9,687 | | | $ | 9,484 | |
| | | | | | | | |
Liabilities | | | | | | | | |
Current liabilities: | | | | | | | | |
Accounts payable | | $ | 751 | | | $ | 1,119 | |
Advances from customers | | | 936 | | | | 1,113 | |
Accrued payroll and other accruals | | | 79 | | | | 83 | |
Taxes payable | | | 2,868 | | | | 2,849 | |
Operating lease liabilities | | | 9 | | | | 9 | |
Lease payment liabilities related to short-term leases | | | 111 | | | | 110 | |
Other current liabilities | | | 51 | | | | 53 | |
Total current liabilities | | | 4,805 | | | | 5,336 | |
| | | | | | | | |
Operating lease liabilities-Non current | | | - | | | | 10 | |
Total Liabilities | | $ | 4,805 | | | $ | 5,346 | |
All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive (loss)/income for the three months ended March 31, 2022 and 2021, respectively:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Revenues | | $ | 7,198 | | | $ | 7,947 | |
Cost of revenues | | | (7,518 | ) | | | (8,738 | ) |
Total operating expenses | | | (259 | ) | | | (390 | ) |
Net loss before allocation to noncontrolling interests | | | (585 | ) | | | (1,281 | ) |
3. | Summary of significant accounting policies |
The unaudited condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).
The unaudited condensed consolidated interim financial information as of March 31, 2022 and for the three months ended March 31, 2022 and 2021 have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, previously filed with the SEC (the “2021 Form 10-K”) on April 15, 2022.
In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of March 31, 2022, its condensed consolidated results of operations for the three months ended March 31, 2022 and 2021, and its condensed consolidated cash flows for the three months ended March 31, 2022 and 2021, as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the full fiscal year or any future periods.
| b) | Principles of consolidation |
The unaudited condensed consolidated interim financial statements include the accounts of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.
d) | Foreign currency translation |
The exchange rates used to translate amounts in RMB into US$ for the purposes of preparing the condensed consolidated financial statements are as follows:
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | March 31, 2022 | | | December 31, 2021 | |
| | | | | | | | |
Balance sheet items, except for equity accounts | | | 6.3482 | | | | 6.3757 | |
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
Items in the statements of operations and comprehensive income/(loss) | | | 6.3504 | | | | 6.4844 | |
No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.
e) | Fair value measurement |
Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2022 and December 31, 2021 are as follows:
| | | | | | Fair value measurement at reporting date using | |
| | As of March 31, 2022 | | | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (Note 15) | | | 1,244 | | | | - | | | | - | | | | 1,244 | |
| | | | | | Fair value measurement at reporting date using | |
| | As of December 31, 2021 | | | Quoted Prices in Active Markets for Identical Assets/Liabilities (Level 1) | | | Significant Other Observable Inputs (Level 2) | | | Significant Unobservable Inputs (Level 3) | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (Note 15) | | | 2,039 | | | | - | | | | - | | | | 2,039 | |
The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
Internet advertising and related services | | | | | | | | |
--distribution of the right to use search engine marketing service | | | 6,594 | | | | 6,865 | |
--online advertising placements | | | 1,058 | | | | 1,402 | |
Ecommerce O2O advertising and marketing services | | | - | | | | 129 | |
Total revenues | | | 7,652 | | | | 8,396 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Revenue recognized over time | | | 7,652 | | | | 8,396 | |
Revenue recognized at a point in time | | | - | | | | - | |
Total revenues | | | 7,652 | | | | 8,396 | |
Contract costs
For the three months ended March 31, 2022 and 2021, the Company did not have any significant incremental costs of obtaining contracts with customers incurred and/or costs incurred in fulfilling contracts with customers, that shall be recognized as an asset and amortized to expenses in a pattern that matches the timing of the revenue recognition of the related contract.
Contract balances
The table below summarized the movement of the Company’s contract liabilities (advance from customers) for the three months ended March 31, 2022:
| | Contract liabilities | |
| | US$(’000) | |
| | | | |
Balance as of January 1, 2022 | | | 1,245 | |
Exchange translation adjustment | | | 5 | |
Revenue recognized from beginning contract liability balance | | | (971 | ) |
Advances received from customers related to unsatisfied performance obligations | | | 768 | |
Balance as of March 31, 2022 (Unaudited) | | | 1,047 | |
Advance from customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers were insignificant for both the three months ended March 31, 2022 and 2021.
For the three months ended March 31, 2022 and 2021, there is no revenue recognized from performance obligations that were satisfied in prior periods.
g) | Research and development expenses |
The Company accounts for expenses for the enhancement, maintenance and technical support to the Company’s Internet platforms and intellectual properties that are used in its daily operations in research and development expenses. Research and development costs are charged to expense when incurred. Expenses for research and development for the three months ended March 31, 2022 and 2021 were approximately US$0.07 million for both periods.
As of March 31, 2022, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$1.97 million and US$2.06 million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Maturity of operating lease liabilities
| | Operating leases | |
| | US$(’000) | |
| | (Unaudited) | |
| | | | |
Nine months ending December 31, 2022 | | | 235 | |
Year ending December 31, | | | | |
-2023 | | | 337 | |
-2024 | | | 343 | |
-2025 | | | 360 | |
-2026 | | | 378 | |
-2027 | | | 397 | |
-thereafter | | | 489 | |
Total undiscounted lease payments | | | 2,539 | |
Less: imputed interest | | | (476 | ) |
Total operating lease liabilities as of March 31, 2022 | | | 2,063 | |
| | | | |
Including: | | | | |
Operating lease liabilities | | | 210 | |
Operating lease liabilities-Non current | | | 1,853 | |
| | | 2,063 | |
Operating lease expenses:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Long-term operating lease contracts | | | 90 | | | | 37 | |
Short-term operating lease contracts | | | 15 | | | | 15 | |
Total | | | 105 | | | | 52 | |
Supplemental information related to operating leases:
| | Three Month Ended March 31, 2022 | |
| | (Unaudited) | |
| | | | |
Operating cash flows used for operating leases (US$’000) | | | 86 | |
Right-of-use assets obtained in exchange for new lease liabilities (US$’000) | | | - | |
Weighted-average remaining lease term (years) | | | 6.90 | |
Weighted-average discount rate | | | 6 | % |
4. | Accounts receivable, net |
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Accounts receivable | | | 5,856 | | | | 5,675 | |
Allowance for doubtful accounts | | | (2,245 | ) | | | (2,236 | ) |
Accounts receivable, net | | | 3,611 | | | | 3,439 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
All of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of March 31, 2022 and December 31, 2021, the Company provided approximately US$2.2 million allowance for doubtful accounts, which were primarily related to the accounts receivable of the Company’s Internet advertising and related services segment with an aging over six months. The Company evaluates its accounts receivable with an aging over six months and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions. No allowance for doubtful accounts was provided for either the three months ended March 31, 2022 or 2021.
5. | Prepayments and deposit to suppliers |
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Deposits to advertising resources providers | | | 633 | | | | 934 | |
Prepayments to advertising resources providers | | | 4,579 | | | | 5,185 | |
Deposit and prepayment for other investing contracts | | | 1,000 | | | | 1,000 | |
Other deposits and prepayments | | | 401 | | | | 440 | |
| | | 6,613 | | | | 7,559 | |
6. | Due from related parties, net |
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”) | | | 63 | | | | 62 | |
Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”) | | | 15 | | | | 28 | |
Due from related parties, net | | | 78 | | | | 90 | |
Related parties of the Company represented the Company’s direct or indirect unconsolidated investee companies and entities that the Company’s officers or directors can exercise significant influence.
As of March 31, 2022 and December 31, 2021, due from Zhongwang Xiyue represented the outstanding receivables for the advertising and marketing service that the Company provided to this related party in its normal course of business, which is on the same terms as those provided to its unrelated clients.
As of March 31, 2022, due from Gong Xiang Technology was a short-term working capital loan provided to this investee entity, which loan is expected to be repaid to the Company for the year ending December 31, 2022.
7. | Other current assets, net |
As of March 31, 2022, other current assets primarily include an aggregate principal amount of US$3.12 million unsecured working capital loans that the Company provided to unrelated parties, of which US$1.02 million has been collected in April 2022, and an approximately US$0.05 million interest receivable accrued for one of the working capital loans, which has been received in April 2022. The remaining balances of these loans are expected to be fully repaid to the Company before December 31, 2022.
| | Amount | |
| | US$(’000) | |
| | | | |
Balance as of January 1, 2022 | | | 2,280 | |
Exchange translation adjustment | | | 5 | |
Cash investments during the year | | | - | |
Disposed during the year | | | - | |
Balance as of March 31, 2022 (Unaudited) | | | 2,285 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2022, except for long-term investments which were fully impaired, the Company beneficially owned a 15.38%, 10%, 9.09%,15%, 17% and 19% equity interest in each New Business Holdings Limited (“New Business”), Guang Dong WeFriend Co., Ltd. (“Guangdong WeFriend”), Shenzhen Global Best Products Import & Export Co., Ltd. (“Global Best Products”), Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”), Xiao Peng Education Technology (Hubei) Co., Ltd. (“Xiao Peng Education”) and Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), respectively.
The Company measures each investment which does not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
9. | Property and equipment, net |
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Vehicles | | | 937 | | | | 933 | |
Office equipment | | | 948 | | | | 944 | |
Electronic devices | | | 632 | | | | 629 | |
Leasehold improvement | | | 203 | | | | 202 | |
Property and equipment, cost | | | 2,720 | | | | 2,708 | |
Less: accumulated depreciation | | | (2,369 | ) | | | (2,333 | ) |
Property and equipment, net | | | 351 | | | | 375 | |
Depreciation expenses for the three months ended March 31, 2022 and 2021 were approximately US$0.03 million and US$0.001 million, respectively.
10. | Intangible assets, net |
| | As of March 31, 2022 (Unaudited) | |
Items | | Gross Carrying Value | | | Accumulated Amortization | | | Impairment | | | Net Carrying Value | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
Intangible assets subject to amortization: | | | | | | | | | | | | | | | | |
--10 years life: | | | | | | | | | | | | | | | | |
Cloud compute software technology | | | 1,462 | | | | (1,014 | ) | | | (448 | ) | | | - | |
Licensed products use right | | | 1,201 | | | | (285 | ) | | | - | | | | 916 | |
| | | | | | | | | | | | | | | | |
--5 years life: | | | | | | | | | | | | | | | | |
Internet Ad tracking system | | | 1,155 | | | | (229 | ) | | | - | | | | 926 | |
Live streaming technology | | | 1,500 | | | | (400 | ) | | | - | | | | 1,100 | |
| | | | | | | | | | | | | | | | |
--3 years life: | | | | | | | | | | | | | | | | |
Blockchain integrated framework | | | 4,038 | | | | (337 | ) | | | - | | | | 3,701 | |
Bo!News application | | | 378 | | | | (32 | ) | | | - | | | | 346 | |
Other computer software | | | 123 | | | | (123 | ) | | | - | | | | - | |
Total | | $ | 9,857 | | | $ | (2,420 | ) | | $ | (448 | ) | | $ | 6,989 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
| | As of December 31, 2021 | |
Items | | Gross Carrying Value | | | Accumulated Amortization | | | Impairment | | | Net Carrying Value | |
| | US$(’000) | | | US$(’000) | | | US$(’000) | | | US$(’000) | |
Intangible assets subject to amortization: | | | | | | | | | | | | | | | | |
--10 years life: | | | | | | | | | | | | | | | | |
Cloud compute software technology | | | 1,456 | | | | (1,010 | ) | | | (446 | ) | | | - | |
Licensed products use right | | | 1,205 | | | | (255 | ) | | | - | | | | 950 | |
| | | | | | | | | | | | | | | | |
--5 years life: | | | | | | | | | | | | | | | | |
Internet Ad tracking system | | | 1,158 | | | | (174 | ) | | | - | | | | 984 | |
Live streaming technology | | | 1,500 | | | | (325 | ) | | | - | | | | 1,175 | |
| | | | | | | | | | | | | | | | |
--3 years life: | | | | | | | | | | | | | | | | |
Blockchain integrated framework | | | 4,038 | | | | | | | | - | | | | 4,038 | |
Bo!News application | | | 376 | | | | - | | | | - | | | | 376 | |
Other computer software | | | 123 | | | | (123 | ) | | | - | | | | - | |
Total | | | 9,856 | | | | (1,887 | ) | | | (446 | ) | | | 7,523 | |
Amortization expenses for the three months ended March 31, 2022 and 2021 were approximately US$0.53 million and US$0.11 million, respectively.
Based on the adjusted carrying value of the finite-lived intangible assets after the deduction of the impairment losses, which has a weighted average remaining useful life of 3.69 years as of March 31, 2022, and assuming no further subsequent impairment of the underlying intangible assets, the estimated future amortization expenses is approximately US$1.59 million for the year ending December 31, 2022, approximately US$2.12 million each year for the year ending December 31, 2023 and 2024, approximately US$0.63 million for the year ending December 31, 2025, approximately US$0.18 million for the year ending December 31, 2026, and approximately US$0.12 million for the year ending December 31, 2027.
11. | Long-term deposits and prepayments |
As of March 31, 2022 and December 31, 2021, long-term deposits and prepayments represented the Company’s operating deposits and prepayments that were not expected to be refunded or consumed within one year of the respective reporting date.
12. | Accrued payroll and other accruals |
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Accrued payroll and staff welfare | | | 138 | | | | 142 | |
Accrued operating expenses | | | 185 | | | | 247 | |
| | | 323 | | | | 389 | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2022 and December 31, 2021, taxes payable consists of:
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Turnover tax and surcharge payable | | | 1,427 | | | | 1,414 | |
Enterprise income tax payable | | | 2,128 | | | | 2,120 | |
Total taxes payable | | | 3,555 | | | | 3,534 | |
For the three months ended March 31, 2022 and 2021, the Company’s income tax benefit consisted of:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Current | | | - | | | | - | |
Deferred | | | 2 | | | | 18 | |
Income tax benefit | | | 2 | | | | 18 | |
The Company’s deferred tax assets as of March 31, 2022 and December 31, 2021 were as follows:
| | March 31, 2022 | | | December 31, 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | | | |
| | | | | | | | |
Tax effect of net operating losses carried forward | | | 12,471 | | | | 12,130 | |
Operating lease cost | | | 26 | | | | 23 | |
Bad debts provision | | | 561 | | | | 559 | |
Valuation allowance | | | (12,613 | ) | | | (12,271 | ) |
Deferred tax assets, net | | | 445 | | | | 441 | |
The U.S. holding company has incurred aggregate net operating losses (NOLs) of approximately US$31.5 million and US$31.0 million at March 31, 2022 and December 31, 2021, respectively. The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely. Furthermore, the Act imposes an annual limit of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization, the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets.
The NOLs carried forward incurred by the Company’s PRC subsidiaries and VIEs were approximately US$19.3 million and US$18.3 million as of March 31, 2022 and December 31, 2021, respectively. The losses carryforwards gradually expire over time, the last of which will expire in 2027. The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company recorded approximately US$12.6 million and US$12.3 million valuation allowance as of March 31, 2022 and December 31, 2021, respectively, because it is considered more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities to which the operating losses related.
For the three months ended March 31, 2022 and 2021, the Company recorded approximately US$0.32 million and US$0.31 million deferred tax valuation allowance, respectively.
14. | Long-term borrowing from a related party |
Long-term borrowing from a related party is a non-interest bearing loan from a related party of the Company relating to the original paid-in capital contribution in the Company’s wholly-owned subsidiary, Rise King Century Technology Development (Beijing) Co., Ltd. (“Rise King WFOE”), which is not expected to be repaid within one year.
The Company issued warrants to certain institutional investors and the Company’s placement agent in the registered direct offerings consummated in February 2021 (the “2021 Financing”), December 2020 (the “2020 Financing”), and January 2018 (the “2018 Financing”), which warrants were accounted for as derivative liabilities and measured at fair value with changes in fair value be recorded in earnings in each reporting period.
Warrants issued in the 2021 Financing:
| | 2021 Investor Warrants | | | 2021 Placement Agent Warrants | |
| | March 31, 2022 | | | December 31, 2021 | | | March 31, 2022 | | | December 31, 2021 | |
| | | | | | | | | | | | | | | | |
Stock price | | $ | 0.73 | | | $ | 1.00 | | | $ | 0.73 | | | $ | 1.00 | |
Years to maturity | | | 2.38 | | | | 2.63 | | | | 2.38 | | | | 2.63 | |
Risk-free interest rate | | | 2.35 | % | | | 0.87 | % | | | 2.35 | % | | | 0.87 | % |
Dividend yield | | | - | | | | - | | | | - | | | | - | |
Expected volatility | | | 121 | % | | | 115 | % | | | 121 | % | | | 115 | % |
Exercise Price | | $ | 3.59 | | | $ | 3.59 | | | $ | 4.4875 | | | $ | 4.4875 | |
| | | | | | | | | | | | | | | | |
Fair value of the warrant | | $ | 0.24 | | | $ | 0.37 | | | $ | 0.23 | | | $ | 0.36 | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (US$’000) | | $ | 626 | | | $ | 964 | | | $ | 84 | | | $ | 132 | |
| | 2021 Investor Warrants | | | 2021 Placement Agent Warrants | |
| | March 31, 2021 | | | February 18, 2021* | | | March 31, 2021 | | | February 18, 2021* | |
| | | | | | | | | | | | | | | | |
Stock price | | $ | 2.64 | | | $ | 4.48 | | | $ | 2.64 | | | $ | 4.48 | |
Years to maturity | | | 3.38 | | | | 3.50 | | | | 3.38 | | | | 3.50 | |
Risk-free interest rate | | | 0.41 | % | | | 0.26 | % | | | 0.41 | % | | | 0.26 | % |
Dividend yield | | | - | | | | - | | | | - | | | | - | |
Expected volatility | | | 168 | % | | | 168 | % | | | 168 | % | | | 168 | % |
Exercise Price | | $ | 3.59 | | | $ | 3.59 | | | $ | 4.4875 | | | $ | 4.4875 | |
| | | | | | | | | | | | | | | | |
Fair value of the warrant | | $ | 2.28 | | | $ | 4.02 | | | $ | 2.24 | | | $ | 3.96 | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (US$’000) | | $ | 5,942 | | | $ | 10,476 | | | $ | 817 | | | $ | 1,445 | |
* Closing date of the 2021 Financing.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Warrants issued in the 2020 Financing:
| | 2020 Investor Warrants | | | 2020 Placement Agent Warrants | |
| | March 31, 2022 | | | December 31, 2021 | | | March 31, 2022 | | | December 31, 2021 | |
| | | | | | | | | | | | | | | | |
Stock price | | $ | 0.73 | | | $ | 1.00 | | | $ | 0.73 | | | $ | 1.00 | |
Years to maturity | | | 1.70 | | | | 1.95 | | | | 1.70 | | | | 1.95 | |
Risk-free interest rate | | | 2.23 | % | | | 0.72 | % | | | 2.23 | % | | | 0.72 | % |
Dividend yield | | | - | | | | - | | | | - | | | | - | |
Expected volatility | | | 127 | % | | | 128 | % | | | 127 | % | | | 128 | % |
Exercise Price | | $ | 2.03 | | | $ | 2.03 | | | $ | 2.03 | | | $ | 2.03 | |
| | | | | | | | | | | | | | | | |
Fair value of the warrant | | $ | 0.26 | | | $ | 0.46 | | | $ | 0.28 | | | $ | 0.49 | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (US$’000) | | $ | 449 | | | $ | 795 | | | $ | 85 | | | $ | 148 | |
| | 2020 Investor Warrants | | | 2020 Placement Agent Warrants | |
| | March 31, 2021 | | | December 31, 2020 | | | March 31, 2021 | | | December 31, 2020 | |
| | | | | | | | | | | | | | | | |
Stock price | | $ | 2.64 | | | $ | 1.35 | | | $ | 2.64 | | | $ | 1.35 | |
Years to maturity | | | 2.70 | | | | 2.95 | | | | 2.70 | | | | 2.95 | |
Risk-free interest rate | | | 0.29 | % | | | 0.17 | % | | | 0.29 | % | | | 0.17 | % |
Dividend yield | | | - | | | | - | | | | - | | | | - | |
Expected volatility | | | 120 | % | | | 102 | % | | | 120 | % | | | 102 | % |
Exercise Price | | $ | 2.03 | | | $ | 2.03 | | | $ | 2.03 | | | $ | 2.03 | |
| | | | | | | | | | | | | | | | |
Fair value of the warrant | | $ | 1.95 | | | $ | 0.74 | | | $ | 1.95 | | | $ | 0.74 | |
| | | | | | | | | | | | | | | | |
Warrant liabilities (US$’000) | | $ | 3,370 | | | $ | 1,279 | | | $ | 590 | | | $ | 224 | |
Warrants issued in the 2018 Financing:
| | 2018 Placement Agent Warrants * | |
| | As of March 31, 2021 | | | As of December 31, 2020 | |
| | | | | | | | |
Stock price | | $ | 2.64 | | | $ | 1.35 | |
Years to maturity | | | 0.30 | | | | 0.05 | |
Risk-free interest rate | | | 0.03 | % | | | 0.08 | % |
Dividend yield | | | - | | | | - | |
Expected volatility | | 206% | | | | 59 | % |
Exercise Price | | $ | 1.4927 | | | $ | 1.4927 | |
| | | | | | | | |
Fair value of the warrant | | $ | 1.55 | | | $ | 0.02 | |
| | | | | | | | |
Warrant liabilities (US$’000) | | $ | 200 | | | $ | 2 | |
* The investor warrants issued in the 2018 Financing expired in July 2020. The placement agent warrants issued in the 2018 Financing were cashless exercised in July 2021.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Changes in fair value of warrant liabilities
Three Months Ended March 31, 2022 (Unaudited)
| | As of March 31, 2022 | | | As of December 31, 2021 | | | Change in Fair Value (gain)/loss | |
| | (US$’000) | | | (US$’000) | | | (US$’000) | |
Fair value of the Warrants: | | | | | | | | | | | | |
| | | | | | | | | | | | |
Warrants issued in the 2021 Financing: | | | | | | | | | | | | |
--Investor Warrants | | | 626 | | | | 964 | | | | (338 | ) |
--Placement Agent Warrants | | | 84 | | | | 132 | | | | (48 | ) |
Warrants issued in the 2020 Financing: | | | | | | | | | | | | |
--Investor Warrants | | | 449 | | | | 795 | | | | (346 | ) |
--Placement Agent Warrants | | | 85 | | | | 148 | | | | (63 | ) |
Warrant liabilities | | | 1,244 | | | | 2,039 | | | | (795 | ) |
Three Months Ended March 31, 2021 (Unaudited)
| | As of March 31, 2021 | | | As of February 18, 2021 | | | As of December 31, 2020 | | | Change in Fair Value (gain)/loss | |
| | (US$’000) | | | (US$’000) | | | (US$’000) | | | (US$’000) | |
Fair value of the Warrants: | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
Warrants issued in the 2021 Financing: | |
--Investor Warrants | | | 5,942 | | | | 10,476 | | | | * | | | | (4,534 | ) |
--Placement Agent Warrants | | | 817 | | | | 1,445 | | | | * | | | | (628 | ) |
Warrants issued in the 2020 Financing: | |
--Investor Warrants | | | 3,370 | | | | * | | | | 1,279 | | | | 2,091 | |
--Placement Agent Warrants | | | 590 | | | | * | | | | 224 | | | | 366 | |
Warrants issued in the 2018 Financing: | |
--Placement Agent Warrants | | | 200 | | | | * | | | | 2 | | | | 198 | |
Warrant liabilities | | | 10,919 | | | | 11,921 | | | | 1,505 | | | | (2,507 | ) |
* Not applicable.
Warrants issued and outstanding as of March 31, 2022 and their movements during the three months then ended are as follows:
| | Warrant Outstanding | | | Warrant Exercisable | |
| | Number of underlying shares | | | Weighted Average Remaining Contractual Life (Years) | | | Weighted Average Exercise Price | | | Number of underlying shares | | | Weighted Average Remaining Contractual Life (Years) | | | Weighted Average Exercise Price | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Balance, January 1, 2022 | | | 5,001,705 | | | | 2.36 | | | $ | 3.02 | | | | 5,001,705 | | | | 2.36 | | | $ | 3.02 | |
Granted/Vested | | | - | | | | | | | | | | | | - | | | | | | | | | |
Exercised | | | - | | | | | | | | | | | | - | | | | | | | | | |
Balance, March 31, 2022 (Unaudited) | | | 5,001,705 | | | | 2.11 | | | $ | 3.02 | | | | 5,001,705 | | | | 2.11 | | | $ | 3.02 | |
16. | Restricted net assets |
As substantially all of the Company’s operations are conducted through its PRC subsidiaries and VIEs, the Company’s ability to pay dividends is primarily dependent on receiving distributions of funds from its PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by its PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries and VIEs included in the Company’s consolidated net assets are also non-distributable for dividend purposes.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of the Company’s other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.
In accordance with these PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. As of March 31, 2022 and December 31, 2021, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of the Company’s PRC subsidiaries and VIEs that are included in the Company’s consolidated net assets, were approximately US$15.2 million and US$13.2 million, respectively.
The current PRC Enterprise Income Tax (“EIT”) Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company.
The ability of the Company’s PRC subsidiaries and VIEs to make dividends and other payments to the Company may also be restricted by changes in applicable foreign exchange and other laws and regulations.
Foreign currency exchange regulation in China is primarily governed by the following rules:
| ● | Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules; |
| ● | Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration Rules. |
Currently, under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.
Although the current Exchange Rules allow the converting of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company’s retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company’s ability to use its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
17. | Employee defined contribution plan |
Full time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries and VIEs of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The employee benefits were expensed as incurred. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits were approximately US$0.07 million and US$0.05 million for the three months ended March 31, 2022 and 2021, respectively.
18. | Concentration of risk |
Credit risk
Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable and loans to unrelated parties. As of Mach 31, 2022, 52% of the Company’s cash and cash equivalents were held by financial institutions located in the United States of America, and the remaining 48% was held by major financial institutions located in the PRC. The Company believes that these financial institutions located in China and the United States of America are of high credit quality. For accounts receivable and loans to unrelated parties, the Company extends credit based on an evaluation of the customer’s or other parties’ financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the Company delegated a team responsible for credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Company reviews the recoverable amount of each individual receivable at each balance sheet date to ensure that adequate allowances are made for doubtful accounts. In this regard, the Company considers that its credit risk for accounts receivable and loans to unrelated parties are significantly reduced.
Concentration of customers
The following tables summarized the information about the Company’s concentration of customers for the three months ended March 31, 2022 and 2021, respectively:
| | Customer A | | | Customer B | | | Customer C | | | Customer D | | | Customer E | |
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2022 | | | | | | | | | | | | | | | | | | | | |
Revenues, customer concentration risk | | | 13% | | | | - | | | | * | | | | - | | | | * | |
| | | | | | | | | | | | | | | | | | | | |
Three Months Ended March 31, 2021 | | | | | | | | | | | | | | | | | | | | |
Revenues, customer concentration risk | | | * | | | | 18% | | | | * | | | | * | | | | * | |
| | | | | | | | | | | | | | | | | | | | |
As of March 31, 2022 | | | | | | | | | | | | | | | | | | | | |
Accounts receivable, customer concentration risk | | | 44% | | | | - | | | | 29% | | | | * | | | | * | |
| | | | | | | | | | | | | | | | | | | | |
As of December 31, 2021 | | | | | | | | | | | | | | | | | | | | |
Accounts receivable, customer concentration risk | | | 33% | | | | - | | | | 32% | | | | 19% | | | | 11% | |
* Less than 10%.
- No transaction incurred for the reporting period/no balance existed as of the reporting date.
Concentration of suppliers
The following tables summarized the information about the Company’s concentration of suppliers for the three months ended March 31, 2022 and 2021, respectively:
| | Supplier A | | | Supplier B | |
Three Months Ended March 31, 2022 | | | | | | | | |
Cost of revenues, supplier concentration risk | | | 60% | | | | 22% | |
| | | | | | | | |
Three Months Ended March 31, 2021 | | | | | | | | |
Cost of revenues, supplier concentration risk | | | 52% | | | | 30% | |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
19. | Commitments and contingencies |
In 2021, in accordance with an investment contract entered into among the Company, Shenzhen Global Best Products Import & Export Co., Ltd., (“Global Best Products”), and the shareholders of Global Best Products, the Company acquired a 9.09% equity interest in Global Best Products through the subscription of a RMB5.0 million (approximately US$0.79 million) new share capital issued by Global Best Products. In November 2021, the Company made its first investment in cash of RMB2.0 million (approximately US$0.32 million) to Global Best Products. The remaining investment amount of RMB3.0 million (approximately US$0.47 million) is expected to be invested before December 31, 2022.
The Company is currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings arising in its ordinary course of business.
The Company follows ASC Topic 280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an entity about which separate financial information is available and which operating results are regularly reviewed by the chief operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to be allocated to the segment and assess each operating segment’s performance.
Three Months Ended March 31, 2022 (Unaudited)
| | Internet Ad and related services | | | Ecommerce O2O Ad and marketing services | | | Blockchain technology | | | Corporate | | | Inter- segment and reconciling item | | | Total | |
| | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | 7,652 | | | | - | | | | - | | | | - | | | | - | | | | 7,652 | |
Cost of revenues | | | 7,518 | | | | - | | | | - | | | | - | | | | - | | | | 7,518 | |
Total operating expenses | | | 288 | | | | 329 | | | | 368 | | | | 700 | (1) | | | - | | | | 1,685 | |
Depreciation and amortization expense included in total operating expenses | | | 89 | | | | 75 | | | | 368 | | | | 22 | | | | - | | | | 554 | |
Operating loss | | | (154 | ) | | | (329 | ) | | | (368 | ) | | | (700 | ) | | | - | | | | (1,551 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of warrant liabilities | | | - | | | | - | | | | - | | | | 795 | | | | - | | | | 795 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss)/income | | | (167 | ) | | | (328 | ) | | | (368 | ) | | | 146 | | | | | | | | (717 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Total assets-March 31, 2022 | | | 12,666 | | | | 1,594 | | | | 4,048 | | | | 42,659 | | | | (30,554 | ) | | | 30,413 | |
Total assets-December 31, 2021 | | | 12,150 | | | | 2,236 | | | | 4,414 | | | | 44,328 | | | | (30,497 | ) | | | 32,631 | |
(1) | | Including approximately US$0.06 million share-based compensation expenses. |
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three Months Ended March 31, 2021 (Unaudited)
| | Internet Ad and related services | | | Ecommerce O2O Ad and marketing services | | | Blockchain technology | | | Corporate | | | Inter- segment and reconciling item | | | Total | |
| | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | | | US$(‘000) | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Revenues | | | 8,267 | | | | 129 | | | | - | | | | - | | | | - | | | | 8,396 | |
Cost of revenues | | | 8,738 | | | | 375 | | | | - | | | | - | | | | - | | | | 9,113 | |
Total operating expenses | | | 383 | | | | 203 | | | | 1 | | | | 511 | (1) | | | - | | | | 1,098 | |
Depreciation and amortization expense included in total operating expenses | | | 35 | | | | 75 | | | | 1 | | | | 1 | | | | - | | | | 112 | |
Operating loss | | | (854 | ) | | | (449 | ) | | | (1 | ) | | | (511 | ) | | | - | | | | (1,815 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | |
Change in fair value of warrant liabilities | | | - | | | | - | | | | - | | | | 2,507 | | | | - | | | | 2,507 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Net (loss)/income | | | (954 | ) | | | (449 | ) | | | (1 | ) | | | 2,091 | | | | | | | | 687 | |
| | | | | | | | | | | | | | | | | | | | | | | | |
Expenditure for long-term assets | | | 1,160 | | | | - | | | | - | | | | - | | | | - | | | | 1,160 | |
(1) | | Including approximately US$0.10 million share-based compensation expenses. |
21. | (Loss)/earnings per share |
Basic and diluted (loss)/earnings per share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are presented in thousands of U.S. dollars):
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Net (loss)/income attributable to ZW Data Action Technologies Inc. (numerator for basic and diluted income/(loss) per share) | | $ | (717 | ) | | $ | 685 | |
| | | | | | | | |
Weighted average number of common shares outstanding -Basic and diluted | | | 35,354,954 | | | | 28,505,181 | |
| | | | | | | | |
(Loss)/earnings per share -Basic and diluted | | $ | (0.02 | ) | | $ | 0.02 | |
For the three months ended March 31, 2022 and 2021, the diluted (loss)/earnings per share calculation did not include any outstanding warrants and options to purchase the Company’s common stock, because their effect was anti-dilutive.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
22. | Share-based compensation expenses |
In March 2022, under its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued an aggregate of 0.095 million fully-vested shares of the Company’s restricted common stock to two of the Company’s executive officers in exchange for their services to the Company for the year ending December 31, 2022. These shares were valued at the closing bid price of the Company’s common stock on the respective date of grant. Total compensation expenses amortized for the three months ended March 31, 2022 was approximately US$0.02 million.
For the three months ended March 31, 2022, the Company also amortized an approximately US$0.04 million compensation expense in the aggregate, which was related to fully-vested and nonforfeitable restricted common stock granted and issued to one of its service providers in March 2020.
The table below summarized share-based compensation expenses recorded for the three months ended March 31, 2022 and 2021, respectively:
| | Three Months Ended March 31, | |
| | 2022 | | | 2021 | |
| | US$(’000) | | | US$(’000) | |
| | (Unaudited) | | | (Unaudited) | |
| | | | | | | | |
Sales and marketing expenses | | | - | | | | - | |
General and administrative expenses | | | 56 | | | | 100 | |
Research and development expenses | | | - | | | | - | |
Total | | | 56 | | | | 100 | |
The aggregate unrecognized share-based compensation expenses as of March 31, 2022 was approximately US$0.05 million, which will be recognized for the year ending December 31, 2022.
The Company primarily conducts its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19) spread all over the country during the first fiscal quarter of 2020. The spread of COVID-19 resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. The Company’s principal business activity is to provide advertising and marketing services to small and medium enterprises in the PRC, which is particularly sensitive to changes in general economic conditions. The pandemic of COVID-19 in the PRC had caused and may continue to cause decreases in or delays in advertising spending, and had negatively impacted and may continue to negatively impact the Company’s short-term ability to grow revenues. Although the Chinese government had declared the COVID-19 outbreak largely under control within its border since the second fiscal quarter of 2020, there has been COVID-19 cases rebound in many provinces in China, and uncertainties associated with the future developments of the pandemic still exist. The Company will continue to assess its financial impacts for the future periods. There can be no assurance that this assessment will enable the Company to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally or in the Company’s sector in particular.
Except for the above mentioned matters, there is no other material event which are required to be adjusted or disclosed as of the date of this consolidated financial statements.