ChinaNet Online Holdings Reports Third Quarter 2016 Financial Results

BEIJING, Nov. 15, 2016 (GLOBE NEWSWIRE) -- ChinaNet Online Holdings, Inc. (Nasdaq:CNET) ("ChinaNet" or the "Company"), a leading B2B (business to business) Internet technology company providing online-to-offline (O2O) sales channel expansion, business strategies and marketing solutions for small and medium-sized enterprises (SMEs) by utilizing data analysis and cloud computing technologies in the People's Republic of China, today announced financial results for the third fiscal quarter of 2016.

Third Quarter & First Nine Months Financial Highlights
  • Revenues of $11.9 million in the third fiscal quarter of 2016, up 40.1% from prior year's quarter of $8.5 million
  • Gross profit of $2.0 million generated in the third fiscal quarter of 2016, a 39.8% increase from $1.5 million generated in the same period a year ago
  • Operating results showed a 46.7% improvement with an operating loss of $1.4 million for the third quarter of 2016, compared to the prior year's quarter loss of $2.6 million
  • Overall gross margin increased to 24% for the nine months ended September 30, 2016, compared to 19% for the same period last year
  • Nine months and three months' internet advertising and data service gross margin improved to 43% and 42%, respectively, compared to 31% in the same periods a year ago

Third Quarter 2016 Financial Results

Chairman and CEO of ChinaNet, Mr. Handong Cheng commented, "ChinaNet's evolution has continued to gain traction in 2016, leaving behind our low-margin television advertising business and instead focusing on the business value created from the massive amount of transaction data generated from our customers as an internet and data service. The ongoing development of this data service platform is the foundation for the ecosystem of products and services that will serve any business at important early stages of their business cycle with a one-stop solution. Called the Business Intelligent Marketing Data Services System - CloudX, it is officially in use for our existing clients and will soon launch to our newer cloud service client base. It is driving revenue and growth for us, along with our full suite of digital marketing products and services which is also seeing year over year growth.

"We also remain committed to our shareholders and investors, reflected in our commitment to remain listed on the NASDAQ Capital Markets, which we accomplished in the third quarter. We look forward to further updates on our transition and future developments."

Revenues for the three months ended September 30, 2016 were $11.9 million compared to $8.5 million for the three months ended September 30, 2015, representing a 40.1% increase, which was primarily due to an increase in revenues from search engine marketing services during the period.

During the third quarter, revenues from internet advertisement and data services was $4.4 million, which decreased 20.1% from $5.5 million in the third quarter of 2015. ChinaNet continues to focus on integrating and upgrading its internet advertising and data service to SME clients and investing in developing new service modules for clients, and believes that the launch of new services in future will help to increase market penetration and recurring revenues. The decline was offset by a search engine marketing services revenue increase by 160% from $2.9 million in the third quarter of 2015 to $7.5 million in the third quarter of 2016. This increase was supported by the CloudX system, which drove more precision marketing and ROI for clients.

Gross profit for the three months ended September 30, 2016 was $2.0 million compared to $1.5 million for the same period in 2015, an improvement of 39.8%. Gross margin was 17.0%, down slightly from 17.1% in the third quarter of 2015, primarily due to the increase in relative lower margin revenues from search engine marketing services during the period. Internet advertising and data service gross margin increased to 42% for the third quarter of 2016 from 31% for the third quarter of 2015. The improvement in gross margin of the internet advertising and data service was primarily due to optimizing and upgrading of the Company's online promotion analysis and cost control system, which improved the promotion accuracy, Ad. effect conversion rate and promotion cost control.

The Company incurred an operating loss of $1.4 million for the three months ended September 30, 2016 compared to an operating loss of $2.6 million in the same period a year ago.

Net loss attributable to ChinaNet for the three months ended September 30, 2016 was $1.5 million and loss per share from continuing operations was $0.13, compared to a net loss of $2.1 million and loss per share from continuing operations of $0.18 in the third quarter of 2015.

First Nine Months 2016 Financial Results

Revenues for the nine months ended September 30, 2016 were $25.4 million, an increase of 6.7% from $23.8 million for the same period a year ago.

Gross profit was $6.1 million, up 34.2% for the first nine months of 2016, and gross profit margin of 24.1% was up from 19.2% in 2015. Operating expenses decreased by 5.3% to $9.9 million compared to $10.4 million for the first nine months of 2015. The Company reported an operating loss of $3.8 million in the first nine months of 2016.

Net loss attributable to ChinaNet common shareholders and net loss per share from continuing operations was $4.2 million and $0.36 for the nine months ended September 30, 2016. The weighted average diluted shares outstanding were 11.4 million shares.

Balance Sheet and Cash Flow

The Company had $1.2 million in cash and cash equivalents as of September 30, 2016, compared to $5.5 million as of December 31, 2015, working capital of $9.8 million, compared to $13.7 million as of December 31, 2015, and a current ratio of 2.3 to 1, compared to 2.9 to 1 as of December 31, 2015. Total stockholders' equity of ChinaNet was $24.3 million at September 30, 2016 compared to $27.3 million at December 31, 2015.

The Company had a $1.9 million of cash outflows from operations in the nine months ended September 30, 2016 compared to a $1.3 million of cash inflows in the first nine months of 2015.

Business Updates

In August, ChinaNet announced a 1-for-2.5 reverse stock split of its issued and outstanding shares of common stock. The reverse stock split was intended to increase the per share trading price of the Company's common stock to satisfy the $1.00 minimum bid price requirement for continued listing on The NASDAQ Capital Market. In September, the Company announced it had regained compliance with requirement to continue the listing of the Company's common stock.

The reverse stock split reduced the number of shares of the Company's common stock outstanding from approximately 30.4 million shares of common stock pre-reverse split to approximately 12.2 million shares of common stock post-reverse split. The number of authorized shares of common stock and the par value per share remained unchanged. As a result of the reverse stock split, every 2.5 shares of the Company's pre-reverse split common stock was combined and reclassified into 1 share of common stock. The number of outstanding options was adjusted accordingly, with outstanding options being reduced from approximately 2.1 million to approximately 835,000.

Conference Call

Management will host a conference call with investors on Wednesday, November 16, 2016 at 8:30 am ET

Date: Wednesday, November 16th, 2016Time: 8:30 a.m. Eastern TimeConference Line (U.S.): 1-888-455-2263International Dial-In: 1-719-325-2289Webcast: http://public.viavid.com/index.php?id=121881

A replay of the call will be available from 11:30 am ET on November 16, 2016 to 11:59 pm ET on December 16, 2016. To access the replay, please dial 1- 844-512-2921 from the U.S. and 1- 412-317-6671 from outside the U.S. The PIN is 2363154.

About ChinaNet Online Holdings, Inc.

The Company, a parent company of ChinaNet Online Media Group Ltd., incorporated in the BVI ("ChinaNet"), is a leading digital B2B (business to business) Internet technology company focusing on providing O2O sales channel expansion service for small and medium-sized enterprises (SMEs) and entrepreneurial management and networking service for entrepreneurs in China. The Company, through certain contractual arrangements with operating companies in the PRC, provides Internet advertising and other services for Chinese SMEs via its portal websites, 28.com, Liansuo.com and Chuangye.com. Website: http://www.chinanet-online.com.

Safe Harbor

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.
CHINANET ONLINE HOLDINGS, INC. 
CONSOLIDATED BALANCE SHEETS 
(In thousands, except for number of shares and per share data) 
         
    September 30,     December 31,
      2016       2015  
    (US $)   (US $)
    (Unaudited)    
Assets        
Current assets:        
Cash and cash equivalents   $ 1,246     $ 5,503  
Term deposit     3,175       3,265  
Accounts receivable, net     3,484       2,549  
Other receivables, net     355       1,910  
Prepayment and deposit to suppliers     6,844       5,843  
Due from related parties     368       41  
Other current assets     28       45  
Assets classified as held for sale     1,764       1,882  
Total current assets     17,264       21,038  
         
Long-term investments     1,550       1,133  
Property and equipment, net     511       681  
Intangible assets, net     6,467       5,638  
Deposit and prepayment for purchasing of software technology     996       1,024  
Goodwill     4,275       4,396  
Deferred tax assets-non current     1,365       1,550  
Total Assets   $ 32,428     $ 35,460  
         
Liabilities and Equity        
Current liabilities:        
Short-term bank loan   $ 449     $ -  
Accounts payable     115       95  
Advances from customers     1,177       1,313  
Accrued payroll and other accruals     537       685  
Guarantee payment and prepayment from new investors     918       944  
Taxes payable     3,068       3,186  
Other payables     517       234  
Liabilities classified as held for sale     710       913  
Total current liabilities     7,491       7,370  
         
Long-term liabilities:        
Deferred tax liability-non current     29       118  
Long-term borrowing from a director     131       135  
Total Liabilities     7,651       7,623  
         
Commitments and contingencies       -       129  
         
Equity:        
ChinaNet Online Holdings, Inc.'s stockholders' equity        
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 12,158,542 shares and 11,856,304 shares at September 30, 2016 and December 31, 2015, respectively)     12       12  
Additional paid-in capital     28,246       26,528  
Statutory reserves     2,607       2,607  
Retained deficit     (8,033 )     (3,870 )
Accumulated other comprehensive income     1,457       2,056  
Total ChinaNet Online Holdings, Inc.'s stockholders' equity     24,289       27,333  
         
Noncontrolling interests     488       375  
Total equity     24,777       27,708  
         
Total Liabilities and Equity   $ 32,428     $ 35,460  
         

 
CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for number of shares and per share data)
                 
    Nine Months Ended September 30,   Three Months Ended September 30,
      2016       2015       2016       2015  
    (US $)   (US $)   (US $)   (US $)
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues                
From unrelated parties   $ 25,017     $ 23,114     $ 11,741     $ 8,279  
From related parties     381       687       161       219  
Total revenues     25,398       23,801       11,902       8,498  
Cost of revenues     19,269       19,234       9,874       7,047  
Gross profit     6,129       4,567       2,028       1,451  
                 
Operating expenses                
Sales and marketing expenses     3,069       3,437       1,126       1,207  
General and administrative expenses     5,290       5,346       1,752       2,207  
Research and development expenses     1,530       1,658       514       595  
Total operating expenses     9,889       10,441       3,392       4,009  
                 
Loss from operations     (3,760 )     (5,874 )     (1,364 )     (2,558 )
                 
Other income (expenses)                
Interest income     72       91       19       28  
Interest expense     (4 )     (46 )     (4 )     (12 )
Other (expenses)/income     (112 )     26       (99 )     (5 )
Total other (expenses)/income     (44 )     71       (84 )     11  
                 
Loss before income tax expense, equity method investments, noncontrolling interests and discontinued operation     (3,804 )     (5,803 )     (1,448 )     (2,547 )
Income tax (expense)/benefit     (155 )     699       (3 )     391  
Loss before equity method investments, noncontrolling interests and discontinued operation     (3,959 )     (5,104 )     (1,451 )     (2,156 )
Share of losses in equity investment affiliates     -       (2 )     -       (4 )
Loss from continuing operations     (3,959 )     (5,106 )     (1,451 )     (2,160 )
Loss from and on disposal of discontinued operation, net of income tax      (60 )     (204 )     -       (95 )
Net loss     (4,019 )     (5,310 )     (1,451 )     (2,255 )
Net (income)/loss attributable to noncontrolling interests from continuing operations     (144 )     232       (21 )     174  
Net loss attributable to ChinaNet Online Holdings, Inc.    $ (4,163 )   $ (5,078 )   $ (1,472 )   $ (2,081 )
                 
Net loss   $ (4,019 )   $ (5,310 )   $ (1,451 )   $ (2,255 )
Foreign currency translation loss     (630 )     (1,127 )     (152 )     (1,150 )
Comprehensive loss   $ (4,649 )   $ (6,437 )   $ (1,603 )   $ (3,405 )
Comprehensive (income)/loss attributable to noncontrolling interests     (113 )     226       (19 )     168  
Comprehensive loss attributable to ChinaNet Online Holdings, Inc.    $ (4,762 )   $ (6,211 )   $ (1,622 )   $ (3,237 )
                 
Loss per share                
Loss from continuing operations per common share                
Basic and diluted   $ (0.36 )   $ (0.46 )   $ (0.13 )   $ (0.18 )
Loss from discontinued operations per common share                
Basic and diluted   $ (0.01 )   $ (0.02 )   $ -     $ (0.01 )
Weighted average number of common shares outstanding:                
Basic and diluted     11,353,657       10,675,308       11,358,971       10,765,637  
                 

  
CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
         
         
         
    Nine Months Ended September 30,
      2016       2015  
    (US $)   (US $)
    (Unaudited)   (Unaudited)
Cash flows from operating activities        
Net loss   $ (4,019 )   $ (5,310 )
Adjustments to reconcile net loss to net cash (used in)/provided by operating activities        
Depreciation and amortization     1,170       1,321  
Share-based compensation expenses     1,718       1,637  
Loss on disposal of fixed assets/other long-term assets     117       63  
Provision for allowances for doubtful accounts     -       106  
Share of losses in equity investment affiliates     -       2  
Loss on deconsolidation of VIEs     9       -  
Deferred taxes     155       (723 )
Changes in operating assets and liabilities        
Accounts receivable     (1,196 )     (1,766 )
Other receivables     1,416       1,908  
Prepayment and deposit to suppliers     (1,172 )     2,099  
Due from related parties     (24 )     (33 )
Other current assets     16       (32 )
Accounts payable     (129 )     (53 )
Advances from customers     (109 )     1,439  
Accrued payroll and other accruals     (146 )     81  
Other payables     403       140  
Taxes payable     66       (25 )
Commitment and contingencies     (128 )     419  
Net cash (used in)/provided by operating activities       (1,853 )       1,273  
         
Cash flows from investing activities        
Payment for office equipment and leasehold improvement     (150 )     (310 )
Long-term investment in and advance to cost/equity method investees     (787 )     (185 )
Payment for purchasing of software technology     (1,977 )     (3,878 )
Proceeds from disposal of VIEs     28       -  
Cash effect on deconsolidation of VIEs     (18 )     -  
Net cash used in investing activities       (2,904 )       (4,373 )
Cash flows from financing activities        
Proceeds from short-term bank loan     456       -  
Repayment of short-term bank loan     -       (810 )
Repayment of short-term loan to noncontrolling interest of VIE     -       (81 )
Guarantee payment and prepayment from new investors     -       993  
Net cash provided by financing activities     456       102  
         
Changes in cash and cash equivalents included in assets held for sale     132       -  
         
Effect of exchange rate fluctuation on cash and cash equivalents     (88 )     (98 )
         
Net decrease in cash and cash equivalents       (4,257 )       (3,096 )
         
Cash and cash equivalents at beginning of the period     5,503       5,037  
Cash and cash equivalents at end of the period   $     1,246     $     1,941  
         

 
Contact:MZ North AmericaTed Haberfield, PresidentDirect: +1-760-755-2716Email: thaberfield@mzgroup.usWeb: www.mzgroup.us

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