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ChinaNet Online Holdings Reports Second Quarter 2012 Financial Results

Operating expenses for the three months ended June 30, 2012 were approximately $3.0 million, an increase of 30% from $2.3 million in the comparable period in 2011. General and administrative expenses increased by $0.8 million to $1.8 million due to an increase in the allowance for doubtful accounts. Selling expenses decreased 21% quarter-over-quarter to $0.7 million, as the Company reduced brand building investments in response to the slowdown in small business activity in China.

The Company generated $0.8 million of operating income in the three months ended June 30, 2012 compared to $3.4 million in the same period a year ago.

Net income attributable to common stockholders for the three months ended June 30, 2012 was $0.9 million and earnings per share was $0.04, compared to $2.8 million and $0.15 for the three months ended June 30, 2011, respectively. The weighted average shares outstanding for the three months ended June 30, 2012 and 2011 was 22.2 million shares and 20.0 million shares, respectively.

First Half 2012 Results (USD) (Unaudited)
  H1 2012 H1 2011 CHANGE
Sales $ 28.1 million $ 16.1 million +75%
Gross Profit $ 6.2 million $ 10.6 million -42%
Gross Margin 22.0% 66.1% -67%
Net Income Attributable to Common Stockholders $ 0.5 million $ 5.5 million -91%
Adjusted Net Income Attributable to Common Stockholders $ 0.5 million $ 5.3 million (1) -91%
EPS (Diluted) $ 0.02 $ 0.28 -93%
Adjusted EPS (Diluted) $ 0.02 $ 0.27 (1) -93%

(1) Non-GAAP adjusted net income attributable to common s tock holders and EPS exclude a $ 0.23 million non-cash gain on deconsolidation of a subsidiary in the six month period ended June 30, 201 1 .

Six Months Ended June 30, 2012 Revenue Breakdown by Business Unit (USD in thousands)

  H1 2012 % H1 2011 % % Change
Internet Advertisement $ 9,703 34% $ 12,541 78% -23%
TV Advertisement $ 16,513 59% $ 2,777 17% +495%
Bank Kiosk $ 142 1% $ 275 2% -48%
Brand Mgmt. & Sales Channel Expansion $ 1,704 6% $ 500 3% +241%

Net revenues for the six months ended June 30, 2012 increased 75% to $28.1 million compared to the six months ended June 30, 2011. Higher revenues from TV advertisement and brand management and sales channel expansion services offset lower revenues in Internet advertising and the bank kiosk business.

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