ChinaNet Online Holdings Reports Second Quarter 2012 Financial Results

ChinaNet Online Holdings Reports Second Quarter 2012 Financial Results

  Reiterates FY2012 Revenue and Net Income Guidance of $42 Million and $2.8
                            Million, Respectively

   Management to Host Conference Call on Tuesday, August 21^st at 8:30 a.m.
                                 Eastern Time

BEIJING, Aug. 21, 2012 (GLOBE NEWSWIRE) -- ChinaNet Online Holdings, Inc.
("ChinaNet" or the "Company"), (Nasdaq:CNET), a leading B2B (business to
business) Internet technology company providing online-to-offline ("O2O")
sales channel expansion service for small and medium-sized enterprises (SMEs)
and entrepreneurial management and networking services for entrepreneurs in
the People's Republic of China, today announced financial results for the
second quarter of 2012.

Summary Financials


Second Quarter 2012 Results (USD) (Unaudited)

                                          Q2 2012        Q2 2011       CHANGE
Sales                                      $ 13.1 million $ 9.1 million +45%
Gross Profit                               $ 3.8 million  $ 5.6 million -32%
Gross Margin                               28.7%          62.2%         -54%
Net Income Attributable to Common          $ 0.9 million  $ 2.8 million -68%
Stockholders
EPS (Diluted)                              $ 0.04         $ 0.15        -73%

Second Quarter 2012 Financial Results

Revenues increased by $4.0 million to $13.1 million for the three months ended
June 30, 2012 compared to the three months ended June 30, 2011, representing a
45% increase.

"Our diverse portfolio of services helped us generated higher sales and
positive cash flows," explained Mr. Handong Cheng, Chairman and CEO of the
Company. "Even though small business customers remain extremely cautious with
their spending, we are working hard to offer essential and value added
services to new and existing clients. We are optimistic that small businesses
will be a driving force behind China's economic rebound. ChinaNet is well
positioned to capture our share of that growing opportunity when SMEs resume
their growth."

Second Quarter 2012 Revenue Breakdown by Business Unit (USD in thousands)

                                     Q2 2012 %   Q2 2011 %   % Change
Internet Advertisement                $ 5,358 41% $ 6,457 71% -17%
TV Advertisement                      $ 6,144 47% $ 2,059 23% +198%
Bank Kiosk                            $ 71    1%  $ 138   2%  -49%
Brand Mgmt. & Sales Channel Expansion $ 1,554 12% $ 427   5%  +264%

Revenue from Internet advertisement for the three months ended June 30, 2012
declined by 17% to $5.4 million compared to the three months ended June 30,
2011, primarily due to a significant reduction in value added services
revenues, as branded clients reduced their advertising spending. Sales of
brand management and sales channel expansion increased 264% to $1.6 million
for the three months ended June 30, 2012 due to an increase in the average
advertising spending per customer from larger-sized clients. TV advertising
revenues increased from $2.1 million in the second quarter of 2011 to $6.1
million in the second quarter of 2012.

Total cost of revenues increased to $9.4 million for the three months ended
June 30, 2012 from $3.4 million for the same period in 2011. The increase of
total cost of revenues for the three months ended June 30, 2012 was primarily
due to the significant increase in costs associated with the TV advertising
business segment.

Gross profit for the three months ended June 30, 2012 was $3.8 million
compared to $5.6 million in the same period a year ago. Gross margin decreased
to 28.7% from 62.2% for the same period in 2011 as a result of the significant
increase of the low margin TV advertising revenue, which accounted for
approximately 47% of total revenues for the three months ended June 30, 2012
compared to 23% for the same period of 2011.

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      $ 0.5 million  $ 5.5 million     -91%
Stockholders
Adjusted Net Income Attributable to    $ 0.5 million  $ 5.3 million^(1) -91%
Common Stockholders
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 stockholders and EPS
exclude a $0.23 million non-cash gain on deconsolidation of a subsidiary in
the six month period ended June 30, 2011.

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.

Total cost of revenues increased to $21.9 million for the six months ended
June 30, 2012 from $5.5 million for the same period in 2011. The increase of
total cost of revenues for the six months ended June 30, 2012 was primarily
due to the significant increase in costs associated with the TV advertising
business segment.

Gross profit for the six months ended June 30, 2012 was $6.2 million compared
to $10.6 million in the same period a year ago. Gross margin decreased to
22.0% from 66.1% for the same period in 2011 as a result of the significant
increase of the low margin TV advertising revenue, which accounted for
approximately 59% of total revenues in the first half of 2012 compared to 17%
for the same period of 2011.

Operating expenses for the six months ended June 30, 2012 were approximately
$5.2 million, an increase of 24% from $4.2 million in the comparable period in
2011. General and administrative expenses increased by $1.2 million to $3.1
million due to the increase in the allowance for doubtful accounts and
amortization expenses related to the intangible assets identified in the
acquisition transactions consummated in 2011 and the inclusion of expenses
incurred by operating entities that we acquired or incorporated in the second
half of 2011. Selling expenses decreased 13% year-over-year to $1.4 million,
as the Company reduced brand building investments in response to the slowdown
in small business activity in China.

The Company generated $0.9 million of operating income in the six months ended
June 30, 2012 compared to $6.4 million in the same period a year ago.

GAAP net income attributable to common stockholders for the first half of 2012
was $0.5 million and earnings per share was $0.02 compared to $5.5 million and
$0.28 for the first half of 2011, respectively. Non-GAAP adjusted net income
attributable to common stockholders and earnings per share for the first half
of 2012 were $5.3 million and $0.27, respectively. The weighted average shares
outstanding for the first six months of 2012 and 2011 was 22.2 million shares
and 20.4 million shares, respectively.

Balance Sheet and Cash Flow

The Company had $8.6 million in cash and cash equivalents as of June 30, 2012,
compared to $10.7 million as of December 31, 2011, working capital of $28.8
million, compared to $27.0 million as of December 31, 2011, and a current
ratio of 4.1 to 1 compared 4.5 to 1 as of December 31, 2011. Total
shareholders' equity of ChinaNet was $42.5 million at June 30, 2012 compared
to $41.7 million at December 31, 2011.

The Company had positive cash flow from operations of $1.1 million for the
first six months of 2012.

Guidance for 2012

Management forecasts full year 2012 revenues to be at least $42 million and
net income of at least $2.8 million.

Business Updates

ChinaNet attended the 13^th Annual Beijing Franchise Expo from May 11 to May
13, 2012. Management met dozens of prospective small business customers and
promoted its advertising and brand management and sales channel expansion
services to entrepreneurs.

On June 4, 2012, the Company entered into a strategic agreement with the China
Youth Employment and Entrepreneurship Foundation to help college graduates
prepare for their professional careers. College graduates from leading
universities such as Beijing University of Science and Technology and China
University of Political Science and Law will have access to ChinaNet's online
platforms, Chuangye.com, Liansuo.com and 28.com, to look for business
investments and job opportunities, formulate a career plan and learn about
starting a new business.

Chuangye.com, the Company's website for entrepreneurial social networking
services, become the most searched entrepreneurship term on Baidu.com and Sina
Corporation's popular social networking service Weibo.com during May 2012.
Chuangye.com continues to refine its search engine marketing, optimization and
social networking strategies to promote its website and related services.

ChinaNet COO George Chu attended Baidu's launch of its mobile app – Fengchao -
on July 17, 2012. ChinaNet and Baidu will collaborate on integrating
ChinaNet's advertising and marketing services solutions with Baidu's online
and mobile services, including Fengchao.

Conference Call

Date:                   Tuesday, August 21, 2012
Time:                   8:30 a.m. Eastern Time
Conference Line (U.S.): 1-877-317-6776
International Dial-In:  1-412-317-6776
Conference ID:          10017587
Webcast:                http://webcast.mzvaluemonitor.com/Home/Login/395

Please dial in at least 10 minutes before the call to ensure timely
participation.

A playback of the call will be available until 9:00 p.m. Eastern Time on
August 31, 2012. To listen, call 1-877-344-7529 within the United States or
1-412-317-0088 when calling internationally. Please use the replay pin number
10017587.

About ChinaNet Online Holdings, Inc.

ChinaNet Online Holdings, Inc., a parent company of ChinaNet Online Media
Group Ltd., incorporated in the BVI, is a leading business to business
Internet technology company focusing on providing online-to-offline sales
channel expansion service for small and medium-sized enterprises and
entrepreneurial management and networking service for entrepreneurs in China.
Founded in 2003 and based in Beijing, PRC, the Company's services include its
28.com portal to connect SME franchisors with new franchisees, Internet
advertising and marketing with other value-added communication channels, brand
management and sales channel solutions, and cloud-computing based management
tools, expected to be officially commercialized in 2012. Website:
http://www.chinanet-online.com.

About Non-GAAP Financial Measures

To supplement the unaudited interim consolidated statement of income and
comprehensive income presented in accordance with GAAP, we are also providing
non-GAAP measures of income before income tax expenses, equity method
investments and noncontrolling interests, net income, net income attributable
to us, net income attributable to our common stockholders and basic and
diluted earnings per share for the six months ended June 30, 2011, which are
adjusted from results based on GAAP to exclude the non-cash gain recognized on
deconsolidation of a subsidiary incurred during the six months ended June 30,
2011. For the six months ended June 30, 2012 and for the three months ended
June 30, 2012 and 2011, there is no non-cash income or expenses from
nonrecurring transaction under non-GAAP measures. The non-GAAP financial
measures are provided to enhance the investors' overall understanding of our
current performance in on-going core operations as well as prospects for the
future. These measures should be considered in addition to results prepared
and presented in accordance with GAAP, but should not be considered a
substitute for or superior to GAAP results.We use both GAAP and non-GAAP
information in evaluating our operating business results internally and
therefore deemed it important to provide all of this information to investors.

The following table presents reconciliations of our non-GAAP financial
measures to the unaudited interim consolidated statements of income and
comprehensive income for the six months ended June 30, 2011 (all amounts,
except number of shares and per share data, are presented in thousands of US
dollars):

                                               Six Months Ended June 30, 2011
                                               GAAP            NON GAAP
                                               US$             US$
                                               (Unaudited)     (Unaudited)
                                                              
Income from operations                          $ 6,426         $6,426
Other income (expenses):                                       
Interest income                                 4               4
Gain on deconsolidation of subsidiaries         230             --
Other income                                    5               5
                                               239             
                                                              9
Income before income tax expense, equity method                
investments and noncontrolling interests        6,665
Adjusted income before income tax expense,
equity method investments and noncontrolling                   6,435
interests
Income tax expense                              751             751
Income before equity method investments and     5,914           
noncontrolling interests
Adjusted income before equity method                           5,684
investments and noncontrolling interests
Share of losses in equity investment affiliates (105)           (105)
Net income                                      5,809           
Adjusted net income                                            5,579
Net income attributable to noncontrolling       (3)             (3)
interest
Net income attributable to ChinaNet Online      5,806           
Holdings, Inc.
Adjusted net income attributable to ChinaNet                   5,576
Online Holdings, Inc.
Dividend for series A convertible preferred     (322)           (322)
stock
Net income attributable to common stockholders  $5,484        
of ChinaNet Online
Adjusted net income attributable to common                     $5,254
stockholders of ChinaNet Online
                                                              
                                                              
Earnings per common share-Basic                 $0.32          
Adjusted earnings per common share-Basic                       $0.30
                                               $0.28          
Earnings per common share-Diluted                              
Adjusted earnings per common share-Diluted                     $0.27
                                                              
Weighted average number of common shares                       
outstanding:
Basic                                           17,387,336      17,387,336
Diluted                                         20,410,724      20,410,724

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.

                             – FINANCIAL TABLES –

CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands)
                                               June 30,   December 31, 2011
                                                2012
                                               (US $)      (US $)
                                               (Unaudited) 
Assets                                                     
Current assets:                                            
Cash and cash equivalents                      $ 8,572     $ 10,695
Accounts receivable, net                        9,476       4,444
Other receivables, net                          5,672       3,631
Prepayment and deposit to suppliers             13,485      15,360
Due from related parties                       283         324
Contingent consideration receivables           160         159
Other current assets                            103         129
Deferred tax assets-current                     272         --
Total current assets                            38,023      34,742
Investment in and advance to equity investment  1,109       1,396
affiliates
Property and equipment, net                     1,666       1,902
Intangible assets, net                          7,686       8,151
Goodwill                                        11,077      10,999
Deferred tax assets-non current                 270         92
Total Assets                                    $ 59,831    $ 57,282
Liabilities and Equity                                     
Current liabilities:                                       
Accounts payable                               $ 380       $ 268
Advances from customers                        1,800       724
Accrued payroll and other accruals             1,037       616
Due to equity investment affiliate             --          220
Due to related parties                         --          161
Payable for acquisition                        --          550
Taxes payable                                  5,860       5,040
Other payables                                 188         114
Dividend payable                                --          5
Total current liabilities                       9,265       7,698
Long-term liabilities:                                     
Deferred tax liability-non current              1,797       1,893
Long-term borrowing from director               138         137
Total Liabilities                               11,200      9,728
Commitments and contingencies                             
Equity:                                                    
Common stock (US$0.001 par value; authorized
50,000,000 shares; issued and outstanding       22          22
22,186,540 shares and 22,146,540 shares at June
30, 2012 and December 31, 2011, respectively)
Additional paid-in capital                      20,774      20,747
Statutory reserves                              2,117       2,117
Retained earnings                              17,217      16,688
Accumulated other comprehensive income          2,387       2,132
Total ChinaNet Online Holdings, Inc.'s          42,517      41,706
stockholders' equity
Noncontrolling interests                        6,114       5,848
Total equity                                    48,631      47,554
Total Liabilities and Equity                    $ 59,831    $ 57,282


CHINANET ONLINE HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
(In thousands)

                        Six Months Ended June 30, Three Months Ended June 30,
                        2012         2011         2012          2011
                        (US $)       (US $)       (US $)        (US $)
                        (Unaudited)  (Unaudited)  (Unaudited)   (Unaudited)
Sales                                                         
From unrelated parties   $27,996    $15,636     $13,076     $8,814
From related parties     66           457          51            267
                        28,062       16,093       13,127        9,081
Cost of sales            21,902       5,458        9,364         3,437
Gross margin             6,160        10,635       3,763         5,644
Operating expenses                                            
Selling expenses         1,402        1,620        713           908
General and              3,060        1,865        1,817         975
administrative expenses
Research and development 756          724          425           372
expenses
                        5,218        4,209        2,955         2,255
Income from operations   942          6,426        808           3,389
Other income (expenses)                                       
Interest income          121          4            116           3
Gain on deconsolidation  --           230          --            --
of subsidiaries
Other (expenses)/income  --           5            1             (1)
                        121          239          117           2
Income before income tax
expense, equity method                                        
investments and          1,063        6,665        925           3,391
noncontrolling interests
Income tax expense /     14           751          (222)         319
(benefit)
Income before equity
method investments and   1,049       5,914       1,147        3,072
noncontrolling interests
Share of losses in
equity investment        (297)        (105)        (104)         (59)
affiliates
Net income               752          5,809        1,043         3,013
Net income attributable
to noncontrolling        (223)        (3)          (148)         (19)
interests
Net income attributable
to ChinaNet Online       529         5,806       895          2,994
Holdings, Inc.
Dividend of Series A
convertible preferred    --           (322)        --            (153)
stock
Net income attributable
to common stockholders   $529       $5,484     $895        $2,841
of ChinaNet Online
Holdings, Inc.
                                                             
Earnings per share                                            
Earnings per common                                           
share
Basic                    $0.02      $ 0.32       $0.04       $0.16
Diluted                  $0.02      $0.28       $0.04       $ 0.15
Weighted average number
of common shares                                              
outstanding:
Basic                    22,184,562   17,387,336   22,186,540    17,528,785
Diluted                  22,184,562   20,410,724   22,186,540    20,005,962

                                      


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

                                                    Six Months Ended June 30,
                                                    2012         2011
                                                    (US $)       (US $)
                                                    (Unaudited)  (Unaudited)
Cash flows from operating activities                             
Net income                                           $752        $5,809
Adjustments to reconcile net income to net cash                  
provided by operating activities
Depreciation and amortization                        818          470
Share-based compensation expenses                    27           172
Allowances for doubtful debts                        561          --
Share of losses in equity investmentaffiliates      297          105
Gain on deconsolidation of subsidiaries              --           (230)
Gain on disposal of property and equipment           --           (3)
Deferred taxes                                       (558)        (46)
Changes in operating assets and liabilities                      
Accounts receivable                                  (5,346)      (2,171)
Other receivables                                    226          1,320
Prepayment and deposit to suppliers                  1,983        (309)
Due from related parties                             43           (258)
Other current assets                                 26           (2)
Accounts payable                                     109          258
Advances from customers                              1,070        (1,477)
Accrued payroll and other accruals                   418          (50)
Due to director                                      --           (147)
Due to Control Group                                 --           (81)
Due to related parties                               (162)        (137)
Other payables                                       45           77
Taxes payable                                        783          797
Net cash provided by operating activities            1,092        4,097
Cash flows from investing activities                             
Purchases of vehicles and office equipment           (46)         (152)
Purchase of intangible assets                        --           (1,429)
Project development deposit to a third party         (2,450)      --
Restricted cash for incorporation of VIEs            --           (186)
Cash from acquisition of VIEs                        --           24
Cash effect on deconsolidation of VIEs               --           (182)
Long-term investment in and advance to equity        --           (1,527)
investment affiliates
Disposal of investment in and loan repayment from    --           1,527
equity investment affiliate
Payment for acquisition of VIEs                      (553)        (1,451)
Net cash used in investing activities                (3,049)      (3,376)
Cash flows from financing activities                             
Cash investment contributed by noncontrolling        --           224
interests
Dividend paid to convertible preferred stockholders  (5)          (283)
Short-term loan borrowed from a equity investment    316          --
affiliate
Short-term loan repaid to a equity investment        (538)        --
affiliate
Net cash used in financing activities                (227)        (59)
Effect of exchange rate fluctuation on cash and cash 61           195
equivalents
Net (decrease) / increase in cash and cash           (2,123)      857
equivalents
Cash and cash equivalents at beginning of the period 10,695       15,590
Cash and cash equivalents at end of the period       $8,572      $ 16,447

CONTACT: Ted Haberfield, President
         MZ North America, IR
         MZ Group
         Direct: +1-760-755-2716
         Email: thaberfield@mzgroup.us
 
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