GlobeNewswire Inc | Aug 14, 2020 04:30PM EDT

August 14, 2020

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.

Second Quarter of 2020 Financial Highlights

For the Three Months Ended June 30,($ millions, except per share data) 2020 2019 % ChangeRevenues $10.42 $15.45 -32.6%Gross profit $0.30 $0.37 -18.6%Gross margin 2.9% 2.4% 0.5 pp*Loss from operations ($1.02) ($1.22) 16.5%Operating loss margin -9.8% -7.9% -1.9 ppNet loss attributable to CNET ($0.97) ($0.38) 155.4%Loss per share ($0.04) ($0.02) 100.0%*pp: percent points

-- Revenues decreased by 32.6% to $10.42 million for the second quarter of 2020, primarily due to a decrease in revenues from 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 of 2020 and slow recovery in the second quarter of 2020. -- Gross profit decreased by 18.6% to $0.30 million while gross margin improved by 0.5 percentage points to 2.9% for the second quarter of 2020. -- Loss from operations improved by 16.5% to $1.02 million for the second quarter of 2020, primarily attributable to a decrease in operating expenses, which was partially offset by the decrease in gross profit during the second quarter of 2020. -- Net loss attributable to CNET was $0.97 million, or $0.04 per share, for the second quarter of 2020, compared to net loss of $0.38 million, or $0.02 per share, for the same period of last year.

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.

First Half of 2020 Financial Highlights

For the Six Months Ended June 30,($ millions, except per share data) 2020 2019 % ChangeRevenues $14.80 $24.02 -38.4%Gross profit $1.20 $0.81 48.1%Gross margin 8.1% 3.4% 4.7 pp*Loss from operations ($3.30) ($1.96) 68.2%Operating loss margin -22.3% -8.2% -14.1 ppNet loss attributable to CNET ($3.28) ($1.52) 116.1%Loss per share ($0.16) ($0.09) 77.8%*pp: percent points

-- Revenues decreased by 38.4% to $14.80 million for the first half of 2020, primarily due 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 of 2020 and slow recovery in the second quarter of 2020. -- Gross profit increased by 48.1% to $1.20 million while gross margin improved by 4.7 percentage points to 8.1% for the first half of 2020. -- Loss from operations increased by 68.2%, to $3.30 million for the first half of 2020, primarily attributable to an increase in operating expenses. -- Net loss attributable to CNET was $3.28 million, or $0.16 per share, for the first half of 2020, compared to net loss of $1.52 million, or $0.09 per share, for the same period of last year.

Second Quarter 2020 Financial Results

Revenues

For the Three Months Ended June 30, 2020 2019 % Change- Internet advertising and related data service 2,302 3,598 -36.0%- Distribution of the right to use search engine 7,310 11,855 -38.3%marketing service- Data and technical services 300 0 NMInternet advertising and related services 9,912 15,453 -35.9%Ecommerce O2O advertisement and marketing services 504 0 NMTechnical solution services 0 0 NMTotal revenues 10,416 15,453 -32.6%

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.

Cost of revenues

For the Three Months Ended June 30, 2020 2019 % Change- Internet advertising and related data service 2,072 3,484 -40.5%- Distribution of the right to use search engine 7,405 11,598 -36.2%marketing service- Data and technical services 266 5 NMInternet advertising and related services 9,743 15,087 -35.4%Ecommerce O2O advertisement and marketing services 375 0 NMTechnical solution services 0 0 NMTotal cost of revenues 10,118 15,087 -32.9%

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.

Gross profit and gross margin

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.

Operating expenses

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 9,298 18,580 -50.0%marketing service- Data and technical services 600 5 NMInternet advertising and related services 13,148 24,020 -45.3%Ecommerce O2O advertisement and marketing services 1,007 0 NMTechnical solution services 645 0 NMTotal 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 9,416 17,989 -47.7%marketing service- Data and technical services 531 5 NMInternet advertising and related services 12,853 23,212 -44.6%Ecommerce O2O advertisement and marketing services 750 0 NMTechnical solution services 0 0 NMTotal 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 Companys 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: ttian@weitianco.comPhone: +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, December 31, 2020 2019

(US $) (US $) (Unaudited) Assets Current assets: Cash and cash equivalents $ $ 1,055 1,603Accounts receivable, net of allowance for doubtful 2,520 3,260 accounts of $3,844 and $3,148, respectivelyPrepayment 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 * $ - $ 430Accounts 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 177 136 leases *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; authorized50,000,000 shares; issued and outstanding 21,691,926 22 20 shares and 19,629,403 shares at June 30, 2020 andDecember 31, 2019, respectively)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? 10,643 11,470 equity 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 $ 14,786 $ 23,912 $ 10,415 $ 15,352 partiesFrom a related 14 108 1 101 partyTotal 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 235 350 70 181 marketing expensesGeneral andadministrative 3,928 2,058 1,132 1,248 expensesResearch anddevelopment 330 360 116 159 expensesTotal operating 4,493 2,768 1,318 1,588 expenses Loss from (3,296 ) (1,960 ) (1,020 ) (1,222 )operations Other income (expenses)Interest expense, (1 ) (23 ) - (12 )netOther income/ 17 (4 ) 18 (2 )(expenses)Change in fairvalue of warrant 68 471 22 821 liabilitiesTotal other income 84 444 40 807 Loss before incometax (expense)/benefit and (3,212 ) (1,516 ) (980 ) (415 )noncontrollinginterestsIncome tax (68 ) (6 ) 10 33 (expense)/benefitNet loss (3,280 ) (1,522 ) (970 ) (382 )Net lossattributable to 2 5 2 3 noncontrollinginterestsNet lossattributable to $ (3,278 ) $ (1,517 ) $ (968 ) $ (379 )ChinaNet OnlineHoldings, Inc.

Net loss $ (3,280 ) $ (1,522 ) $ (970 ) $ (382 )Foreigncurrency 68 24 (4 ) 60 translationgain/(loss)Comprehensive $ (3,212 ) $ (1,498 ) $ (974 ) $ (322 )lossComprehensivelossattributable 1 5 2 2 tononcontrollinginterestsComprehensive loss attributable $ (3,211 ) $ (1,493 ) $ (972 ) $ (320 )to ChinaNetOnlineHoldings, Inc. Loss per share Loss per common shareBasic and $ (0.16 ) $ (0.09 ) $ (0.04 ) $ (0.02 )diluted Weightedaverage numberof common sharesoutstanding:Basic and 21,044,666 16,411,548 21,691,926 16,412,543 diluted

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 activitiesDepreciation and amortization 415 52 Amortization of operating lease right-of-use 5 87 assetsShare-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 43 120 leasesOther current liabilities 326 (39 )Taxes payable 89 91 Prepaid lease payment (9 ) (10 )Net cash provided by/(used in) operating 1,165 (2,325 )activities Cash flows from investing activities Investment to investee entities (27 ) (36 )Short-term loan to an unrelated party (944 ) - Payment for blockchain platform applications (302 ) - development costsNet 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 1,603 3,742 the period Cash and cash equivalents at end of the $ $ period 1,055 1,404