BEIJING, Aug. 14, 2020 (GLOBE NEWSWIRE) — ChinaNet Online Holdings, Inc. (Nasdaq: CNET) (“ChinaNet” or the “Company”), an integrated online advertising, precision marketing, data analytics and other value-added services provider serving enterprise clients, today announced its unaudited financial results for the second quarter and six months ended June 30, 2020.

Mr. Handong Cheng, Chairman and Chief Executive Officer of ChinaNet, commented, “Our second quarter results highlight continuing impact of the COVID-19 pandemic, despite significant sequential uptick from the first quarter. With growth and profitability remaining elusive, our second quarter results underscore the need for improvement in our existing business model and the need for new strategic initiatives going forward. While we remain fully committed to the blockchain technology initiative and view it as a potential game-changer for us, we are also actively exploring other strategic alternatives to turn around our business.”

For the second quarter of 2020, revenues decreased by $5.04 million, or 32.6%, to $10.42 million from $15.45 million for the same period of last year. The decrease in revenues was primarily attributable to the decrease in revenues from the Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of slow business recovery after the COVID-19 outbreak during the first fiscal quarter of 2020.

For the second quarter of 2020, our total cost of revenues decreased by $4.97 million, or 32.9%, to $10.12 million for the second quarter of 2020 from $15.09 million for the same period of last year. The decrease in our total cost of revenues during the second quarter of 2020 was primary attributable to the decrease in costs associated with distribution of the right to use search engine marketing service and cost related to providing Internet advertising services on our ad portals, which was in line with the decrease in the related revenues as discussed above.

Total gross profit decreased by $0.07 million, or 18.6%, to $0.30 million for the second quarter of 2020 from $0.37 million for the same period of last year, which was primarily due to gross loss incurred from our core revenue stream, the distribution of the right to use search engine marketing service, as a result of tightened ad investment budgets by our client under the COVID-19 pandemic circumstance, which was partially offset by the increase in gross profit generated from Internet advertising business and our new Ecommerce O2O advertising and marketing services.

Overall gross margin was 2.9% for second quarter of 2020, compared to 2.4% for the second quarter of 2019, primarily due to improvement in gross margin of our Internet advertising business and new revenues generated form Ecommerce O2O advertising and marketing services during the period, which have a relatively higher gross margin than our core businesses.

Sales and marketing expenses decreased by $0.11 million, or 61.3%, to $0.07 million for the second quarter of 2020 from $0.18 million for the same period of last year. The decrease in sales and marketing expenses was mainly attributable to decreased performance-based salary and bonus expenses. As a percentage of total revenues, sales and marketing expenses were 0.7% for the second quarter of 2020, compared to 1.2% for the same period of last year.  

General and administrative expenses decreased by $0.12 million, or 9.3%, to $1.13 million for the second quarter of 2020 from $1.25 million for the same period of last year. The decrease in general and administrative expenses was mainly attributable to the following reasons: (1) the increase in allowance for doubtful accounts of $0.07 million; (2) the decrease in share-based compensation expenses of $0.03 million; and (3) the decrease in general departmental expenses of $0.16 million, due to a cost reduction plan executed by management after the COVID-19 outbreak. General and administrative expenses accounted for 10.9% of the total revenues for the second quarter of 2020 compared to 8.1% for the same period of last year.

Research and development expenses decreased by $0.04 million, or 27.0%, to $0.12 million for the second quarter of 2020 from $0.16 million for the same period of last year. Research and development expenses accounted for 1.1% of total revenues for the second quarter of 2020, compared to 1.0% for the same period of last year.

Operating loss

Loss from operations decreased by $0.20 million, or 16.5%, to $1.02 million for the second quarter of 2020 from $1.22 million for the same period of last year. Operating loss margin was 9.8% for the second quarter of 2020, compared to 7.9% for the same period of last year.

Other income (expense), net

Total other income decreased to $0.04 million for the second quarter of 2020, compared to $0.81 million for the same period of last year, which was primarily due to a decrease in gain from change in fair value of warrant liabilities.
   
Net loss attributable to CNET and loss per share

Net loss attributable to CNET was $0.97 million, or net loss per share of $0.04, for the second quarter of 2020, compared to $0.38 million, or net loss per share of $0.02, for the same period of last year.

First Half 2020 Financial Results

Revenues

  For the Six Months Ended June 30,
  2020   2019   % Change
– Internet advertising and related data service 3,250   5,435   -40.2%
– Distribution of the right to use search engine marketing service 9,298   18,580   -50.0%
– Data and technical services 600   5   NM
Internet advertising and related services 13,148   24,020   -45.3%
Ecommerce O2O advertisement and marketing services 1,007   0   NM
Technical solution services 645   0   NM
Total revenues 14,800   24,020   -38.4%

For the first half year of 2020, revenues decreased by $9.22 million, or 38.4%, to $14.80 million from $24.02 million for the same period of last year. The decrease in revenues was primarily attributable to the decrease in revenues from our Internet advertising and distribution of the right to use search engine marketing service business categories, as a result of the COVID-19 outbreak during the first quarter and slow recovery in the second quarter of 2020.

Cost of revenues

  For the Six Months Ended June 30,
  2020   2019   % Change
– Internet advertising and related data service 2,906   5,218   -44.3%
– Distribution of the right to use search engine marketing service 9,416   17,989   -47.7%
– Data and technical services 531   5   NM
Internet advertising and related services 12,853   23,212   -44.6%
Ecommerce O2O advertisement and marketing services 750   0   NM
Technical solution services 0   0   NM
Total cost of revenues 13,603   23,212   -41.4%

For the first half year of 2020, cost of revenues decreased by $9.61 million, or 41.4%, to $13.60 million from $23.21 million for the same period of last year, which was in line with the decrease in the related revenues as discussed above.

Gross profit and gross margin

Total gross profit increased by $0.39 million, or 48.1%, to $1.20 million for the first half of 2020 from $0.81 million for the same period of last year, as a result of the improvement in gross margin of our Internet advertising business and gross profit generated from our new Ecommerce O2O advertising and marketing services and technical solution services during the first half of 2020.

Overall gross margin was 8.1% for first half of 2020, compared to 3.4% for the first half of 2019.

Operating expenses

Sales and marketing expenses decreased by $0.12 million, or 32.9%, to $0.24 million for the first half of 2020 from $0.35 million for the same period of last year. The decrease in sales and marketing expenses was mainly attributable to the following reasons: (1) staff salary and benefit expenses and general departmental expenses decreased by $0.24 million, due to the COVID-19 outbreak during the first fiscal quarter of 2020 in China, which caused our operating offices closure after the Chinese New Year holiday in February and March 2020, resulted from the epidemic control measures imposed by the local governments where we operate; and (2) the increase in share-based compensation expenses of $0.12 million, related to restricted shares granted and issued to our sales staff during the first fiscal quarter of 2020. As a percentage of total revenues, sales and marketing expenses accounted for 1.6% for the first half of 2020, compared to 1.5% for the same period of last year.

General and administrative expenses increased by $1.87 million, or 90.9%, to $3.93 million for the first half of 2020 from $2.06 million for the same period of last year. The increase in general and administrative expenses was mainly attributable to the following reasons: (1) the increase in share-based compensation expenses of $1.52 million, due to restricted shares granted and issued in the first fiscal quarter of 2020; and (2) the increase in allowance for doubtful accounts of $0.29 million. General and administrative expenses accounted for 26.5% of total revenues for the first half of 2020, compared to 8.6% for the same period of last year.

Research and development expenses decreased by $0.03 million, or 8.3%, to $0.33 million for the first half of 2020 from $0.36 million for the same period of last year. Research and development expenses accounted for 2.2% of total revenues for the first half of 2020, compared to 1.5% for the same period of last year.

Operating loss

Loss from operations increased by $1.34 million, or 68.2%, to $3.30 million for the first half of 2020 from $1.96 million for the same period of last year. Operating loss margin was 22.3% for the first half of 2020, compared to 8.2% for the same period of last year.

Other income (expense), net

Total other income decreased to $0.08 million for the first half of 2020, compared to $0.44 million for the same period of last year, which was primarily due to a decrease in gain from change in fair value of warrant liabilities.
   
Net loss attributable to CNET and loss per share

As a result of the foregoing, net loss attributable to CNET was $3.28 million, or net loss per share of $0.16, for the first half of 2020, compared to $1.52 million, or net loss per share of $0.09, for the same period of last year.  

Financial Condition

As of June 30, 2020, the Company had cash and cash equivalents of $1.06 million, compared to $1.60 million as of December 31, 2019. Accounts receivable, net was $2.52 million as of June 30, 2020, compared to $3.26 million as of December 31, 2019. Working capital was $3.30 million as of June 30, 2020, compared to $4.92 million as of December 31, 2019.

Net cash provided by operating activities was $1.17 million for the first half of 2020, compared to net cash used in operating activities of $2.33 million for the same period of last year. Net cash used in investing activities was $1.27 million for the first half of 2020, compared to $36,000 for the same period of last year. Net cash used in financing activities was $0.43 million for the first half of 2020, compared to $nil for the same period of last year. 

Recent Developments

On August 7, 2020, the Company appointed Mr. Charles Chiu to the position of the Company’s Chief Operating Officer and Mr. Mark Li, the current Chief Financial Officer of the Company, to serve as Secretary of the Company, effective immediately. On the same date, Mr. George Chu resigned from the roles of Chief Operating Officer and Secretary of the Company due to personal reasons. Mr. Chu continued to serve as a director of the Board of Directors of the Company.

On June 23, 2020, the Company received a written notice from the Listing Qualifications Staff of The NASDAQ Stock Market (“NASDAQ”) stating that the Company had regained compliance with Nasdaq Listing Rule 5550(a)(2), which set forth minimum bid price continued listing requirement.

About ChinaNet Online Holdings, Inc.

Established in 2003 and headquartered in Beijing, China, ChinaNet Online Holdings, Inc. (“ChinaNet” or the “Company”) offers online advertising, precision marketing, data analytics and other value-added services for enterprise clients. Leveraging its fully integrated services platform, proprietary database, and cutting-edge algorithms, ChinaNet delivers customized, result-driven business solutions for small and medium-sized enterprise clients in China. The Company also develops blockchain and artificial intelligence enabled web/mobile applications and software solutions for general public, enterprise clients, and government agencies. More information about the Company can be found at: www.chinanet-online.com.

Safe Harbor Statement

This release contains certain “forward-looking statements” relating to the business of ChinaNet Online Holdings, Inc., which can be identified by the use of forward-looking terminology such as “believes,” “expects,” “anticipates,” “estimates” or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including business uncertainties relating to government regulation of our industry, market demand, reliance on key personnel, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. These forward-looking statements are based on ChinaNet’s current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting ChinaNet will be those anticipated by ChinaNet. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. ChinaNet undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

For more information, please contact:

Tony Tian, CFA         
Weitian Group LLC
Email: [email protected]
Phone: +1 732-910-9692

CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares and per share data)

 

 

June 30,
2020
  December 31,
2019
  (US $)   (US $)
  (Unaudited)    
Assets      
Current assets:      
Cash and cash equivalents $   1,055     $   1,603  
Accounts receivable, net of allowance for doubtful accounts of $3,844 and $3,148, respectively   2,520       3,260  
Prepayment and deposit to suppliers   5,078       6,980  
Due from related parties, net   52       81  
Other current assets, net   959       11  
Total current assets   9,664       11,935  
       
Long-term investments   61       35  
Operating lease right-of-use assets   7       12  
Property and equipment, net   73       78  
Intangible assets, net   1,493       1,899  
Blockchain platform applications development costs   4,176       3,879  
Long-term prepayments   909        
Deferred tax assets, net   691       713  
Total Assets $   17,074     $   18,551  
       
Liabilities and Equity      
Current liabilities:      
Short-term bank loan * $   –     $    430  
Accounts payable *   395       408  
Advance from customers *   1,619       2,006  
Accrued payroll and other accruals *   431       491  
Taxes payable *   3,258       3,214  
Lease payment liability related to short-term leases *   177       136  
Other current liabilities *   446       221  
Warrant liabilities   39       107  
Total current liabilities   6,365       7,013  
Long-term liabilities:      
Long-term borrowing from a director   124       125  
Total Liabilities   6,489       7,138  
       
Commitments and contingencies      
       
Equity:      
ChinaNet Online Holdings, Inc.’s stockholders’ equity      
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 21,691,926 shares and 19,629,403 shares at June 30, 2020 and December 31, 2019, respectively)   22       20  
 Additional paid-in capital   45,493       43,111  
 Statutory reserves   2,607       2,607  
 Accumulated deficit   (39,051 )     (35,773 )
 Accumulated other comprehensive income   1,572       1,505  
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity   10,643       11,470  
       
  Noncontrolling interests   (58 )     (57 )
Total equity   10,585       11,413  
       
Total Liabilities and Equity $   17,074     $   18,551  

CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for number of shares and per share data)

  Six Months Ended June 30,   Three Months Ended June 30,
    2020       2019       2020       2019  
  (US $)   (US $)   (US $)   (US $)
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues              
From unrelated parties $ 14,786     $ 23,912     $ 10,415     $ 15,352  
From a related party   14       108       1       101  
Total revenues   14,800       24,020       10,416       15,453  
Cost of revenues   13,603       23,212       10,118       15,087  
Gross profit   1,197       808       298       366  
               
Operating expenses              
Sales and marketing expenses   235       350       70       181  
General and administrative expenses   3,928       2,058       1,132       1,248  
Research and development expenses   330       360       116       159  
Total operating expenses   4,493       2,768       1,318       1,588  
               
Loss from operations   (3,296 )     (1,960 )     (1,020 )     (1,222 )
               
Other income (expenses)              
Interest expense, net   (1 )     (23 )           (12 )
Other income/(expenses)   17       (4 )     18       (2 )
Change in fair value of warrant liabilities   68       471       22       821  
Total other income   84       444       40       807  
               
Loss before income tax (expense)/benefit and noncontrolling interests   (3,212 )     (1,516 )     (980 )     (415 )
Income tax (expense)/benefit   (68 )     (6 )     10       33  
Net loss   (3,280 )     (1,522 )     (970 )     (382 )
Net loss attributable to noncontrolling interests   2       5       2       3  
Net loss attributable to ChinaNet Online Holdings, Inc. $ (3,278 )   $ (1,517 )   $ (968 )   $ (379 )
Net loss $ (3,280 )   $ (1,522 )   $ (970 )   $ (382 )
Foreign currency translation gain/(loss)   68       24       (4 )     60  
Comprehensive loss $   (3,212 )   $   (1,498 )   $    (974 )   $   (322 )
Comprehensive loss attributable to noncontrolling interests   1       5       2       2  
Comprehensive loss attributable to ChinaNet Online Holdings, Inc. $ (3,211 )   $ (1,493 )   $ (972 )   $ (320 )
               
Loss per share              
Loss per common share              
Basic and diluted $ (0.16 )   $ (0.09 )   $ (0.04 )   $ (0.02 )
               
Weighted average number of common shares outstanding:              
Basic and diluted   21,044,666       16,411,548       21,691,926       16,412,543  

CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)

  Six Months Ended June 30,
    2020       2019  
  (US $)   (US $)
  (Unaudited)   (Unaudited)
Cash flows from operating activities      
Net loss $ (3,280 )   $ (1,522 )
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities      
Depreciation and amortization   415       52  
Amortization of operating lease right-of-use assets   5       87  
Share-based compensation expenses   1,987       203  
Provision for allowances for doubtful accounts   747       460  
Deferred taxes   11       6  
Change in fair value of warrant liabilities   (68 )     (471 )
Changes in operating assets and liabilities      
Accounts receivable   (38 )     (866 )
Prepayment and deposit to suppliers   2,090       (76 )
Due from related parties   28       227  
Other current assets   (3 )     11  
Long-term prepayments   (750 )      
Accounts payable   (9 )     (2,153 )
Advance from customers   (362 )     1,787  
Accrued payroll and other accruals   (57 )     (232 )
Lease payment liability related to short-term leases   43       120  
Other current liabilities   326       (39 )
Taxes payable   89       91  
Prepaid lease payment   (9 )     (10 )
Net cash provided by/(used in) operating activities   1,165       (2,325 )
       
Cash flows from investing activities      
Investment to investee entities   (27 )     (36 )
Short-term loan to an unrelated party   (944 )      
Payment for blockchain platform applications development costs   (302 )      
Net cash used in investing activities   (1,273 )     (36 )
Cash flows from financing activities      
Proceeds from short-term bank loan         442  
Repayment of short-term bank loan   (427 )     (442 )
Net cash used in financing activities   (427 )      
       
Effect of exchange rate fluctuation   (13 )     23  
       
Net decrease in cash and cash equivalents   (548 )     (2,338 )
       
  Cash and cash equivalents at beginning of the period   1,603       3,742  
  Cash and cash equivalents at end of the period $   1,055      $   1,404