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ChinaNet Online Holdings Reports Third Quarter 2010 Earnings; Adjusted Net Income Grew 100% To $3.9 Million With Adjusted Diluted EPS Of $0.19

Year-to-date, gross profits increased of 35.1%, resulting in a gross margin of 49.3%. ChinaNet's internet advertising business generated gross profit margin of 74.8%, a 140 basis point improvement from the same period last year.

Operating expenses for the nine months ended September 30, 2010 were approximately $5.2 million, essentially flat compared to $5.1 million in the same period of 2009. Selling expenses for the period were $2.2 million, down 32.8% as a result of lower spending on TV advertising. Research and development costs were $0.6 million, or 1.9% of revenues compared to 1.3% in the prior year period.

Operating income for the first nine months of 2010 totaled approximately $10.2 million, up 62.7% from the $6.3 million reported for the first nine month of 2009. Operating margins were 32.7% and 22.9% for the first nine months of 2010 and 2009, respectively.

GAAP net income for the first nine months was $11.9 million, an increase of 267.6% compared to $3.2 million reported in the same period of the prior year. Adjusted for the non-cash items, net income was $10.0 million and EPS was $0.48 for the first nine months of 2010 as compared to $4.5 million net income and $0.30 diluted earnings per share in 2009, based on 20.9 million and 15.1 million outstanding shares, respectively.

Balance Sheet and Cash Flow

The Company had $22.2 million in cash and equivalents on September 30, 2010, compared to $13.9 million on December 31, 2009, working capital of $29.3 million, compared to $19.4 million, and a current ratio of 7.0 to 1 compared 4.9 to 1 on December 31, 2009. The Company generated $11.2 million in the first nine months of 2010 advancing 137.3% compared to $4.7 million in the same period last year. Accounts receivable were $4.5 million on September 30, 2010, up from to $3.2 million on December 31, 2009, with DSO's of 40 days compared to 20 days.

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