|
Item 1.
|
Interim Financial Statements
|
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares
and per share data)
|
|
March
31, 2021
|
|
December 31, 2020
|
|
|
|
(US $)
|
|
|
|
(US $)
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents *
|
|
$
|
15,785
|
|
|
$
|
4,297
|
|
Accounts receivable, net of allowance for doubtful accounts of $4,217 and $4,247, respectively *
|
|
|
1,694
|
|
|
|
2,407
|
|
Prepayment and deposit to suppliers *
|
|
|
7,194
|
|
|
|
4,657
|
|
Due from related parties, net *
|
|
|
102
|
|
|
|
61
|
|
Other current assets, net *
|
|
|
1,765
|
|
|
|
1,462
|
|
Total current assets
|
|
|
26,540
|
|
|
|
12,884
|
|
|
|
|
|
|
|
|
|
|
Long-term investments *
|
|
|
404
|
|
|
|
67
|
|
Operating lease right-of-use assets *
|
|
|
2,199
|
|
|
|
48
|
|
Property and equipment, net *
|
|
|
61
|
|
|
|
60
|
|
Intangible assets, net *
|
|
|
3,603
|
|
|
|
2,557
|
|
Blockchain platform applications development costs
|
|
|
4,403
|
|
|
|
4,406
|
|
Long-term deposits and prepayments *
|
|
|
793
|
|
|
|
39
|
|
Deferred tax assets, net *
|
|
|
624
|
|
|
|
606
|
|
Total Assets
|
|
$
|
38,627
|
|
|
$
|
20,667
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable *
|
|
$
|
1,226
|
|
|
$
|
608
|
|
Advances from customers *
|
|
|
1,592
|
|
|
|
1,436
|
|
Accrued payroll and other accruals *
|
|
|
286
|
|
|
|
489
|
|
Taxes payable *
|
|
|
3,385
|
|
|
|
3,430
|
|
Operating lease liabilities *
|
|
|
267
|
|
|
|
18
|
|
Lease payment liabilities related to short-term leases *
|
|
|
200
|
|
|
|
203
|
|
Other current liabilities *
|
|
|
306
|
|
|
|
333
|
|
Warrant liabilities
|
|
|
10,919
|
|
|
|
1,505
|
|
Total current liabilities
|
|
|
18,181
|
|
|
|
8,022
|
|
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(In thousands, except for number of shares
and per share data)
|
|
March
31, 2021
|
|
December 31, 2020
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Operating lease liabilities-Non current *
|
|
|
1,953
|
|
|
|
32
|
|
Long-term borrowing from a director
|
|
|
133
|
|
|
|
134
|
|
Total Liabilities
|
|
|
20,267
|
|
|
|
8,188
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
ZW Data Action Technologies Inc.’s stockholders’ equity
|
|
|
|
|
|
|
|
|
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 31,304,915 shares and 26,062,915 shares at March 31, 2021 and December 31, 2020, respectively)
|
|
|
31
|
|
|
|
26
|
|
Additional paid-in capital
|
|
|
54,980
|
|
|
|
49,772
|
|
Statutory reserves
|
|
|
2,598
|
|
|
|
2,598
|
|
Accumulated deficit
|
|
|
(40,295
|
)
|
|
|
(40,980
|
)
|
Accumulated other comprehensive income
|
|
|
1,110
|
|
|
|
1,129
|
|
Total ZW Data Action Technologies Inc.’s stockholders’ equity
|
|
|
18,424
|
|
|
|
12,545
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(64
|
)
|
|
|
(66
|
)
|
Total equity
|
|
|
18,360
|
|
|
|
12,479
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
38,627
|
|
|
$
|
20,667
|
|
*All of the VIEs' assets can be used to
settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent
additional claims on the Company’s general assets (Note 2).
See notes to condensed consolidated financial
statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)
(In thousands, except for number of shares
and per share data)
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
From unrelated parties
|
|
$
|
8,396
|
|
|
$
|
4,371
|
|
From related parities
|
|
|
-
|
|
|
|
13
|
|
Total revenues
|
|
|
8,396
|
|
|
|
4,384
|
|
Cost of revenues
|
|
|
9,113
|
|
|
|
3,485
|
|
Gross (loss)/profit
|
|
|
(717
|
)
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
28
|
|
|
|
165
|
|
General and administrative expenses
|
|
|
996
|
|
|
|
2,796
|
|
Research and development expenses
|
|
|
74
|
|
|
|
214
|
|
Total operating expenses
|
|
|
1,098
|
|
|
|
3,175
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,815
|
)
|
|
|
(2,276
|
)
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
Interest income/(expense), net
|
|
|
1
|
|
|
|
(1
|
)
|
Other expenses
|
|
|
(24
|
)
|
|
|
(1
|
)
|
Change in fair value of warrant liabilities
|
|
|
2,507
|
|
|
|
46
|
|
Total other income
|
|
|
2,484
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax benefit/(expense) and noncontrolling interests
|
|
|
669
|
|
|
|
(2,232
|
)
|
Income tax benefit/(expense)
|
|
|
18
|
|
|
|
(78
|
)
|
Net income/(loss)
|
|
|
687
|
|
|
|
(2,310
|
)
|
Net (income)/loss attributable to noncontrolling interests
|
|
|
(2
|
)
|
|
|
-
|
|
Net income/(loss) attributable to ZW Data Action Technologies Inc.
|
|
$
|
685
|
|
|
$
|
(2,310
|
)
|
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME/(LOSS)(CONTINUED)
(In thousands, except for number of shares
and per share data)
|
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
687
|
|
|
$
|
(2,310
|
)
|
Foreign currency translation (loss)/gain
|
|
|
(19
|
)
|
|
|
72
|
|
Comprehensive income/(loss)
|
|
|
668
|
|
|
|
(2,238
|
)
|
Comprehensive income attributable to noncontrolling interests
|
|
|
(2
|
)
|
|
|
(1
|
)
|
Comprehensive income/(loss) attributable to ZW Data Action Technologies Inc.
|
|
$
|
666
|
|
|
$
|
(2,239
|
)
|
|
|
|
|
|
|
|
|
|
Earnings/(loss) per share
|
|
|
|
|
|
|
|
|
Earnings/(loss) per common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.02
|
|
|
$
|
(0.11
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
28,505,181
|
|
|
|
20,397,406
|
|
See notes to condensed consolidated financial
statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
687
|
|
|
$
|
(2,310
|
)
|
Adjustments to reconcile net income/(loss) to net cash (used in)/provided by operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
112
|
|
|
|
207
|
|
Amortization of operating lease right-of-use assets
|
|
|
36
|
|
|
|
3
|
|
Share-based compensation expenses
|
|
|
100
|
|
|
|
1,919
|
|
Provision for allowances for doubtful accounts
|
|
|
-
|
|
|
|
410
|
|
Deferred taxes
|
|
|
(18
|
)
|
|
|
(5
|
)
|
Change in fair value of warrant liabilities
|
|
|
(2,507
|
)
|
|
|
(46
|
)
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
700
|
|
|
|
(255
|
)
|
Prepayment and deposit to suppliers
|
|
|
(2,630
|
)
|
|
|
2,236
|
|
Due from related parties
|
|
|
-
|
|
|
|
29
|
|
Other current assets
|
|
|
7
|
|
|
|
(5
|
)
|
Long-term deposits and prepayments
|
|
|
(794
|
)
|
|
|
(1,125
|
)
|
Accounts payable
|
|
|
628
|
|
|
|
(147
|
)
|
Advances from customers
|
|
|
169
|
|
|
|
123
|
|
Accrued payroll and other accruals
|
|
|
(188
|
)
|
|
|
34
|
|
Other current liabilities
|
|
|
25
|
|
|
|
319
|
|
Taxes payable
|
|
|
(18
|
)
|
|
|
94
|
|
Lease payment liability related to short-term leases
|
|
|
(1
|
)
|
|
|
37
|
|
Operating lease liabilities
|
|
|
(14
|
)
|
|
|
-
|
|
Net cash (used in)/provided by operating activities
|
|
|
(3,706
|
)
|
|
|
1,518
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Cash effect of deconsolidation of VIEs’ subsidiaries
|
|
|
(8
|
)
|
|
|
-
|
|
Investments and advances to ownership investee entities
|
|
|
(385
|
)
|
|
|
-
|
|
Short-term loan to an unrelated party
|
|
|
(312
|
)
|
|
|
(815
|
)
|
Payment for purchase of software technologies
|
|
|
(1,160
|
)
|
|
|
-
|
|
Payment for blockchain platform applications development costs
|
|
|
-
|
|
|
|
(302
|
)
|
Net cash used in investing activities
|
|
|
(1,865
|
)
|
|
|
(1,117
|
)
|
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)
(In thousands)
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
20120
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock and warrant (net of cash offering cost of US$1,600)
|
|
|
17,111
|
|
|
|
-
|
|
Repayment of short-term bank loan
|
|
|
-
|
|
|
|
(430
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
17,111
|
|
|
|
(430
|
)
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuation on cash and cash equivalents
|
|
|
(52
|
)
|
|
|
(19
|
)
|
|
|
|
|
|
|
|
|
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
11,488
|
|
|
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
|
4,297
|
|
|
|
1,603
|
|
Cash and cash equivalents at end of the period
|
|
$
|
15,785
|
|
|
$
|
1,555
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense paid
|
|
$
|
-
|
|
|
$
|
2
|
|
See notes to condensed consolidated financial
statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,
2021
(In thousands, except for number of shares)
|
|
Common stock
|
|
Additional paid-in capital
|
|
Statutory reserves
|
|
Accumulated deficit
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interests
|
|
Total equity
|
|
|
Number of shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2021
|
|
|
26,062,915
|
|
|
$
|
26
|
|
|
$
|
49,772
|
|
|
$
|
2,598
|
|
|
$
|
(40,980
|
)
|
|
$
|
1,129
|
|
|
$
|
(66
|
)
|
|
$
|
12,479
|
|
Issuance of common stock for private placement, net of $10.48 million proceeds allocated to investor warrants labilities and $3.05 million direct offering costs (including $1.45 million proceeds allocated to placement agent warrants liabilities), respectively
|
|
|
5,212,000
|
|
|
|
5
|
|
|
|
5,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
5,190
|
|
Share-based compensation in exchange for services from employees and directors
|
|
|
30,000
|
|
|
|
-
|
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
23
|
|
Net income for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
685
|
|
|
|
-
|
|
|
|
2
|
|
|
|
687
|
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(19
|
)
|
|
|
-
|
|
|
|
(19
|
)
|
Balance, March 31, 2021 (unaudited)
|
|
|
31,304,915
|
|
|
$
|
31
|
|
|
$
|
54,980
|
|
|
$
|
2,598
|
|
|
$
|
(40,295
|
)
|
|
$
|
1,110
|
|
|
$
|
(64
|
)
|
|
$
|
18,360
|
|
See notes to condensed consolidated financial
statements
ZW DATA ACTION TECHNOLOGIES INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
FOR THE THREE MONTHS ENDED MARCH 31,
2020
(In thousands, except for number of shares)
|
|
Common stock
|
|
Additional paid-in capital
|
|
Statutory reserves
|
|
Accumulated deficit
|
|
Accumulated other comprehensive income (loss)
|
|
Noncontrolling interests
|
|
Total equity
|
|
|
Number of shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
|
19,629,403
|
|
|
$
|
20
|
|
|
$
|
43,111
|
|
|
$
|
2,607
|
|
|
$
|
(35,773
|
)
|
|
$
|
1,505
|
|
|
$
|
(57
|
)
|
|
$
|
11,413
|
|
Share-based compensation in exchange for services from nonemployees
|
|
|
430,000
|
|
|
|
-
|
|
|
|
477
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
477
|
|
Share-based compensation in exchange for services from employees and directors
|
|
|
1,632,523
|
|
|
|
2
|
|
|
|
1,897
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,899
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,310
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,310
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
1
|
|
|
|
72
|
|
Balance, March 31, 2020 (unaudited)
|
|
|
21,691,926
|
|
|
$
|
22
|
|
|
$
|
45,485
|
|
|
$
|
2,607
|
|
|
$
|
(38,083
|
)
|
|
$
|
1,576
|
|
|
$
|
(56
|
)
|
|
$
|
11,551
|
|
See notes to condensed consolidated financial
statements
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
1.
|
Organization and nature of operations
|
ZW Data Action Technologies
Inc. (f/k/a ChinaNet Online Holdings, 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. In early 2018, the Company commenced expansion into the blockchain industry and the related technology.
As of March 31, 2021, the Company was in the process of developing its blockchain-powered platform applications (See Note 11).
|
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, 2021 and December 31, 2020, respectively:
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,055
|
|
|
$
|
277
|
|
Accounts receivable, net
|
|
|
1,565
|
|
|
|
1,142
|
|
Prepayment and deposit to suppliers
|
|
|
4,107
|
|
|
|
2,818
|
|
Due from related parties, net
|
|
|
102
|
|
|
|
61
|
|
Other current assets, net
|
|
|
3
|
|
|
|
10
|
|
Total current assets
|
|
|
6,832
|
|
|
|
4,308
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
404
|
|
|
|
67
|
|
Operating lease right-of-use assets
|
|
|
2,199
|
|
|
|
48
|
|
Property and equipment, net
|
|
|
34
|
|
|
|
32
|
|
Intangible assets, net
|
|
|
4
|
|
|
|
9
|
|
Long-term deposits and prepayments
|
|
|
73
|
|
|
|
-
|
|
Deferred tax assets, net
|
|
|
457
|
|
|
|
536
|
|
Total Assets
|
|
|
10,003
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
814
|
|
|
$
|
270
|
|
Advances from customers
|
|
|
1,554
|
|
|
|
1,436
|
|
Accrued payroll and other accruals
|
|
|
80
|
|
|
|
168
|
|
Taxes payable
|
|
|
2,713
|
|
|
|
2,755
|
|
Operating lease liabilities
|
|
|
267
|
|
|
|
18
|
|
Lease payment liabilities related to short-term leases
|
|
|
107
|
|
|
|
108
|
|
Other current liabilities
|
|
|
212
|
|
|
|
213
|
|
Total current liabilities
|
|
|
5,747
|
|
|
|
4,968
|
|
|
|
|
|
|
|
|
|
|
Operating lease liabilities-Non current
|
|
|
1,953
|
|
|
|
32
|
|
Total Liabilities
|
|
$
|
7,700
|
|
|
$
|
5,000
|
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
All of the
VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating
these VIEs do not represent additional claims on the Company’s general assets.
Summarized
below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated
statements of operations and comprehensive income/(loss) for the three months ended March 31, 2021 and 2020, respectively:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
7,947
|
|
|
$
|
2,936
|
|
Cost of revenues
|
|
|
(8,738
|
)
|
|
|
(2,845
|
)
|
Total operating expenses
|
|
|
(390
|
)
|
|
|
(744
|
)
|
Net loss before allocation to noncontrolling interests
|
|
|
(1,281
|
)
|
|
|
(651
|
)
|
|
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, 2021 and for the three months ended March 31, 2021 and 2020
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, 2020, previously filed with the SEC (the “2020 Form 10-K”)
on April 13, 2021.
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, 2021, its condensed consolidated results of operations for the three
months ended March 31, 2021 and 2020, and its condensed consolidated cash flows for the three months ended March 31, 2021 and 2020,
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.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
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, 2021
|
|
December 31, 2020
|
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
6.5713
|
|
|
|
6.5249
|
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
|
|
|
|
|
|
|
Items in the statements of operations and comprehensive income/(loss)
|
|
|
6.4844
|
|
|
|
6.9790
|
|
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, 2021 and December 31, 2020
are as follows:
|
|
|
|
Fair
value measurement at reporting date using
|
|
|
As of
March 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)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (Note 16)
|
|
|
10,919
|
|
|
-
|
|
|
-
|
|
|
|
10,919
|
|
|
|
|
|
Fair value measurement at reporting date using
|
|
|
As of
December 31, 2020
|
|
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 16)
|
|
|
1,505
|
|
|
-
|
|
|
-
|
|
|
|
1,505
|
|
The following
tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Internet advertising and related services
|
|
|
|
|
--distribution of the right to use search engine marketing service
|
|
|
6,865
|
|
|
|
1,988
|
|
--online advertising placements
|
|
|
1,402
|
|
|
|
948
|
|
--data and technical services
|
|
|
-
|
|
|
|
300
|
|
Ecommerce O2O advertising and marketing services
|
|
|
129
|
|
|
|
503
|
|
Technical solution services
|
|
|
-
|
|
|
|
645
|
|
Total revenues
|
|
|
8,396
|
|
|
|
4,384
|
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenue recognized over time
|
|
|
8,396
|
|
|
|
3,739
|
|
Revenue recognized at a point in time
|
|
|
-
|
|
|
|
645
|
|
Total revenues
|
|
|
8,396
|
|
|
|
4,384
|
|
Contract
costs
For the three
months ended March 31, 2021 and 2020, 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, 2021:
|
|
Contract liabilities
|
|
|
US$(’000)
|
|
|
|
Balance as of January 1, 2021
|
|
|
1,436
|
|
Exchange translation adjustment
|
|
|
(10
|
)
|
Revenue recognized from beginning contract liability balance
|
|
|
(1,092
|
)
|
Advances received from customers related to unsatisfied performance obligations
|
|
|
1,258
|
|
Balance as of March 31, 2021 (Unaudited)
|
|
|
1,592
|
|
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, 2021 and 2020.
For the three
months ended March 31, 2021 and 2020, 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, 2021 and 2020 were approximately
US$0.07 million and US$0.21 million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
As of March
31, 2021, operating lease right-of-use assets and total operating lease liabilities recognized was approximately US$2.20 million
and US$2.22 million, respectively.
Maturity
of operating lease liabilities
|
|
Operating leases
|
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
Nine months ending December 31, 2021
|
|
|
192
|
|
Year ending December 31,
|
|
|
|
|
-2022
|
|
|
313
|
|
-2023
|
|
|
331
|
|
-2024
|
|
|
341
|
|
-2025
|
|
|
361
|
|
-2026
|
|
|
383
|
|
-thereafter
|
|
|
908
|
|
Total undiscounted lease payments
|
|
|
2,829
|
|
Less: imputed interest
|
|
|
(609
|
)
|
Total operating lease liabilities as of March 31, 2021
|
|
|
2,220
|
|
|
|
|
|
|
Including:
|
|
|
|
|
Operating lease liabilities
|
|
|
267
|
|
Operating lease liabilities-Non current
|
|
|
1,953
|
|
|
|
|
2,220
|
|
Operating
lease expenses:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Long-term operating lease contracts
|
|
|
37
|
|
|
|
3
|
|
Short-term operating lease contracts
|
|
|
15
|
|
|
|
44
|
|
Total
|
|
|
52
|
|
|
|
47
|
|
Supplemental
information related to operating leases:
|
|
Three Month Ended March 31, 2021
|
|
|
(Unaudited)
|
|
|
|
Operating cash flows used for operating leases (US$’000)
|
|
|
14
|
|
Right-of-use assets obtained in exchange for new lease liabilities (US$’000)
|
|
|
2,249
|
|
Weighted-average remaining lease term (years)
|
|
|
7.88
|
|
Weighted-average discount rate
|
|
|
6
|
%
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
4.
|
Accounts receivable, net
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
5,911
|
|
|
|
6,654
|
|
Allowance for doubtful accounts
|
|
|
(4,217
|
)
|
|
|
(4,247
|
)
|
Accounts receivable, net
|
|
|
1,694
|
|
|
|
2,407
|
|
All
of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as
of March 31, 2021 and December 31, 2020, the Company provided approximately US$4.22 million and US$4.25 million allowance for doubtful
accounts, respectively, which were primarily related to the accounts receivable of the Company’s Internet advertising and
related services segment with an aging over six months. The Company evaluates its accounts receivable with an aging over six months
and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions.
For the three months ended March 31, 2021 and 2020, approximately US$nil and US$0.41 million allowance for doubtful accounts was
provided, respectively.
|
5.
|
Prepayments and deposit to suppliers
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Deposits to advertising resources providers
|
|
|
609
|
|
|
|
307
|
|
Prepayments to advertising resources providers
|
|
|
5,984
|
|
|
|
3,696
|
|
Other deposits and prepayments
|
|
|
601
|
|
|
|
654
|
|
|
|
|
7,194
|
|
|
|
4,657
|
|
6.
|
Due from related parties, net
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)
|
|
|
60
|
|
|
|
61
|
|
Guangzhou Gong Xiang Technology Co., Ltd. (“Gong Xiang Technology”)
|
|
|
42
|
|
|
|
-
|
|
Due from related parties, net
|
|
|
102
|
|
|
|
61
|
|
Related
parties of the Company represented the Company’s direct or indirect unconsolidated investee companies and entities that the
Company’s officers or directors can exercise significant influence.
As
of March 31, 2021 and December 31, 2020, due from Zhongwang Xiyue represented the outstanding receivable for the advertising
and marketing service that the Company provided to this related party in its normal course of business, which is on the same terms
as those provided to its unrelated clients.
As
of March 31, 2021, due from Gong Xiang Technology was a short-term working capital loan provided to this investee entity, which
loan is expected to be repaid to the Company for the year ending December 31, 2021.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
7.
|
Other current assets, net
|
|
|
March 31, 2021
|
|
December 31,2020
|
|
|
Gross
|
|
Allowance for doubtful accounts
|
|
Net
|
|
Gross
|
|
Allowance for doubtful accounts
|
|
Net
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff advances for business operations
|
|
|
9
|
|
|
|
-
|
|
|
|
9
|
|
|
|
18
|
|
|
|
-
|
|
|
|
18
|
|
Short-term loan to an unrelated party
|
|
|
1,756
|
|
|
|
-
|
|
|
|
1,756
|
|
|
|
1,444
|
|
|
|
-
|
|
|
|
1,444
|
|
Total
|
|
|
1,765
|
|
|
|
-
|
|
|
|
1,765
|
|
|
|
1,462
|
|
|
|
-
|
|
|
|
1,462
|
|
As
of March 31, 2021, other current assets primarily include a temporary working capital loan that the Company provided to an unrelated
party. This loan is unsecured, interest free, of which approximately US$0.76 million has been repaid
to the Company as of the date hereof, and the remaining outstanding balance is expected to be repaid to the Company for
the year ending December 31, 2021.
|
|
Gong Xiang Technology
|
|
Xiao Peng Education
|
|
Business Opportunity Chain Guangzhou
|
|
Local Chain Xi’an
|
|
Total
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2021
|
|
|
-
|
|
|
|
-
|
|
|
|
29
|
|
|
|
38
|
|
|
|
67
|
|
Exchange translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1
|
)
|
|
|
(1
|
)
|
Cash investment during the year
|
|
|
228
|
|
|
|
78
|
|
|
|
32
|
|
|
|
-
|
|
|
|
338
|
|
Balance as of March 31, 2021 (Unaudited)
|
|
|
228
|
|
|
|
78
|
|
|
|
61
|
|
|
|
37
|
|
|
|
404
|
|
As
of March 31, 2021, the Company beneficially owned a 15%, 17%, 19% and 4.9% equity interest in Guangzhou Gong Xiang Technology
Co., Ltd. (“Gong Xiang Technology”), Xiao Peng Education Technology (Hubei) Co., Ltd. (“Xiao Peng Education”),
Business Opportunity Chain (Guangzhou) Technology Co., Ltd. (“Business Opportunity Chain Guangzhou”), and Local
Chain Xi’an Information Technology Co., Ltd. (“Local Chain Xi’an”), 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,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Vehicles
|
|
|
805
|
|
|
|
811
|
|
Office equipment
|
|
|
890
|
|
|
|
894
|
|
Electronic devices
|
|
|
610
|
|
|
|
615
|
|
Property and equipment, cost
|
|
|
2,305
|
|
|
|
2,320
|
|
Less: accumulated depreciation
|
|
|
(2,244
|
)
|
|
|
(2,260
|
)
|
Property and equipment, net
|
|
|
61
|
|
|
|
60
|
|
Depreciation
expenses for the three months ended March 31, 2021 and 2020 were approximately US$0.001 million and US$0.002 million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
10.
|
Intangible assets, net
|
|
|
As of March 31, 2021 (Unaudited)
|
Items
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Cloud compute software technology
|
|
|
1,412
|
|
|
|
(975
|
)
|
|
|
(433
|
)
|
|
|
4
|
|
Internet Ad tracking system
|
|
|
1,160
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,160
|
|
Live streaming technology
|
|
|
1,500
|
|
|
|
(100
|
)
|
|
|
-
|
|
|
|
1,400
|
|
Licensed products use right
|
|
|
1,205
|
|
|
|
(166
|
)
|
|
|
-
|
|
|
|
1,039
|
|
Other computer software
|
|
|
119
|
|
|
|
(119
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
5,396
|
|
|
$
|
(1,360
|
)
|
|
$
|
(433
|
)
|
|
$
|
3,603
|
|
|
|
As of December 31, 2020
|
Items
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
Cloud compute software technology
|
|
|
1,423
|
|
|
|
(978
|
)
|
|
|
(436
|
)
|
|
|
9
|
|
Live streaming technology
|
|
|
1,500
|
|
|
|
(25
|
)
|
|
|
-
|
|
|
|
1,475
|
|
Licensed products use right
|
|
|
1,208
|
|
|
|
(135
|
)
|
|
|
-
|
|
|
|
1,073
|
|
Other computer software
|
|
|
120
|
|
|
|
(120
|
)
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4,251
|
|
|
$
|
(1,258
|
)
|
|
$
|
(436
|
)
|
|
$
|
2,557
|
|
Amortization
expenses for the three months ended March 31, 2021 and 2020 were approximately US$0.11 million and US$0.21 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 5.90 years as of March 31, 2021, and assuming no further subsequent impairment of the
underlying intangible assets, the estimated future amortization expenses is approximately US$0.49 million for the year ending December
31, 2021, approximately US$0.65 million each year for the year ending December 31, 2022 through 2024, approximately US$0.63 million
for the year ending December 31, 2025, and approximately US$0.18 million for the year ending December 31, 2026.
|
11.
|
Blockchain platform applications development
costs
|
In
2018, the Company entered into technical development contracts with two unrelated entities for the development of two blockchain
technology-based platform applications with a contract amount of US$4.50 million and RMB3.0 million (approximately US$0.46 million),
respectively. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of March 31, 2021,
in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company capitalized approximately
US$4.40 million development costs in the aggregate under these two contracts, respectively. During 2020, the Company further developed
its Blockchain Integrated Framework (“BIF”) for retail business, to provide a framework platform for more accessible
and efficient integration of small and medium sized retail business users. The Company plans to complete the integration of
BO!News and OMG onto BIF for commercial release by the first half of 2021 and launch BIF to retail business users before the end
of the third fiscal quarter of 2021.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
12.
|
Long-term deposits and prepayments
|
As of March 31, 2021, long-term
deposits and prepayments represented a portion of the Company’s deposits and prepayments that were not expected to be refunded
or consumed within one year of March 31, 2021.
|
13.
|
Accrued payroll and other accruals
|
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Accrued payroll and staff welfare
|
|
|
118
|
|
|
|
229
|
|
Accrued operating expenses
|
|
|
168
|
|
|
|
260
|
|
|
|
|
286
|
|
|
|
489
|
|
As of March 31, 2021 and December
31, 2020, taxes payable consists of:
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Turnover tax and surcharge payable
|
|
|
1,321
|
|
|
|
1,353
|
|
Enterprise income tax payable
|
|
|
2,064
|
|
|
|
2,077
|
|
Total taxes payable
|
|
|
3,385
|
|
|
|
3,430
|
|
For the three months ended March
31, 2021 and 2020, the Company’s income tax benefit/(expense) consisted of:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Current
|
|
|
-
|
|
|
|
(83
|
)
|
Deferred
|
|
|
18
|
|
|
|
5
|
|
Income tax benefit/(expense)
|
|
|
18
|
|
|
|
(78
|
)
|
The Company’s deferred
tax assets as of March 31, 2021 and December 31, 2020 were as follows:
|
|
March 31,
2021
|
|
December 31,
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Tax effect of net operating losses carried forward
|
|
|
10,414
|
|
|
|
10,123
|
|
Bad debts provision
|
|
|
724
|
|
|
|
728
|
|
Valuation allowance
|
|
|
(10,514
|
)
|
|
|
(10,245
|
)
|
Deferred tax assets, net
|
|
|
624
|
|
|
|
606
|
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
The U.S. holding company has
incurred aggregate net operating losses (NOLs) of approximately US$23.5 million and US$23.3 million at March 31, 2021 and December
31, 2020, 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$23.5 million and US$22.5 million as of March 31, 2021 and
December 31, 2020, respectively. The losses carryforwards gradually expire over time, the last of which will expire in 2031 due
to the fact that certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy.
The related deferred tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs
and the respective corresponding enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.
The Company recorded approximately
US$10.5 million and US$10.2 million valuation allowance as of March 31, 2021 and December 31, 2020, 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, 2021 and 2020, the Company recorded approximately US$0.31 million and US$0.55 million deferred tax valuation allowance, respectively.
|
15.
|
Long-term borrowing from a director
|
Long-term borrowing from a director
is a non-interest bearing loan from a director 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.
|
16.
|
The Financing and warrant liabilities
|
The February 2021 Financing:
On February 18, 2021 (the “Closing
Date”), the Company consummated a registered direct offering of 5,212,000 shares of the Company’s common stock to certain
institutional investors at a purchase price of US$3.59 per share (the “February 2021 Financing”). As part of the transaction,
the Company also issued to the investors warrants to purchase up to 2,606,000 shares of the Company’s common stock at an exercise
price of US$3.59 per share (the “2021 Investor Warrants”). The 2021 Investor Warrants are exercisable at any time on or after
February 18, 2021 and on or prior to the close of business on August 18, 2024 (the third and one-half years anniversary of the Closing
Date). The Company received gross proceeds of approximately US$18.7 million from the February 2021 Financing.
The placement agent of the February 2021 Financing received (i)
a placement fee in the amount equal to 7% of the gross proceeds and (ii) warrants to purchase up to 364,840 shares of the Company’s
common stock at an exercise price of US$4.4875 per share. (the “2021 Placement Agent Warrants” and together with the 2021
Investor Warrants, the “2021 Warrants”). The 2021 Placement Agent Warrants are exercisable at any time on or after August
18, 2021 (the six-month anniversary of the Closing Date) and on or prior to the close of business on August 18, 2024 (the third and one-half
years anniversary of the Closing Date).
The initial exercise prices of the 2021 Warrants are subject to
anti-dilution provisions that require adjustment of the number of shares of common stock that may be acquired upon exercise of the 2021
Warrants, or to the exercise price of such shares, or both, to reflect stock dividends and splits, subsequent rights offerings, pro-rata
distributions, and certain fundamental transactions. The 2021 Warrants also contain “full ratchet” price protection in the
event of subsequent issuances below the applicable exercise price (the “Down round feature”).
The 2021 Warrants may not be exercised if it would result in the holder beneficially owning more
than 4.99% of the Company’s outstanding common shares (the “Beneficial Ownership Limitation”). The holder of the 2021
Warrants, upon notice to the Company, may increase or decrease the Beneficial Ownership Limitation, provided that the Beneficial Ownership
Limitation in no event exceeds 9.99% of the Company’s outstanding common shares. Any increase in the Beneficial Ownership Limitation
will not be effective until the 61st day after such notice is delivered to the Company.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Accounting for securities
issued in the February 2021 Financing
The Company determined that
the Company’s common stock issued in the February 2021 Financing should be classified as permanent equity as there was no
redemption provision at the option of the holders that is not within the control the Company on or after an agreed upon date.
The Company analyzed the 2021 Warrants issued in the February 2021 Financing in accordance with ASC
Topic 815 “Derivatives and Hedging”. In accordance with ASC Topic 815, the Company determined that the 2021 Warrants should
not be considered index to its own stock, as the strike price of the 2021 Warrants is dominated in a currency (U.S. dollar) other than
the functional currency of the Company (Renminbi or Yuan). As a result, the 2021 Warrants does not meet the scope exception of ASC Topic
815, therefore, should be accounted for as derivative liabilities and measure at fair value with changes in fair value be recorded in
earnings in each reporting period.
Fair value of the warrants
The Company used Binomial model
to determine the fair value of the 2021 Warrants based on the assumptions summarized as below:
|
|
As of February 18, 2021
|
|
|
|
|
|
2021 Investor
Warrants
|
|
2021 Placement
Agent Warrants
|
|
|
|
|
|
Stock price
|
|
$
|
4.48
|
|
|
$
|
4.48
|
|
Years to maturity
|
|
|
3.50
|
|
|
|
3.50
|
|
Risk-free interest rate
|
|
|
0.26
|
%
|
|
|
0.26
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
168
|
%
|
|
|
168
|
%
|
Exercise Price
|
|
$
|
3.59
|
|
|
$
|
4.4875
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
4.02
|
|
|
$
|
3.96
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (US$’000)
|
|
$
|
10,476
|
|
|
$
|
1,445
|
|
Stock price is the closing bid
price of the Company’s common stock at the respective valuation date. Years to maturity is the respective remaining contract
life of the warrants. Yield-to-maturities in continuous compounding of the United States Government Bonds with the time-to-maturities
same as the respective warrant are adopted as the risk-free rate. Annualized historical stock price volatility of the Company at
the respective valuation date is deemed to be appropriate to serve as the expected volatility of the stock price of the Company.
The dividend yield is calculated based on management’s estimate of dividends to be paid on the underlying stock. Exercise
price is the contractual exercise price of the 2021 Warrants.
Allocation of gross proceeds
from the February 2021 Financing
The Company allocated the total
proceeds from the February 2021 Financing as summarized below:
|
|
Initial measurement
|
|
|
(USD’000)
|
|
|
|
Investor Warrants
|
|
|
10,476
|
|
Common Stock (par value and additional paid in capital)
|
|
|
8,235
|
|
Total proceeds from the Financing
|
|
|
18,711
|
|
The 2021 Investor Warrants issued in the February 2021 Financing was initially measurement at fair
value. The residual amount, representing difference between the total proceeds and the fair value of the 2021 Investor Warrants as of
the Closing Date was assigned as the carrying value of the common stock issued in the February 2021 Financing.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Offering costs
Offering costs in the amount of approximately US$3.05 million consisting of cash payment of approximately
US$1.31 million placement fee, approximately US$0.29 million other direct offering cost of professional service fees and fair value of
the 2021 Placement Agent Warrants of approximately US$1.45 million, which were charged to additional paid-in-capital.
Subsequent measurement
and changes in fair value of the warrant liabilities
The Company issued warrants to certain institutional investors and the Company’s placement agent
in the registered direct offerings consummated in February 2021, December 2020 and January 2018, which warrants were accounted for as
derivative liabilities and measure at fair value with changes in fair value be recorded in earnings in each reporting period.
For the three months ended
March 31, 2021:
Warrants issued in the
February 2021 Financing:
|
|
As of March 31, 2021
|
|
|
|
|
|
2021 Investor
Warrants
|
|
2021 Placement
Agent Warrants
|
|
|
|
|
|
Stock price
|
|
$
|
2.64
|
|
|
$
|
2.64
|
|
Years to maturity
|
|
|
3.38
|
|
|
|
3.38
|
|
Risk-free interest rate
|
|
|
0.41
|
%
|
|
|
0.41
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
168
|
%
|
|
|
168
|
%
|
Exercise Price
|
|
$
|
3.59
|
|
|
$
|
4.4875
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
2.28
|
|
|
$
|
2.24
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (US$’000)
|
|
$
|
5,942
|
|
|
$
|
817
|
|
Warrants issued in the
2020 Financing:
On December 14, 2020, the Company consummated a registered direct
offering of 4,320,989 shares of the Company’s common stock to certain institutional investors at a purchase price of US$1.62 per
share (the “2020 Financing”). As part of the transaction, the Company also issued, to the investors warrants to purchase up
to 1,728,396 shares of the Company’s common stock at an exercise price of U$$2.03 per share (the “2020 Investor Warrants”),
and to the placement agent, warrants to purchase up to 302,469 shares of the Company’s common stock on substantially the same terms
as the 2020 Investor Warrants (the “2020 Placement Agent Warrants” and together with the 2020 Investor Warrants, the “2020
Warrants”). The 2020 Warrants are exercisable at any time on or after June 14, 2021 and on or prior to the close of business on
December 14, 2023.
|
|
2020 Investor Warrants and 2020
Placement Agent Warrants
|
|
|
As of
March 31, 2021
|
|
As of
December 31, 2020
|
|
|
|
|
|
Stock price
|
|
$
|
2.64
|
|
|
$
|
1.35
|
|
Years to maturity
|
|
|
2.70
|
|
|
|
2.95
|
|
Risk-free interest rate
|
|
|
0.29
|
%
|
|
|
0.17
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
120
|
%
|
|
|
102
|
%
|
Exercise Price
|
|
$
|
2.03
|
|
|
$
|
2.03
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
1.95
|
|
|
$
|
0.74
|
|
|
|
|
|
|
|
|
|
|
Investor warrants liabilities (US$’000)
|
|
$
|
3,370
|
|
|
$
|
1,279
|
|
|
|
|
|
|
|
|
|
|
Placement agent warrants liabilities (US$’000)
|
|
$
|
590
|
|
|
$
|
224
|
|
Warrants issued in the 2018
Financing:
On January 17, 2018, the Company consummated a registered direct
offering of 2,150,001 shares of the Company’s common stock to certain institutional investors at a purchase price of US$5.15 per
share (“the 2018 Financing”). As part of the transaction, the Company also issued to the investors warrants (the “2018
Investor Warrants”) to purchase up to 645,000 shares of the Company’s common stock at an exercise price of $6.60 per share.
The 2018 Investors Warrants expired on July 18, 2020. The placement agent of the 2018 Financing received warrants to purchase up to 129,000
shares of the Company’s common stock at an exercise price of US$6.60 per share, with a three-year term (the “2018 Placement
Agent Warrants” and together with the 2018 Investor Warrants, the “2018 Warrants”). On September 25, 2019, the exercise
price of the 2018 Warrants was adjusted to US$1.4927. On January 18, 2021, the expiration date of
the 2018 Placement Agent Warrants was extended to July 18, 2021.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
|
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
|
|
For the three months ended
March 31, 2020:
Warrants issued in the
2018 Financing:
|
|
2018 Investor Warrants
|
|
2018 Placement Agent Warrants
|
|
|
As of
March 31, 2020
|
|
As of
December 31, 2019
|
|
As of
March 31, 2020
|
|
As of
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
0.95
|
|
|
$
|
1.17
|
|
|
$
|
0.95
|
|
|
$
|
1.17
|
|
Years to maturity
|
|
|
0.30
|
|
|
|
0.55
|
|
|
|
0.80
|
|
|
|
1.05
|
|
Risk-free interest rate
|
|
|
0.10
|
%
|
|
|
1.58
|
%
|
|
|
0.13
|
%
|
|
|
1.57
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
99
|
%
|
|
|
60
|
%
|
|
|
78
|
%
|
|
|
80
|
%
|
Exercise Price
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
0.07
|
|
|
$
|
0.11
|
|
|
$
|
0.12
|
|
|
$
|
0.28
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (US$’000)
|
|
$
|
45
|
|
|
$
|
71
|
|
|
$
|
16
|
|
|
$
|
36
|
|
Changes in fair value
of warrant liabilities
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 February 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
|
)
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Three Months Ended March 31,
2020 (Unaudited)
|
|
As of
March 31, 2020
|
|
As of
December 31, 2019
|
|
Change in Fair Value
(gain)/loss
|
|
|
US$’000
|
|
US$’000
|
|
US$’000
|
Fair value of the Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants issued in the 2018 Financing:
|
|
|
|
|
|
|
--Investor Warrants
|
|
|
45
|
|
|
|
71
|
|
|
|
(26
|
)
|
--Placement Agent Warrants
|
|
|
16
|
|
|
|
36
|
|
|
|
(20
|
)
|
Warrant liabilities
|
|
|
61
|
|
|
|
107
|
|
|
|
(46
|
)
|
Warrants issued and outstanding
as of March 31, 2021 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, 2021
|
|
|
2,159,865
|
|
|
|
2.78
|
|
|
$
|
2.00
|
|
|
|
129,000
|
|
|
|
0.05
|
|
|
$
|
1.4927
|
|
Granted/Vested
|
|
|
2,970,840
|
|
|
|
3.38
|
|
|
$
|
3.70
|
|
|
|
2,606,000
|
|
|
|
3.38
|
|
|
$
|
3.59
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 (Unaudited)
|
|
|
5,130,705
|
|
|
|
3.04
|
|
|
$
|
2.98
|
|
|
|
2,735,000
|
|
|
|
3.24
|
|
|
$
|
3.49
|
|
|
17.
|
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.
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, 2021 and December 31, 2020, 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$13.2 million and US$8.2 million, respectively.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
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:
|
l
|
Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;
|
|
l
|
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.
|
18.
|
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 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$0.05 million and US$0.04 million for the three months
ended March 31, 2021 and 2020, respectively.
|
19.
|
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, 2021, 33% of the Company’s cash and cash equivalents were held by major financial
institutions located in Mainland and Hong Kong, China, the remaining 67% was held by financial institutions located in the United
States of America. 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 the Company’s credit risk for accounts receivable and loans to unrelated parties are significantly
reduced.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Concentration of customers
The following tables summarized
the information about the Company’s concentration of customers for the three months ended March 31, 2021 and 2020, respectively:
|
|
Customer A
|
|
Customer B
|
|
Customer C
|
|
Customer D
|
|
Customer E
|
|
Customer F
|
|
Customer G
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
18
|
%
|
|
|
-
|
|
|
|
-
|
|
Revenues, customer concentration risk
|
|
|
*
|
|
|
|
*
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, customer concentration risk
|
|
|
*
|
|
|
|
-
|
|
|
|
*
|
|
|
|
*
|
|
|
|
-
|
|
|
|
15
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, customer concentration risk
|
|
|
38
|
%
|
|
|
34
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, customer concentration risk
|
|
|
28
|
%
|
|
|
-
|
|
|
|
27
|
%
|
|
|
21
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
* 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, 2021 and 2020, respectively:
|
|
Supplier A
|
|
Supplier B
|
|
Supplier C
|
Three Months Ended March 31, 2021
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues, supplier concentration risk
|
|
|
52
|
%
|
|
|
30
|
%
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenues, supplier concentration risk
|
|
|
-
|
|
|
|
71
|
%
|
|
|
11
|
%
|
* Less than 10%.
- No
transaction incurred for the reporting period/no balance existed as of the reporting date.
|
20.
|
Commitments and contingencies
|
In 2018, the Company entered
into contracts with two unrelated third parties in relation to the development of the Company’s blockchain technology-powered
platform applications. Total contract amount of these two contracts was approximately US$4.96 million. As of March 31, 2021, the
Company had paid approximately US$4.40 million in the aggregate. The remaining unpaid contract amount is expected to be paid during
the year ending December 31, 2021.
The Company is currently not
a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings
against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings
arising in its ordinary course of business.
The Company follows ASC Topic
280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions
about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an
entity about which separate financial information is available and which operating results are regularly reviewed by the chief
operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to
be allocated to the segment and assess each operating segment’s performance.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
Three Months Ended March 31,
2021 (Unaudited)
|
|
Internet Ad
and related services
|
|
Ecommerce O2O Ad and marketing services
|
|
Blockchain technology
|
|
Corporate
|
|
Inter- segment and reconciling item
|
|
Total
|
|
|
US$(‘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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets-March 31, 2021
|
|
|
11,186
|
|
|
|
5,192
|
|
|
|
4,405
|
|
|
|
43,034
|
|
|
|
(25,190
|
)
|
|
|
38,627
|
|
Total assets-December 31, 2020
|
|
|
8,310
|
|
|
|
3,206
|
|
|
|
4,409
|
|
|
|
27,766
|
|
|
|
(23,024
|
)
|
|
|
20,667
|
|
|
(1)
|
Including approximately US$0.10 million share-based compensation
expenses.
|
Three
Months Ended March 31, 2020 (Unaudited)
|
|
Internet Ad.
and related services
|
|
Ecommerce O2O Ad and marketing services
|
|
Blockchain technology
|
|
Corporate
|
|
Inter- segment and reconciling item
|
|
Total
|
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,236
|
|
|
|
503
|
|
|
|
-
|
|
|
|
645
|
|
|
|
-
|
|
|
|
4,384
|
|
Cost of revenues
|
|
|
3,110
|
|
|
|
375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,485
|
|
Total operating expenses
|
|
|
1,022
|
|
|
|
4
|
|
|
|
1
|
|
|
|
2,148
|
(1)
|
|
|
-
|
|
|
|
3,175
|
|
Depreciation and amortization expense included in total operating expenses
|
|
|
206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
207
|
|
Operating (loss)/income
|
|
|
(896
|
)
|
|
|
124
|
|
|
|
(1
|
)
|
|
|
(1,503
|
)
|
|
|
-
|
|
|
|
(2,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
-
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
|
(893
|
)
|
|
|
103
|
|
|
|
(1
|
)
|
|
|
(1,519
|
)
|
|
|
-
|
|
|
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-term assets
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
(1)
|
Including approximately US$1.92 million share-based compensation
expenses.
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
|
22.
|
Earnings/(Loss) per share
|
Basic and diluted income/(loss)
per share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data,
are presented in thousands of U.S. dollars):
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Net income/(loss) attributable to ZW Data Action Technologies Inc. (numerator for basic and diluted income/(loss) per share)
|
|
$
|
685
|
|
|
$
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -Basic and diluted
|
|
|
28,505,181
|
|
|
|
20,397,406
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) per share -Basic and diluted
|
|
$
|
0.02
|
|
|
$
|
(0.11
|
)
|
For the three months ended March
31, 2021 and 2020, the diluted earnings/(loss) per share calculation did not include any outstanding warrants and options to purchase
the Company’s common stock, because their effect was anti-dilutive.
|
23.
|
Share-based compensation expenses
|
In March 2021, under
its 2020 Omnibus Securities and Incentive Plan, the Company granted and issued 0.03 million fully-vested shares of the Company’s
restricted common stock to one of the Company’s independent directors for his service to the Company for the year ending
December 31, 2021. These shares were valued at the closing bid price of the Company’s common stock on the date of grant,
which was US$3.13 per share. Total compensation expenses amortized for the three months ended March 31, 2021 was approximately
US$0.02 million.
For
the three months ended March 31, 2021, the Company also amortized an approximately
US$0.08 million compensation expense in the aggregate, which was related to fully-vested and nonforfeitable restricted
common stock granted and issued to two of its service providers in March 2020
and August 2020, respectively.
During
the first fiscal quarter of 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued in the aggregate
of approximately 1.63 million fully-vested shares of the Company’s restricted common stock to its management, employees and
directors. These shares were valued at the closing bid price of the Company’s common stock on the respective date of grant.
Total compensation expenses of approximately US$1.90 million was recorded for the three months ended March 31, 2020.
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
During
the first fiscal quarter of 2020, the Company also granted and issued 430,000 shares of the Company restricted common stock to
a management consulting and advisory service provider in exchange for its service for a two-year period. According to the service
agreement, these shares are fully-vested upon issuance at the contract inception and shall not be subject to forfeiture upon termination
of the agreement. The Company valued these shares at US$1.11 per share, the closing bid price of the Company’s common stock
on the grant date of these shares and recorded the related total cost of approximately US$0.48 million as a prepayment asset in
prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total
compensation expenses amortized for the three months ended March 31, 2020 was approximately US$0.02 million.
The
table below summarized share-based compensation expenses recorded for the three months ended March 31, 2021 and 2020, respectively:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
-
|
|
|
|
122
|
|
General and administrative expenses
|
|
|
100
|
|
|
|
1,651
|
|
Research and development expenses
|
|
|
-
|
|
|
|
146
|
|
Total
|
|
|
100
|
|
|
|
1,919
|
|
The
aggregate unrecognized share-based compensation expenses as of March 31, 2021 was approximately US$0.31 million, of which approximately
US$0.27 million will be recognized for the year ending December 31, 2021 and approximately US$0.04 million will be recognized for
the year ending December 31, 2022.
Options issued and outstanding
as of March 31, 2021 and their movements during the three months then ended are as follows:
|
|
Option Outstanding
|
|
Option 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, 2021
|
|
|
277,976
|
|
|
|
0.91
|
|
|
$
|
3.00
|
|
|
|
277,976
|
|
|
|
0.91
|
|
|
$
|
3.00
|
|
Granted/Vested
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2021 (Unaudited)
|
|
|
277,976
|
|
|
|
0.66
|
|
|
$
|
3.00
|
|
|
|
277,976
|
|
|
|
0.66
|
|
|
$
|
3.00
|
|
ZW DATA ACTION TECHNOLOGIES INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
The Company primarily conducts
its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19) surfaced in Wuhan City, Hubei province
of the PRC, and 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, 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, no other material event
which are required to be adjusted or disclosed as of the date of this consolidated financial statements.
Item 2 Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You
should read the following discussion and analysis of our financial condition and results of operations in conjunction with our
consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements
have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,”
“anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included
in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking
statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the
information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2020. Readers are cautioned not to place undue reliance on these forward-looking statements.
Our company
was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result
of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain
contractual arrangements with operating companies in the PRC, is engaged in providing Internet advertising, precision marketing,
other ecommerce O2O advertising and marketing services and the related data and technical services to SMEs in the PRC.
Through
our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising,
precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through
this system, which primarily include distribution of the right to use search engine marketing services we purchased from key search
engines, provision of online advertising placements on our web portals, provision of ecommerce O2O advertising and marketing services
as well as provision of other related value-added data and technical services to maximize market exposure and effectiveness for
our clients.
Basis of presentation,
management estimates and critical accounting policies
Our unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries and VIEs.
We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements
and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates
and assumptions based on the most recently available information, our own historical experience and various other assumptions that
we believe 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. Some of our accounting policies require higher degrees of judgment than
others in their application. In order to understand the significant accounting policies that we adopted for the preparation of
our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 “Summary
of significant accounting policies” to our audited financial statements in our 2020 Form 10-K.
A. RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2021 AND 2020
The following
table sets forth a summary, for the periods indicated, of our consolidated results of operations. Our historical results presented
below are not necessarily indicative of the results that may be expected for any future period. All amounts are presented in thousands
of U.S. dollars.
|
|
Three
Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
From unrelated parties
|
|
$
|
8,396
|
|
|
$
|
4,371
|
|
From related parties
|
|
|
-
|
|
|
|
13
|
|
Total revenues
|
|
|
8,396
|
|
|
|
4,384
|
|
Cost of revenues
|
|
|
9,113
|
|
|
|
3,485
|
|
Gross (loss)/profit
|
|
|
(717
|
)
|
|
|
899
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
28
|
|
|
|
165
|
|
General and administrative expenses
|
|
|
996
|
|
|
|
2,796
|
|
Research and development expenses
|
|
|
74
|
|
|
|
214
|
|
Total operating expenses
|
|
|
1,098
|
|
|
|
3,175
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,815
|
)
|
|
|
(2,276
|
)
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
Interest income/(expense), net
|
|
|
1
|
|
|
|
(1
|
)
|
Other expenses
|
|
|
(24
|
)
|
|
|
(1
|
)
|
Change in fair value of warrant liabilities
|
|
|
2,507
|
|
|
|
46
|
|
Total other income/(expenses)
|
|
|
2,484
|
|
|
|
44
|
|
|
|
|
|
|
|
|
|
|
Income/(loss) before income tax benefit/(expense) and noncontrolling interests
|
|
|
669
|
|
|
|
(2,232
|
)
|
Income tax benefit/(expense)
|
|
|
18
|
|
|
|
(78
|
)
|
Net income/(loss)
|
|
|
687
|
|
|
|
(2,310
|
)
|
Net (income)/loss attributable to noncontrolling interests
|
|
|
(2
|
)
|
|
|
-
|
|
Net income/(loss) attributable to ZW Data Action Technologies Inc.
|
|
$
|
685
|
|
|
$
|
(2,310
|
)
|
The following
tables set forth a breakdown of our total revenues, disaggregated by type of services for the periods indicated, with inter-company
transactions eliminated:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
Revenue type
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
|
|
|
|
|
|
|
-Internet advertising and related data service
|
|
$
|
1,402
|
|
|
|
16.7
|
%
|
|
$
|
948
|
|
|
|
21.6
|
%
|
-Distribution of the right to use search engine marketing service
|
|
|
6,865
|
|
|
|
81.8
|
%
|
|
|
1,988
|
|
|
|
45.4
|
%
|
-Data and technical services
|
|
|
-
|
|
|
|
-
|
|
|
|
300
|
|
|
|
6.8
|
%
|
Internet advertising and related services
|
|
|
8,267
|
|
|
|
98.5
|
%
|
|
|
3,236
|
|
|
|
73.8
|
%
|
Ecommerce O2O advertising and marketing services
|
|
|
129
|
|
|
|
1.5
|
%
|
|
|
503
|
|
|
|
11.5
|
%
|
Technical solution services
|
|
|
-
|
|
|
|
-
|
|
|
|
645
|
|
|
|
14.7
|
%
|
Total
|
|
$
|
8,396
|
|
|
|
100.0
|
%
|
|
$
|
4,384
|
|
|
|
100.0
|
%
|
Total Revenues:
Our total revenues increased to US$8.40 million for the three months ended March 31, 2021 from US$4.38 million for the same period
last year, which was primarily due to the increase in revenues from our Internet advertising and related services business segment,
as a result of recovery from the COVID-19 outbreak since the second half of last year.
|
l
|
Revenues from our core businesses, Internet advertising and distribution of the right to use search
engine marketing service, for the three months ended March 31, 2021 increased significantly to US$1.40 million and US$6.87 million,
respectively, compared with US$0.95 million and US$1.99 million for the three months ended March 31, 2020, respectively. The increases
were directly attributable to the successful containment of the COVID-19 epidemic in China within the first half year of fiscal
2020, which resulted in the gradually recovery of business activities and economy since the second half of fiscal 2020.
|
|
l
|
For the three months ended March 31, 2021 and 2020, we also generated an approximately US$0.13
and US$0.50 million, respectively, Ecommerce O2O advertising and marketing service revenues from distribution of the advertising
spaces in outdoor billboards we purchased from a third party.
|
Cost of revenues
Our
cost of revenues consisted of costs directly related to the offering of our Internet advertising, precision marketing and related
data and technical services, and cost related to our Ecommerce O2O advertising and marketing service. The following table
sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the periods indicated,
with inter-company transactions eliminated:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
Revenue
|
|
Cost
|
|
GP ratio
|
|
Revenue
|
|
Cost
|
|
GP ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Internet advertising and related data service
|
|
$
|
1,402
|
|
|
|
1,277
|
|
|
|
9
|
%
|
|
$
|
948
|
|
|
|
834
|
|
|
|
12
|
%
|
-Distribution of the right to use search engine marketing service
|
|
|
6,865
|
|
|
|
7,461
|
|
|
|
-9
|
%
|
|
|
1,988
|
|
|
|
2,011
|
|
|
|
-1
|
%
|
-Data and technical services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
300
|
|
|
|
265
|
|
|
|
12
|
%
|
Internet advertising and related services
|
|
|
8,267
|
|
|
|
8,738
|
|
|
|
-6
|
%
|
|
|
3,236
|
|
|
|
3,110
|
|
|
|
4
|
%
|
Ecommerce O2O advertising and marketing services
|
|
|
129
|
|
|
|
375
|
|
|
|
-191
|
%
|
|
|
503
|
|
|
|
375
|
|
|
|
25
|
%
|
Technical solution services
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
645
|
|
|
|
-
|
|
|
|
100
|
%
|
Total
|
|
$
|
8,396
|
|
|
$
|
9,113
|
|
|
|
-9
|
%
|
|
$
|
4,384
|
|
|
$
|
3,485
|
|
|
|
21
|
%
|
Cost of revenues: our
total cost of revenues increased significantly to US$9.11 million for the three months ended March 31, 2021 from US$3.49 million
for the three months ended March 31, 2020. Our cost of revenues primarily consists of search engine marketing resources purchased
from key search engines, cost of outdoor advertising resource and other direct costs associated with providing our services. The
increase in our total cost of revenues for the three months ended March 31, 2021 was primarily due to the increase in costs associated
with distribution of the right to use search engine marketing service we purchased from key search engines and cost related to
providing Internet advertising services on our ad portals, which was in line with the increase in the related revenues as discussed
above.
|
l
|
Costs for Internet advertising and data service primarily consist of cost of internet traffic flow
and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to
promote business opportunity advertisements placed on our own ad portals. For the three months ended March 31, 2021, our total
cost of revenues for Internet advertising and data service increased significantly to US$1.28 million from approximately US$0.83
million for the three months ended March 31, 2020, which was in line with the increase in revenues as a result of business recovery
after the successful containment of the COVID-19 epidemic in China and business recovery since the second half of fiscal 2020.
The gross margin rate of our Internet advertising and data service was 9% and 12% for the three months ended March 31, 2021 and
2020, respectively. We anticipate the gross margin rate will improve in the following quarters
of fiscal 2021 along with the increase in revenues from this business category.
|
|
l
|
Costs for distribution of the right to use search engine
marketing service was direct search engine resource consumed for the right to use search engine marketing service that we purchased
from key search engines and distributed to our customers. We purchased these search engine resources from well-known search engines
in China, for example, Baidu, Qihu 360 and Sohu (Sogou) etc. We purchased the resource in relatively large amounts under our own
name at a relatively lower rate compared to the market rates. We charged our clients the actual cost they consumed on search engines
for the use of this service and a premium at certain percentage of that actual consumed cost. For the three months
ended March 31, 2021, our total cost of revenues for distribution of the right to use search engine marketing service increased
significantly to US$7.46 million from approximately US$2.01 million for the three months ended March 31, 2020, which was in line
with the increase in revenues as a result of business recovery after successful containment of the COVID-19 epidemic in China.
Gross margin rate of this service decreased to -9% for the three months ended March 31, 2021, as on
one hand, the resource suppliers, who have much stronger barging power, increase the resource cost during the period, while on
the other hand, in order to secure our client base and competitive advantage under the post COVID-19 business recovery environment,
we did not charge the increased cost to our clients. We anticipant the gross margin rate of this business category will improve
in the following quarters of fiscal 2021, as we anticipate continuous increase in service revenues and the related cost consumption
from this business category, which may put us in a better position to negotiate a lower rate with the suppliers in future periods.
|
|
l
|
For the three months ended March 31, 2021, cost for our Ecommerce O2O advertising and marketing
service revenues of approximately US$0.38 million was the amortized cost for the related outdoor billboards ad spaces we pre-purchased.
|
Gross
Profit
As a result
of the foregoing, we incurred a gross loss of approximately US$0.72 million for the three months ended March 31, 2021, compared
with a gross profit of approximately US$0.90 million for the three months ended March 31, 2020. Our overall gross margin
was -9% and 21% for the three months ended March 31, 2021 and 2020, respectively. The incurrence of gross loss and negative gross
margin rate for the three months ended March 31, 2021 was directly resulted from the negative gross margin rate of -9% incurred
by our main stream of service revenues, i.e. distribution of the right to use search engine marketing services, which accounted
for approximately 81.8% of our total revenues for the three months ended March 31, 2021.
Operating
Expenses
Our operating
expenses consist of sales and marketing expenses, general and administrative expenses and research and development expenses. The
following tables set forth our operating expenses, divided into their major categories by amount and as a percentage of our total
revenues for the periods indicated.
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
Amount
|
|
% of total revenue
|
|
Amount
|
|
% of total revenue
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
8,396
|
|
|
|
100
|
%
|
|
$
|
4,384
|
|
|
|
100
|
%
|
Gross (Loss)/Profit
|
|
|
(717
|
)
|
|
|
-9
|
%
|
|
|
899
|
|
|
|
21
|
%
|
Sales and marketing expenses
|
|
|
28
|
|
|
|
0.3
|
%
|
|
|
165
|
|
|
|
4
|
%
|
General and administrative expenses
|
|
|
996
|
|
|
|
11.9
|
%
|
|
|
2,796
|
|
|
|
64
|
%
|
Research and development expenses
|
|
|
74
|
|
|
|
0.9
|
%
|
|
|
214
|
|
|
|
5
|
%
|
Total operating expenses
|
|
|
1,098
|
|
|
|
13.1
|
%
|
|
$
|
3,175
|
|
|
|
73
|
%
|
Operating Expenses: Our
total operating expenses was approximately US$1.10 million and US$3.18 million for the three months ended March 31, 2021 and
2020, respectively. The decrease was primarily attribute to the decrease in share-based compensation expenses for
the three months ended March 31, 2021.
|
l
|
Sales and marketing expenses: Sales and marketing expenses was US$0.03 million and US$0.17 million
for the three months ended March 31, 2021 and 2020, respectively. Our sales and marketing expenses primarily consist of advertising
expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals
and our services, other advertising and promotional expenses, staff salaries, staff benefits, performance bonuses, travel expenses,
communication expenses and other general office expenses of our sales department. Due to certain aspects of our business nature,
the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with the fluctuation of
our net revenues. For the three months ended March 31, 2021, the decrease in our sales and marketing expenses was primarily
due to the decrease in share-based compensation expenses of approximately US$0.12 million,
related to restricted shares granted and issued to our sales staff during the first fiscal quarter of last year.
|
|
l
|
General and administrative expenses: General and administrative expenses decreased to US$1.0 million
for the three months ended March 31, 2021 from US$2.80 million for the same period in 2020. Our
general and administrative expenses primarily consist of salaries and benefits of management, accounting, human resources and administrative
personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance,
utilities and other general office expenses of our supporting and administrative departments. For the three months ended March
31, 2021, the change in our general and administrative expenses was primarily due to the following reasons: (1) the decrease in
share-based compensation expenses of approximately US$1.55 million, related to restricted shares granted and issued in the first
fiscal quarter of last year; (2) the decrease in allowance for doubtful accounts of approximately US$0.41 million; and (3) the
increase in general administrative expenses of approximately US$0.16 million, due to the office shutdown in the first fiscal quarter
of last year, as a result of COVID-19 outbreak during that period.
|
|
l
|
Research and development expenses: Research and development expenses were US$0.07 million and US$0.21 million for the three months ended March 31, 2021 and 2020, respectively. Our research and development expenses primarily consist of salaries and benefits of our staff in the research and development department, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department etc. For the three months ended March 31, 2021, the decrease in our research and development expenses was primarily due to the decrease in share-based compensation expenses of approximately US$0.15 million, related to restricted shares granted and issued to our research and development staff during the first fiscal quarter of last year.
|
Loss
from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$1.82 million and
US$2.28 million for the three months ended March 31, 2021 and 2020, respectively.
Change
in fair value of warrant liabilities: we issued warrants in various financing activities, which we determined that the
warrants should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than
our functional currency (Renminbi or Yuan). As a result, a gain of change in fair value of these warrant liabilities of approximately
US$2.51 million and US$0.05 million was recognized for the three months ended March 31, 2021 and 2020, respectively.
Income/(loss)
before income tax benefit/(expense) and noncontrolling interests: As a result of the foregoing, our income before income
tax benefit and noncontrolling interest for the three months ended March 31, 2011 was approximately US$0.67 million, compared with
a net loss before income tax expense and noncontrolling interest of approximately US$2.23 million for the three months ended March
31, 2020.
Income
Tax benefit/(expense): For the three months ended March 31, 2021, we recognized an approximately US$0.10 million income
tax benefit in relation to the net operating loss incurred by one of our operating VIEs for the period, which we consider likely
to be utilized with respect to future earnings of this entity, which amount was partially offset by an approximately US$0.08 million
income tax expense recognized in relation to additional deferred tax assets provision provided by another operating VIE of ours
for the period. For the three months ended March 31, 2020, we recognized an approximately US$0.08 million income tax expense in
relation to net income generated by one of our operating subsidiaries for the period, which amount was partially offset by an approximately
US$0.01 million income tax benefit recognized in relation to the net operating loss incurred by another operating VIE of ours for
the period, which we consider likely to be utilized with respect to future earnings of this entity.
Net
income/(loss): As a result of the foregoing, for the three months ended March 31, 2021, we generated a total net income
of approximately US$0.69 million, compared with a total net loss of approximately US$2.31 million for the three months ended March
31, 2020.
Net
income/(loss) attributable to noncontrolling interest: In May 2018, we incorporated a majority-owned subsidiary, Business
Opportunity Chain, in which we beneficially own 51% equity interest. In October 2020, we incorporated another majority-owned subsidiary,
Qiweilian Guangzhou and beneficially owned 51% equity interest in it. For the three months ended March 31, 2021, net income
allocated to the noncontrolling interest shareholders of these entities was approximately US$0.002 million. In March 2021, due
to changes in business strategy of the noncontrolling interest shareholder of Qiweilian Guangzhou, we suspended the cooperation
with that shareholder and sold our 51% equity interest in Qiweilian Guangzhou to unrelated parties.
Net
income/(loss) attributable to ZW Data Action Technologies Inc.: Total net income/(loss) as adjusted by net income/(loss)
attributable to the noncontrolling interest shareholders as discussed above yields the net income/(loss) attributable to ZW Data
Action Technologies Inc. Net income attributable to ZW Data Action Technologies Inc. was approximately US$0.69 million for the
three months ended March 31, 2021, compared with a net loss attributable to ZW Data Action Technologies Inc. of approximately US$2.31
million for the three months ended March 31, 2020.
B. LIQUIDITY
AND CAPITAL RESOURCES
Cash and
cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2021, we had cash and cash equivalents
of approximately US$15.8 million.
Our liquidity
needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued
expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to search
engine resource and other advertising resource providers, payment of our operating expenses and financing of our accounts receivable;
and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and
future business activities, investment to enhance the functionality of our current advertising portals for providing advertising,
marketing and data services and to secure the safety of our general network. To date, we have financed our liquidity need primarily
through proceeds we generated from financing activities.
The following
table provides detailed information about our net cash flow for the periods indicated:
|
|
Three Months Ended March 31,
|
|
|
2021
|
|
2020
|
|
|
Amounts in thousands of US dollars
|
|
|
|
|
|
Net cash (used in)/provided by operating activities
|
|
$
|
(3,706
|
)
|
|
$
|
1,518
|
|
Net cash used in investing activities
|
|
|
(1,865
|
)
|
|
|
(1,117
|
)
|
Net cash provided by/(used in) financing activities
|
|
|
17,111
|
|
|
|
(430
|
)
|
Effect of Effect of exchange rate changes
|
|
|
(52
|
)
|
|
|
(19
|
)
|
Net increase/(decrease) in cash and cash equivalents
|
|
|
11,488
|
|
|
$
|
(48
|
)
|
|
|
|
|
|
|
|
|
|
Net cash (used in)/provided
by operating activities
For the
three months ended March 31, 2021, our net cash used in operating activities of approximately US$3.71 million were primarily attributable
to:
|
(1)
|
net income excluding approximately US$0.11 million of non-cash expenses of depreciation and amortizations;
approximately US$0.04 million amortization of operating lease right-of-use assets, approximately US$0.10 million share-based compensation;
approximately US$2.51 million gain from change in fair value of warrant liabilities and approximately US$0.02 million deferred
tax benefit, yielded the non-cash items excluded net loss of approximately US$1.59 million.
|
|
(2)
|
the receipt of cash from operations from changes in operating assets and liabilities such as:
|
|
-
|
accounts receivable decreased by approximately $0.70 million,
due to strengthen of collection management;
|
|
-
|
accounts payable increased by approximately US$0.63 million, due
to more favorable payment terms granted by a new supplier;
|
|
-
|
advance from customers increased by approximately US$0.17 million,
primarily due to new advance payments received from customers during the first fiscal quarter of 2021, which was partially offset
by recognition of revenue from opening contract liabilities during the period; and
|
|
-
|
other current liabilities increased by approximately US$0.03 million.
|
|
(3)
|
offset by the use from operations from changes in operating assets and liabilities such as:
|
|
-
|
prepayment and deposit to suppliers increased by approximately
US$2.63 million, primarily due to new deposits and prepayments made for the purchase of various advertising resources during the
first fiscal quarter of 2021;
|
|
-
|
long-term deposits and prepayments increased by approximately
US$0.79 million, which was made for the purchase of advertising resource and lease of our new office spaces during the first fiscal
quarter of 2021, and this amount was not expected to be consumed within one year of March 31, 2021; and
|
|
-
|
accruals, tax payables, operating lease liabilities and short-term
lease payment payables decreased by approximately US$0.22 million in the aggregate.
|
For the
three months ended March 31, 2020, our net cash provided by operating activities of approximately US$1.52 million were primarily
attributable to:
|
(1)
|
net loss excluding approximately US$0.21 million of non-cash expenses of depreciation and amortizations;
approximately US$1.92 million share-based compensation; approximately US$0.41 million allowance for doubtful accounts; approximately
US$0.05 million gain from change in fair value of warrant liabilities and approximately US$0.005 million deferred tax benefit,
yielded the non-cash items excluded net income of approximately US$0.18 million.
|
|
(2)
|
the receipt of cash from operations from changes in operating assets and liabilities such as:
|
|
-
|
prepayment and deposit to suppliers decreased by approximately
US$2.24 million, primarily due to utilization of the prepayment made to suppliers in fiscal 2019 through Ad resource and other
services received from suppliers during the first fiscal quarter of 2020;
|
|
-
|
advance from customers increased by approximately US$0.12 million,
primarily due to new advance payments received from customers during the first fiscal quarter of 2020, which was partially offset
by recognition of revenue from opening contract liabilities during the period;
|
|
-
|
due from related parties decreased by approximately US$0.03 million,
due to collection of advertising service fee from related parties;
|
|
-
|
accruals, tax payables, short-term lease payment payables and
other current liabilities increased by approximately US$0.48 million in the aggregate, primarily due to temporary delay of some
payments during the COVID-19 outbreak in the first fiscal quarter of 2020 and some of the payments were not due until later periods.
|
|
(3)
|
offset by the use from operations from changes in operating assets and liabilities such as:
|
|
-
|
accounts receivable increased by approximately US$0.26 million;
|
|
-
|
accounts payable decreased by approximately US$0.15 million; and
|
|
-
|
long-term prepayment increased by approximately US$1.13 million,
which prepayment was made for the purchase of ad resource during the first fiscal quarter of 2020, and this amount was not expected
to be consumed within one year of March 31, 2020.
|
Net cash used in investing
activities
For the
three months ended March 31, 2021, (1) we made an aggregate of approximately US$0.34 million cash investment to our investee entities,
and provided an additional approximately US$0.05 million temporary loan to one of our investee entities; (2) we paid US$1.16 million
for the purchase of an Internet Ad tracking system to further enhance the effectiveness of our Internet advertising business; (3)
we provided to an unrelated party an additional short-term loan of approximately US$0.31 million, which is expected to be repaid
by December 31, 2021; and (4) cash decreased by approximately US$0.01 as a result of deconsolidation of VIEs’ subsidiaries
during the period. In the aggregate, these transactions resulted in a cash outflow from investing
activities of approximately US$1.87 million for the three months ended March 31, 2021.
For the
three months ended March 31, 2020, (1) we made an additional payment of approximately US$0.30 million for the development of our
blockchain technology-based platform applications and (2) we provided to an unrelated party a short-term loan of approximately
US$0.82 million. In the aggregate, these transactions resulted in a cash outflow from investing
activities of approximately US$1.12 million for the three months ended March 31, 2020.
Net cash provided by/(used
in) financing activities
For the
three months ended March 31, 2021, we consummated an offering of approximately 5.21 million shares of our common stock to certain
institutional investors at a purchase price of $3.59 per share. As part of the transaction, we also issued to the investors and
the placement agent warrants to purchase up to 2.61 million shares and 0.36 million shares of our common stock, respectively, with
an exercise price of $3.59 per share and US$4.4875 per share, respectively. We received net proceeds of approximately US$17.1 million,
after deduction of approximately US$1.6 million direct financing cost paid in cash.
For the
three months ended March 31, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January 2020, which
was recorded as a cash outflow from financing activities during the period.
Restricted Net Assets
As substantially
all of our operations are conducted through our PRC subsidiaries and VIEs, our ability to pay dividends is primarily dependent
on receiving distributions of funds from our PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments
of dividends by our 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 our consolidated net assets are also not distributable for dividend purposes.
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 our other
PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.
In accordance
with these PRC laws and regulations, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their
net assets to us. As of March 31, 2021 and December 31, 2020, net assets restricted in the aggregate, which includes paid-in capital
and statutory reserve funds of our PRC subsidiaries and VIEs that are included in our consolidated net assets were approximately
US$13.2 million and US$8.2 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, which were exempted under the previous EIT law. 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. Holding companies in Hong Kong, for example, will be subject to a 5% rate, subject to approval from the related PRC tax
authorities.
The ability
of our PRC subsidiaries to make dividends and other payments to us 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:
|
l
|
Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;
|
|
l
|
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 converting of Renminbi into foreign currency for current account items, conversion of 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. We cannot be sure that it will be able to obtain all required conversion approvals for our operations
or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Renminbi in the future. Currently,
most of our retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit our ability to
use retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities
outside China.
C. OFF-BALANCE
SHEET ARRANGEMENTS
None.