|
Item 1.
|
Interim Financial Statements
|
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except for number of shares
and per share data)
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,555
|
|
|
$
|
1,603
|
|
Accounts receivable, net of allowance for doubtful accounts of $3,504 and $3,148, respectively
|
|
|
3,070
|
|
|
|
3,260
|
|
Prepayment and deposit to suppliers
|
|
|
4,946
|
|
|
|
6,980
|
|
Due from related parties, net
|
|
|
51
|
|
|
|
81
|
|
Other current assets, net
|
|
|
831
|
|
|
|
11
|
|
Total current assets
|
|
|
10,453
|
|
|
|
11,935
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
34
|
|
|
|
35
|
|
Operating lease right-of-use assets
|
|
|
9
|
|
|
|
12
|
|
Property and equipment, net
|
|
|
75
|
|
|
|
78
|
|
Intangible assets, net
|
|
|
1,698
|
|
|
|
1,899
|
|
Blockchain platform applications development costs
|
|
|
4,175
|
|
|
|
3,879
|
|
Long-term prepayments
|
|
|
1,344
|
|
|
|
-
|
|
Deferred tax assets, net
|
|
|
706
|
|
|
|
713
|
|
Total Assets
|
|
$
|
18,494
|
|
|
$
|
18,551
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Equity
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term bank loan *
|
|
$
|
-
|
|
|
$
|
430
|
|
Accounts payable *
|
|
|
257
|
|
|
|
408
|
|
Advances from customers *
|
|
|
2,104
|
|
|
|
2,006
|
|
Accrued payroll and other accruals *
|
|
|
524
|
|
|
|
491
|
|
Taxes payable *
|
|
|
3,261
|
|
|
|
3,214
|
|
Lease payment liabilities related to short-term leases *
|
|
|
170
|
|
|
|
136
|
|
Other current liabilities *
|
|
|
442
|
|
|
|
221
|
|
Warrant liabilities
|
|
|
61
|
|
|
|
107
|
|
Total current liabilities
|
|
|
6,819
|
|
|
|
7,013
|
|
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(In thousands, except for number of shares
and per share data)
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
|
Long-term liabilities:
|
|
|
|
|
|
|
|
|
Long-term borrowing from a director
|
|
|
124
|
|
|
|
125
|
|
Total Liabilities
|
|
|
6,943
|
|
|
|
7,138
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
ChinaNet Online Holdings, Inc.’s stockholders’ equity
|
|
|
|
|
|
|
|
|
Common stock (US$0.001 par value; authorized 50,000,000 shares; issued and outstanding 21,691,926 shares and 19,629,403 shares at March 31, 2020 and December 31, 2019, respectively)
|
|
|
22
|
|
|
|
20
|
|
Additional paid-in capital
|
|
|
45,485
|
|
|
|
43,111
|
|
Statutory reserves
|
|
|
2,607
|
|
|
|
2,607
|
|
Accumulated deficit
|
|
|
(38,083
|
)
|
|
|
(35,773
|
)
|
Accumulated other comprehensive income
|
|
|
1,576
|
|
|
|
1,505
|
|
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity
|
|
|
11,607
|
|
|
|
11,470
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling interests
|
|
|
(56
|
)
|
|
|
(57
|
)
|
Total equity
|
|
|
11,551
|
|
|
|
11,413
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities and Equity
|
|
$
|
18,494
|
|
|
$
|
18,551
|
|
*All of the VIEs' assets can be used to
settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent
additional claims on the Company’s general assets (Note 2).
See notes to condensed consolidated financial
statements
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for number of shares
and per share data)
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
From unrelated parties
|
|
$
|
4,371
|
|
|
$
|
8,560
|
|
From related parities
|
|
|
13
|
|
|
|
7
|
|
Total revenues
|
|
|
4,384
|
|
|
|
8,567
|
|
Cost of revenues
|
|
|
3,485
|
|
|
|
8,125
|
|
Gross profit
|
|
|
899
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
165
|
|
|
|
169
|
|
General and administrative expenses
|
|
|
2,796
|
|
|
|
810
|
|
Research and development expenses
|
|
|
214
|
|
|
|
201
|
|
Total operating expenses
|
|
|
3,175
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,276
|
)
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Other expenses
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Change in fair value of warrant liabilities
|
|
|
46
|
|
|
|
(350
|
)
|
Total other income/(expenses)
|
|
|
44
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense and noncontrolling interests
|
|
|
(2,232
|
)
|
|
|
(1,101
|
)
|
Income tax expense
|
|
|
(78
|
)
|
|
|
(39
|
)
|
Net loss
|
|
|
(2,310
|
)
|
|
|
(1,140
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
2
|
|
Net loss attributable to ChinaNet Online Holdings, Inc.
|
|
$
|
(2,310
|
)
|
|
$
|
(1,138
|
)
|
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS
OF OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED)
(In thousands, except for number of shares
and per share data)
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Net loss
|
|
$
|
(2,310
|
)
|
|
$
|
(1,140
|
)
|
Foreign currency translation gain/(loss)
|
|
|
72
|
|
|
|
(36
|
)
|
Comprehensive loss
|
|
|
(2,238
|
)
|
|
|
(1,176
|
)
|
Comprehensive (income)/loss attributable to noncontrolling interests
|
|
|
(1
|
)
|
|
|
3
|
|
Comprehensive loss attributable to ChinaNet Online Holdings, Inc.
|
|
$
|
(2,239
|
)
|
|
$
|
(1,173
|
)
|
|
|
|
|
|
|
|
|
|
Loss per share
|
|
|
|
|
|
|
|
|
Loss per common share
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
20,397,406
|
|
|
|
16,410,543
|
|
See notes to condensed consolidated financial
statements
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,310
|
)
|
|
$
|
(1,140
|
)
|
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
207
|
|
|
|
38
|
|
Amortization of operating lease right-of-use assets
|
|
|
3
|
|
|
|
84
|
|
Share-based compensation expenses
|
|
|
1,919
|
|
|
|
101
|
|
Provision for allowances for doubtful accounts
|
|
|
410
|
|
|
|
192
|
|
Deferred taxes
|
|
|
(5
|
)
|
|
|
39
|
|
Change in fair value of warrant liabilities
|
|
|
(46
|
)
|
|
|
350
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(255
|
)
|
|
|
(547
|
)
|
Prepayment and deposit to suppliers
|
|
|
2,236
|
|
|
|
22
|
|
Due from related parties
|
|
|
29
|
|
|
|
27
|
|
Other current assets
|
|
|
(5
|
)
|
|
|
10
|
|
Long-term prepayments
|
|
|
(1,125
|
)
|
|
|
-
|
|
Accounts payable
|
|
|
(147
|
)
|
|
|
(1,833
|
)
|
Advances from customers
|
|
|
123
|
|
|
|
562
|
|
Accrued payroll and other accruals
|
|
|
34
|
|
|
|
(114
|
)
|
Other current liabilities
|
|
|
319
|
|
|
|
(115
|
)
|
Taxes payable
|
|
|
94
|
|
|
|
65
|
|
Lease payment liability related to short-term leases
|
|
|
37
|
|
|
|
-
|
|
Prepaid lease payment
|
|
|
-
|
|
|
|
(11
|
)
|
Net cash provided by/(used in) operating activities
|
|
|
1,518
|
|
|
|
(2,270
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Investment to an ownership investee company
|
|
|
-
|
|
|
|
(36
|
)
|
Short-term loan to an unrelated party
|
|
|
(815
|
)
|
|
|
-
|
|
Payment for blockchain platform applications development costs
|
|
|
(302
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(1,117
|
)
|
|
|
(36
|
)
|
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)
(In thousands)
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Proceeds from short-term bank loan
|
|
|
-
|
|
|
|
445
|
|
Repayment of short-term bank loan
|
|
|
(430
|
)
|
|
|
(445
|
)
|
Net cash used in financing activities
|
|
|
(430
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate fluctuation on cash and cash equivalents
|
|
|
(19
|
)
|
|
|
47
|
|
|
|
|
|
|
|
|
|
|
Net decrease in cash and cash equivalents
|
|
|
(48
|
)
|
|
|
(2,259
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of the period
|
|
|
1,603
|
|
|
|
3,742
|
|
Cash and cash equivalents at end of the period
|
|
$
|
1,555
|
|
|
$
|
1,483
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest expense paid
|
|
$
|
2
|
|
|
$
|
13
|
|
See notes to condensed consolidated financial
statements
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CHANGES IN EQUITY
(In thousands, except for number of shares)
|
|
Common stock
|
|
|
Additional paid-in capital
|
|
|
|
Statutory reserves
|
|
|
|
Accumulated deficit
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
Noncontrolling interests
|
|
|
|
Total equity
|
|
|
|
Number of shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
|
19,629,403
|
|
|
$
|
20
|
|
|
$
|
43,111
|
|
|
$
|
2,607
|
|
|
$
|
(35,773
|
)
|
|
$
|
1,505
|
|
|
$
|
(57
|
)
|
|
$
|
11,413
|
|
Share-based compensation in exchange for services from nonemployees
|
|
|
430,000
|
|
|
|
-
|
|
|
|
477
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
477
|
|
Share-based compensation in exchange for services from employees and directors
|
|
|
1,632,523
|
|
|
|
2
|
|
|
|
1,897
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,899
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,310
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,310
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
71
|
|
|
|
1
|
|
|
|
72
|
|
Balance, March 31, 2020 (unaudited)
|
|
|
21,691,926
|
|
|
$
|
22
|
|
|
$
|
45,485
|
|
|
$
|
2,607
|
|
|
$
|
(38,083
|
)
|
|
$
|
1,576
|
|
|
$
|
(56
|
)
|
|
$
|
11,551
|
|
|
|
Common stock
|
|
|
Additional paid-in capital
|
|
|
|
Statutory reserves
|
|
|
|
Accumulated deficit
|
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
|
Noncontrolling interests
|
|
|
|
Total equity
|
|
|
|
Number of shares
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
(US $)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2019
|
|
|
16,382,543
|
|
|
$
|
16
|
|
|
$
|
38,275
|
|
|
$
|
2,607
|
|
|
$
|
(34,512
|
)
|
|
$
|
1,457
|
|
|
$
|
(49
|
)
|
|
$
|
7,794
|
|
Share-based compensation
|
|
|
30,000
|
|
|
|
-
|
|
|
|
13
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,138
|
)
|
|
|
-
|
|
|
|
(2
|
)
|
|
|
(1,140
|
)
|
Foreign currency translation adjustment
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(35
|
)
|
|
|
(1
|
)
|
|
|
(36
|
)
|
Balance, March 31, 2019 (unaudited)
|
|
|
16,412,543
|
|
|
$
|
16
|
|
|
$
|
38,288
|
|
|
$
|
2,607
|
|
|
$
|
(35,650
|
)
|
|
$
|
1,422
|
|
|
$
|
(52
|
)
|
|
$
|
6,631
|
|
See notes to
condensed consolidated financial statements
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
1.
|
Organization and nature of operations
|
ChinaNet Online Holdings, Inc.
(the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation
in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited
(the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”).
As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding
company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the
“PRC”), is engaged in providing advertising, precision marketing, online to offline (O2O) sales channel expansion and
the related data and technical services to small and medium enterprises in the PRC. In early 2018, the Company commenced to expand
its business into the blockchain industry and the related technology. As of March 31, 2020, the Company was in the process of developing
its blockchain-powered platform applications (See Note 11).
|
2.
|
Variable interest entities
|
Summarized below is the information
related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of March
31, 2020 and December 31, 2019, respectively:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,301
|
|
|
$
|
699
|
|
Accounts receivable, net
|
|
|
2,384
|
|
|
|
2,876
|
|
Prepayment and deposit to suppliers
|
|
|
2,302
|
|
|
|
3,998
|
|
Due from related parties, net
|
|
|
51
|
|
|
|
81
|
|
Other current assets, net
|
|
|
9
|
|
|
|
6
|
|
Total current assets
|
|
|
6,047
|
|
|
|
7,660
|
|
|
|
|
|
|
|
|
|
|
Long-term investments
|
|
|
34
|
|
|
|
35
|
|
Operating lease right-of-use assets
|
|
|
9
|
|
|
|
12
|
|
Property and equipment, net
|
|
|
39
|
|
|
|
40
|
|
Intangible assets, net
|
|
|
20
|
|
|
|
25
|
|
Deferred tax assets, net
|
|
|
706
|
|
|
|
713
|
|
Total Assets
|
|
$
|
6,855
|
|
|
$
|
8,485
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Short-term bank loan
|
|
$
|
-
|
|
|
$
|
430
|
|
Accounts payable
|
|
|
257
|
|
|
|
408
|
|
Advances from customers
|
|
|
1,601
|
|
|
|
2,006
|
|
Accrued payroll and other accruals
|
|
|
86
|
|
|
|
132
|
|
Taxes payable
|
|
|
2,539
|
|
|
|
2,568
|
|
Lease payment liabilities related to short-term leases
|
|
|
39
|
|
|
|
19
|
|
Other current liabilities
|
|
|
112
|
|
|
|
84
|
|
Total current liabilities
|
|
|
4,634
|
|
|
|
5,647
|
|
|
|
|
|
|
|
|
|
|
Total Liabilities
|
|
$
|
4,634
|
|
|
$
|
5,647
|
|
All of the
VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating
these VIEs do not represent additional claims on the Company’s general assets.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Summarized
below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated
statements of operations and comprehensive loss for the three months ended March 31, 2020 and 2019, respectively:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
$
|
2,936
|
|
|
$
|
8,567
|
|
Cost of revenues
|
|
|
(2,845
|
)
|
|
|
(8,125
|
)
|
Total operating expenses
|
|
|
(744
|
)
|
|
|
(711
|
)
|
Net loss before allocation to noncontrolling interests
|
|
|
(651
|
)
|
|
|
(322
|
)
|
|
3.
|
Summary of significant accounting policies
|
The unaudited
condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally
accepted in the United States of America (“U.S. GAAP”).
The unaudited
condensed consolidated interim financial information as of March 31, 2020 and for the three months ended March 31, 2020 and 2019
have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain
information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance
with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial
information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2019, previously filed with the SEC (the “2019 Form 10-K”)
on May 27, 2020.
In the opinion
of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s
condensed consolidated financial position as of March 31, 2020, its condensed consolidated results of operations for the three
months ended March 31, 2020 and 2019, and its condensed consolidated cash flows for the three months ended March 31, 2020 and 2019,
as applicable, have been made. The interim results of operations are not necessarily indicative of the operating results for the
full fiscal year or any future periods.
The Company
incurred operating losses and may continue to incur operating losses, and as a result, to generate negative cash flows as the Company
implements its future business plan. The Company’s net loss attributable to stockholders for the three months ended March
31, 2020 was approximately US$2.31 million, compared with approximately US$1.14 million for the three months ended March 31, 2019.
As of March 31, 2020, the Company had cash and cash equivalents of approximately US$1.56 million, compared with approximately US$1.60
million as of December 31, 2019.
The Company
does not currently have sufficient cash or commitments for financing to sustain its operation for the twelve months from the issuance
date of these financial statements. The Company plans to optimize its internet resources cost investment strategy to improve the
gross profit margin of its core business and to further strengthen the accounts receivables collection management and negotiate
with vendors for more favorable payment terms, all of which will help to substantially increase the cashflows from operations.
However, the COVID-19 outbreak incurred in the first fiscal quarter of 2020 in the PRC has had and may continue to have an adverse
effect on the Company’s business operations and cashflows. If the Company fails to achieve these goals, the Company may need
additional financing to execute its business plan. If additional financing is required, the Company cannot predict whether this
additional financing will be in the form of equity, debt, or another form, and the Company may not be able to obtain the necessary
additional capital on a timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or
that the Company is unsuccessful in increasing its gross profit margin and reducing operating losses, the Company may be unable
to implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have
a material adverse effect on the Company’s business, prospects, financial condition and results of operations. These factors
raise substantial doubt about the Company's ability to continue as a going concern within one year after the date that the financial
statements are issued.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The unaudited
condensed consolidated financial statements as of March 31, 2020 have been prepared under the assumption that the Company will
continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities
in the normal course of business over a reasonable period of time. The Company's ability to continue as a going concern is dependent
upon its uncertain ability to increase gross profit margin and reduce operating loss from its core business and/or obtain additional
equity and/or debt financing. The accompanying financial statements as of March 31, 2020 do not include any adjustments that might
result from the outcome of these uncertainties. If the Company is unable to continue as a going concern, it may have to liquidate
its assets and may receive less than the value at which those assets are carried on the financial statements.
|
c)
|
Principles of consolidation
|
The unaudited
condensed consolidated interim financial statements include the accounts of all the subsidiaries and VIEs of the Company. All transactions
and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.
The preparation
of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these consolidated
financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates
these estimates and assumptions based on the most recently available information, historical experience and various other assumptions
that the Company believes to be reasonable under the circumstances. Since the use of estimates is an integral component of the
financial reporting process, actual results could differ from those estimates.
|
e)
|
Foreign currency translation
|
The exchange
rates used to translate amounts in RMB into US$ for the purposes of preparing the condensed consolidated financial statements are
as follows:
|
|
March 31, 2020
|
|
December 31, 2019
|
|
|
|
|
|
|
|
|
|
Balance sheet items, except for equity accounts
|
|
|
7.0851
|
|
|
|
6.9762
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Items in the statements of operations and comprehensive loss
|
|
|
6.9790
|
|
|
|
6.7468
|
|
No
representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
f)
|
Fair value measurement
|
Liabilities
measured at fair value on a recurring basis by level within the fair value hierarchy as of March 31, 2020 and December 31, 2019
are as follows:
|
|
|
|
Fair value measurement at reporting date using
|
|
|
|
As of
March 31, 2020
|
|
|
Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)
|
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (Note 17)
|
|
|
61
|
|
|
-
|
|
|
-
|
|
|
|
61
|
|
|
|
|
|
Fair value measurement at reporting date using
|
|
|
|
As of
December 31, 2019
|
|
|
Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1)
|
|
|
Significant
Other
Observable Inputs
(Level 2)
|
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
|
|
|
|
|
|
|
|
Warrant liabilities (Note 17)
|
|
|
107
|
|
|
-
|
|
|
-
|
|
|
|
107
|
|
The following
tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
Internet advertising and related services
|
|
|
|
|
|
|
|
|
--distribution of the right to use search engine marketing service
|
|
|
1,988
|
|
|
|
6,725
|
|
--online advertising placements
|
|
|
948
|
|
|
|
1,831
|
|
--sales of effective sales lead information
|
|
|
-
|
|
|
|
6
|
|
--data and technical services
|
|
|
300
|
|
|
|
5
|
|
Ecommerce O2O advertising and marketing services
|
|
|
503
|
|
|
|
-
|
|
Technical solution services
|
|
|
645
|
|
|
|
-
|
|
Total revenues
|
|
|
4,384
|
|
|
|
8,567
|
|
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenue recognized over time
|
|
|
3,739
|
|
|
|
8,561
|
|
Revenue recognized at a point in time
|
|
|
645
|
|
|
|
6
|
|
Total revenues
|
|
|
4,384
|
|
|
|
8,567
|
|
Contract
costs
For the three
months ended March 31, 2020 and 2019, the Company did not have any significant incremental costs of obtaining contracts with customers
incurred and/or costs incurred in fulfilling contracts with customers, that shall be recognized as an asset and amortized to expenses
in a pattern that matches the timing of the revenue recognition of the related contract.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Contract
balances
The
table below summarized the movement of the Company’s contract liabilities (advance from customers) for the three months
ended March 31, 2020:
|
|
|
Contract liabilities
|
|
|
|
US$(’000)
|
|
|
|
Balance as of January 1, 2020
|
|
|
2,006
|
|
Exchange translation adjustment
|
|
|
(31
|
)
|
Revenue recognized from beginning contract liability balance
|
|
|
(1,146
|
)
|
Advances received from customers related to unsatisfied performance obligations
|
|
|
1,275
|
|
Balance as of March 31, 2020 (Unaudited)
|
|
|
2,104
|
|
Advance from
customers related to unsatisfied performance obligations are generally refundable. Refund of advance from customers
were insignificant for both the three months ended March 31, 2020 and 2019.
For the three
months ended March 31, 2020 and 2019, there is no revenue recognized from performance obligations that were satisfied in prior
periods.
|
h)
|
Research and development expenses
|
The Company
accounts for expenses for the enhancement, maintenance and technical support to the Company’s Internet platforms and intellectual
properties that are used in its daily operations in research and development expenses. Research and development costs are charged
to expense when incurred. Expenses for research and development for the three months ended March 31, 2020 and 2019 were approximately
US$0.21 million and US$0.20 million, respectively.
As of March
31, 2020, operating lease right-of-use assets recognized by the Company was approximately US$0.01 million, operating lease liabilities
recognized was approximately US$0.01 million, which was included in the Company’s other current liabilities and was fully
paid to the lessor in April 2020.
For the three
months ended March 31, 2020 and 2019, total operating lease cost recognized was approximately US$0.05 million (including approximately
US$0.04 million short-term leases cost) and US$0.09 million, respectively.
Supplemental
information related to operating leases (All amounts are presented in thousands of U.S. dollars):
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
Operating cash flows used for operating leases
|
|
|
-
|
|
|
|
93
|
|
Right-of-use assets obtained in exchange for new lease liabilities
|
|
|
-
|
|
|
|
10
|
|
Weighted-average discount rate
|
|
|
6
|
%
|
|
|
6
|
%
|
|
|
As of March 31,
|
|
|
2020
|
|
2019
|
|
|
|
|
|
|
|
|
|
Weighted-average remaining lease term (years)
|
|
|
0.96
|
|
|
|
1.96
|
|
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
4.
|
Accounts receivable, net
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
6,574
|
|
|
|
6,408
|
|
Allowance for doubtful accounts
|
|
|
(3,504
|
)
|
|
|
(3,148
|
)
|
Accounts receivable, net
|
|
|
3,070
|
|
|
|
3,260
|
|
All
of the accounts receivable are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as
of March 31, 2020 and December 31, 2019, the Company provided approximately US$3.50 million and US$3.15 million allowance for doubtful
accounts, respectively, which were primarily related to the accounts receivable of the Company’s Internet advertising and
related services segment with an aging over six months. The Company evaluates its accounts receivable with an aging over six months
and determines the allowance based on aging data, historical collection experience, customer specific facts and economic conditions.
For the three months ended March 31, 2020 and 2019, approximately US$0.41 million and US$0.19 million allowance for doubtful accounts
was provided, respectively.
|
5.
|
Prepayments and deposit to suppliers
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Deposits to advertising resources providers
|
|
|
1,311
|
|
|
|
1,315
|
|
Prepayments to advertising resources providers
|
|
|
2,329
|
|
|
|
4,361
|
|
Prepayment of license fee
|
|
|
796
|
|
|
|
1,062
|
|
Other deposits and prepayments
|
|
|
510
|
|
|
|
242
|
|
|
|
|
4,946
|
|
|
|
6,980
|
|
|
6.
|
Due from related parties, net
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)
|
|
|
51
|
|
|
|
81
|
|
Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua Shiji”)
|
|
|
169
|
|
|
|
172
|
|
|
|
|
220
|
|
|
|
253
|
|
Allowance for doubtful accounts
|
|
|
(169
|
)
|
|
|
(172
|
)
|
Due from related parties, net
|
|
|
51
|
|
|
|
81
|
|
Related
parties of the Company represented the Company’s direct or indirect unconsolidated investee companies and entities that the
Company’s officers or directors can exercise significant influence.
As
of March 31, 2020 and December 31, 2019, due from Zhongwang Xiyue represented the outstanding receivable for the advertising
and marketing service that the Company provided to this related party in its normal course of business, which is on the same terms
as those provided to its unrelated clients.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As
of March 31, 2020 and December 31, 2019, due from related parties also included a short-term working capital loan to Guohua Shiji.
As of March 31, 2020 and December 31, 2019, the Company had provided full allowance to against the remaining amount of this loan,
as the business activities of Guohua Shiji had become dormant and recovery was considered remote.
|
7.
|
Other current assets, net
|
|
|
March 31, 2020
|
|
December 31,2019
|
|
|
|
Gross
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
Net
|
|
|
|
Gross
|
|
|
|
Allowance for doubtful accounts
|
|
|
|
Net
|
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staff advances for business operations
|
|
|
16
|
|
|
|
-
|
|
|
|
16
|
|
|
|
11
|
|
|
|
-
|
|
|
|
11
|
|
Short-term loan to an unrelated party
|
|
|
815
|
|
|
|
-
|
|
|
|
815
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Overdue deposits
|
|
|
706
|
|
|
|
(706
|
)
|
|
|
-
|
|
|
|
717
|
|
|
|
(717
|
)
|
|
|
-
|
|
Total
|
|
|
1,537
|
|
|
|
(706
|
)
|
|
|
831
|
|
|
|
728
|
|
|
|
(717
|
)
|
|
|
11
|
|
As
of March 31, 2020, other current assets primarily include a temporary working capital loan that the Company lent to an unrelated
party during the first fiscal quarter of 2020. This loan is unsecured, interest free and payment on demand.
As
of March 31, 2020 and December 31, 2019, other current assets also included an approximately RMB5 million (approximately US$0.7
million) overdue contractual deposit related to an advertising resources purchase contract that had been completed with no further
cooperation. Based on the assessment of the collectability of this overdue deposit as of March 31, 2020 and December 31, 2019,
the Company had provided full allowance to against this doubtful account.
As
of March 31, 2020 and December 31, 2019, long-term investment of approximately RMB0.25 million (approximately US$0.03 million)
represented the Company’s contribution of its pro-rata share of cash investment to Local Chain Xi’an Information Technology
Co., Ltd. (“Local Chain Xi’an). The Company beneficially owns a 4.9% equity interest in Local Chain Xi’an.
The
Company measures this investment which do not have readily determinable fair values at cost minus impairment, if any, plus or minus
changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.
|
9.
|
Property and equipment, net
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Vehicles
|
|
|
747
|
|
|
|
758
|
|
Office equipment
|
|
|
1,310
|
|
|
|
1,331
|
|
Electronic devices
|
|
|
923
|
|
|
|
937
|
|
Property and equipment, cost
|
|
|
2,980
|
|
|
|
3,026
|
|
Less: accumulated depreciation
|
|
|
(2,905
|
)
|
|
|
(2,948
|
)
|
Property and equipment, net
|
|
|
75
|
|
|
|
78
|
|
Depreciation
expenses for the three months ended March 31, 2020 and 2019 were approximately US$2,000 and US$33,000, respectively.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
10.
|
Intangible assets, net
|
|
|
As of March 31, 2020 (Unaudited)
|
Items
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
Domain name
|
|
|
1,363
|
|
|
|
-
|
|
|
|
(1,363
|
)
|
|
|
-
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship
|
|
|
1,880
|
|
|
|
(1,880
|
)
|
|
|
-
|
|
|
|
-
|
|
Non-compete agreements
|
|
|
1,035
|
|
|
|
(563
|
)
|
|
|
(472
|
)
|
|
|
-
|
|
Software technologies
|
|
|
289
|
|
|
|
(289
|
)
|
|
|
-
|
|
|
|
-
|
|
Intelligent marketing data service platform
|
|
|
4,557
|
|
|
|
(1,846
|
)
|
|
|
(2,711
|
)
|
|
|
-
|
|
Internet safety, information exchange security and data encryption software
|
|
|
1,835
|
|
|
|
(413
|
)
|
|
|
(1,422
|
)
|
|
|
-
|
|
Cloud video management system
|
|
|
1,341
|
|
|
|
(333
|
)
|
|
|
(1,008
|
)
|
|
|
-
|
|
Cloud compute software technology
|
|
|
1,310
|
|
|
|
(888
|
)
|
|
|
(402
|
)
|
|
|
20
|
|
Licensed products use right
|
|
|
1,207
|
|
|
|
(45
|
)
|
|
|
-
|
|
|
|
1,162
|
|
Other computer software
|
|
|
871
|
|
|
|
(355
|
)
|
|
|
-
|
|
|
|
516
|
|
Total
|
|
$
|
15,688
|
|
|
$
|
(6,612
|
)
|
|
$
|
(7,378
|
)
|
|
$
|
1,698
|
|
|
|
As of December 31, 2019
|
Items
|
|
Gross
Carrying
Value
|
|
Accumulated
Amortization
|
|
Impairment
|
|
Net
Carrying
Value
|
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
|
US$(’000)
|
Intangible assets not subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domain name
|
|
|
1,385
|
|
|
|
-
|
|
|
|
(1,385
|
)
|
|
|
-
|
|
Intangible assets subject to amortization:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Customer relationship
|
|
|
1,909
|
|
|
|
(1,909
|
)
|
|
|
-
|
|
|
|
-
|
|
Non-compete agreements
|
|
|
1,051
|
|
|
|
(571
|
)
|
|
|
(480
|
)
|
|
|
-
|
|
Software technologies
|
|
|
294
|
|
|
|
(294
|
)
|
|
|
-
|
|
|
|
-
|
|
Intelligent marketing data service platform
|
|
|
4,629
|
|
|
|
(1,876
|
)
|
|
|
(2,753
|
)
|
|
|
-
|
|
Internet safety, information exchange security and data encryption software
|
|
|
1,863
|
|
|
|
(419
|
)
|
|
|
(1,444
|
)
|
|
|
-
|
|
Cloud video management system
|
|
|
1,362
|
|
|
|
(338
|
)
|
|
|
(1,024
|
)
|
|
|
-
|
|
Cloud compute software technology
|
|
|
1,331
|
|
|
|
(898
|
)
|
|
|
(408
|
)
|
|
|
25
|
|
Licensed products use right
|
|
|
1,202
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
1,187
|
|
Other computer software
|
|
|
872
|
|
|
|
(185
|
)
|
|
|
-
|
|
|
|
687
|
|
Total
|
|
$
|
15,898
|
|
|
$
|
(6,505
|
)
|
|
$
|
(7,494
|
)
|
|
$
|
1,899
|
|
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Amortization
expenses for the three months ended March 31, 2020 and 2019 were approximately US$205,000 and US$5,000, respectively.
Based
on the adjusted carrying value of the finite-lived intangible assets after the deduction of the impairment losses, which has a
weighted average remaining useful life of 6.27 years as of March 31, 2020, and assuming no further subsequent impairment of the
underlying intangible assets, the estimated future amortization expenses is approximately US$0.62 million for the year ending December
31, 2020, approximately US$0.13 million for the year ending December 31, 2021, and approximately US$0.12 million each year for
the year ending December 31, 2022 through 2024.
|
11.
|
Blockchain software application platform development costs
|
In
February 2018, the Company entered into a technical development contract with an unrelated entity to develop a blockchain technology-based
platform application for internal use by the Company. Total amount of the contract was US$4.5 million. In March 2018, the Company
entered into a RMB3.0 million (approximately US$0.42 million) social network-based software application development contract with
another unrelated entity, which software application the Company had further combined into the current under developing blockchain
technology-based platform. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of March
31, 2020 and December 31, 2019, in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”,
the Company capitalized approximately US$4.18 million and US$3.88 million development costs in the aggregate under these two contracts,
respectively. As of the date hereof, the Company is in the process of further developing and adjusting its blockchain-powered applications
on the blockchain infrastructure platform to make the platform a better synergism with the current business and client base. The
Company had originally scheduled to complete the adjustments and upgrades of Bo!News, to launch the OMG for trial by the end of
May 2020, and to complete the integration of BO!News and OMG for commercial release by the end of 2020. However, due to the COVID-19
outbreak in China during the first fiscal quarter of 2020, the Company currently anticipates that the commercial releasing schedule
will likely be postponed for 1 to 2 months.
According
to the development contracts the Company signed with the counter parties, the Company will not bear any development risk related
loss unless the counter party has no fault during the development and the causes for failure is considered reasonable as agreed
by both parties. In the latter case, the related development loss will be shared by both parties based on further negotiations.
As of the date hereof, the Company has not been aware of any technical risks or other factors that may lead to any failure or partial
failure of these development projects.
|
12.
|
Long-term prepayments
|
As of March 31, 2020, long-term
prepayments represented a portion of the Company’s prepayments, of which approximately US$1.12 million was paid to one of
its advertising resource suppliers and the remaining approximately US$0.22 million was paid to one of its professional service
suppliers. The Company recorded these amounts as long-term prepayments because they were not expected to be consumed within one
year of March 31, 2020.
|
13.
|
Short-term bank loan and credit facility
|
As of December 31, 2019, the
Company had a revolving credit facility of RMB5.0 million (approximately US$0.7 million) for short-term working capital loans granted
by a major financial institution in China, which expired in January 2020.
As of December 31, 2019, under
the revolving credit facility, the Company borrowed RMB3.0 million (approximately US$0.43 million) short-term bank loan, which
matured and was repaid in January 2020.
|
14.
|
Accrued payroll and other accruals
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Accrued payroll and staff welfare
|
|
|
128
|
|
|
|
173
|
|
Accrued operating expenses
|
|
|
396
|
|
|
|
318
|
|
|
|
|
524
|
|
|
|
491
|
|
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
As of March 31, 2020 and December
31, 2019, taxes payable consists of:
|
|
|
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Turnover tax and surcharge payable
|
|
|
1,234
|
|
|
|
1,244
|
|
Enterprise income tax payable
|
|
|
2,027
|
|
|
|
1,970
|
|
Total taxes payable
|
|
|
3,261
|
|
|
|
3,214
|
|
For the three months ended March
31, 2020 and 2019, the Company’s income tax expense consisted of:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Current
|
|
|
(83
|
)
|
|
|
-
|
|
Deferred
|
|
|
5
|
|
|
|
(39
|
)
|
Income tax expense
|
|
|
(78
|
)
|
|
|
(39
|
)
|
The Company’s deferred
tax assets as of March 31, 2020 and December 31, 2019 were as follows:
|
|
March 31,
2020
|
|
December 31,
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
Tax effect of net operating losses carried forward
|
|
|
9,578
|
|
|
|
9,160
|
|
Bad debts provision
|
|
|
794
|
|
|
|
743
|
|
Valuation allowance
|
|
|
(9,666
|
)
|
|
|
(9,190
|
)
|
Deferred tax assets, net
|
|
|
706
|
|
|
|
713
|
|
The U.S. holding company has
incurred aggregate NOLs of approximately US22.3 million and US$20.3 million as of March 31, 2020 and December 31, 2019, respectively.
The NOLs carryforwards as of December 31, 2017 gradually expire over time, the last of which expires in 2037. NOLs incurred after
December 31, 2017 will no longer be available to carry back but can be carried forward indefinitely, subject to an annual limit
of 80% on the amount of taxable income that can be offset by NOLs arising in tax years ending after December 31, 2017. The Company
maintains a full valuation allowance against its net U.S. deferred tax assets, since due to uncertainties surrounding future utilization,
the Company estimates there will not be sufficient future earnings to utilize its U.S. deferred tax assets.
The NOLs carried forward incurred
by the Company’s PRC subsidiaries and VIEs were approximately US$23.9 million and US$23.6 million as of March 31, 2020 and
December 31, 2019, respectively. The losses carryforwards gradually expire over time, the last of which expires in 2030 due to
certain subsidiary enjoys the High and New Technology Enterprise’s privileged NOLs carryforward policy. The related deferred
tax assets were calculated based on the respective NOLs incurred by each of the PRC subsidiaries and VIEs and the respective corresponding
enacted tax rate that will be in effect in the period in which the losses are expected to be utilized.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Company recorded approximately
US$9.7 million and US$9.2 million valuation allowance as of March 31, 2020 and December 31, 2019, respectively, because it is considered
more likely than not that a portion of the deferred tax assets will not be realized through sufficient future earnings of the entities
to which the operating losses related.
For the three months ended March
31, 2020 and 2019, the Company recorded approximately US$0.55 million and US$0.19 million deferred tax valuation allowance, respectively.
|
16.
|
Long-term borrowing from a director
|
Long-term borrowing from a director
is a non-interest bearing loan from a director of the Company relating to the original paid-in capital contribution in the Company’s
wholly-owned subsidiary Rise King WFOE, which is not expected to be repaid within one year.
The Company consummated a registered director offering in
January 2018 (the “2018 Financing”), as part of the transaction, the Company issued
to the investors and the placement agent warrants to purchase up to 645,000 and 129,000 shares of the Company’s common stock
at an exercise price of $6.60 per share, respectively. The Company accounted for these warrants as derivative liabilities.
As a result, these warrants were remeasured at fair value as of each reporting date with changes in fair value be recorded in earnings
in each reporting period.
Fair value of the warrants
The Company used Binomial model
to determine the fair value of the Warrants based on the assumptions summarized as below:
|
|
Investors warrants
|
|
Placement agent warrants
|
|
|
|
As of
December 31, 2019
|
|
|
|
As of
March 31, 2020
|
|
|
|
As of
December 31, 2019
|
|
|
|
As of
March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
1.17
|
|
|
$
|
0.95
|
|
|
$
|
1.17
|
|
|
$
|
0.95
|
|
Years to maturity
|
|
|
0.55
|
|
|
|
0.30
|
|
|
|
1.05
|
|
|
|
0.80
|
|
Risk-free interest rate
|
|
|
1.58
|
%
|
|
|
0.10
|
%
|
|
|
1.57
|
%
|
|
|
0.13
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
60
|
%
|
|
|
99
|
%
|
|
|
80
|
%
|
|
|
78
|
%
|
Exercise Price *
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
$
|
1.4927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
0.11
|
|
|
$
|
0.07
|
|
|
$
|
0.28
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities (US$’000)
|
|
$
|
71
|
|
|
$
|
45
|
|
|
$
|
36
|
|
|
$
|
16
|
|
|
|
Investors warrants
|
|
Placement agent warrants
|
|
|
|
As of
December 31, 2018
|
|
|
|
As of
March 31, 2019
|
|
|
|
As of
December 31, 2018
|
|
|
|
As of
March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
Stock price
|
|
$
|
1.34
|
|
|
$
|
1.95
|
|
|
$
|
1.34
|
|
|
$
|
1.95
|
|
Years to maturity
|
|
|
1.55
|
|
|
|
1.30
|
|
|
|
2.05
|
|
|
|
1.80
|
|
Risk-free interest rate
|
|
|
2.50
|
%
|
|
|
2.27
|
%
|
|
|
2.50
|
%
|
|
|
2.27
|
%
|
Dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Expected volatility
|
|
|
199
|
%
|
|
|
216
|
%
|
|
|
176
|
%
|
|
|
187
|
%
|
Exercise Price *
|
|
$
|
6.60
|
|
|
$
|
6.60
|
|
|
$
|
6.60
|
|
|
$
|
6.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of the warrant
|
|
$
|
0.78
|
|
|
$
|
1.23
|
|
|
$
|
0.80
|
|
|
$
|
1.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrant Liabilities (US$’000)
|
|
$
|
503
|
|
|
$
|
793
|
|
|
$
|
103
|
|
|
$
|
163
|
|
*
On September 25, 2019, as a result of the close on the first half of a private placement with a selected group of investors, the
exercise price of the warrants issued in the 2018 Financing that contain the “full ratchet” price protection in the
event of subsequent issuances below the applicable exercise price (the “Down round feature”) was adjusted to $1.4927.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Changes in fair value
of warrant liabilities
Three Months Ended March 31,
2020 (Unaudited)
|
|
|
As of
March 31, 2020
|
|
|
|
As of
December 31, 2019
|
|
|
|
Change in Fair Value
(gain)/loss
|
|
|
|
US$’000
|
|
US$’000
|
|
US$’000
|
Fair value of the Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor warrants
|
|
|
45
|
|
|
|
71
|
|
|
|
(26
|
)
|
Placement agent warrants
|
|
|
16
|
|
|
|
36
|
|
|
|
(20
|
)
|
Warrant liabilities
|
|
|
61
|
|
|
|
107
|
|
|
|
(46
|
)
|
Three Months Ended March 31,
2019 (Unaudited)
|
|
|
As of
March 31, 2019
|
|
|
|
As of
December 31, 2018
|
|
|
|
Change in Fair Value
(gain)/loss
|
|
|
|
US$’000
|
|
US$’000
|
|
US$’000
|
Fair value of the Warrants:
|
|
|
|
|
|
|
|
|
|
|
|
|
Investor warrants
|
|
|
793
|
|
|
|
503
|
|
|
|
290
|
|
Placement agent warrants
|
|
|
163
|
|
|
|
103
|
|
|
|
60
|
|
Warrant liabilities
|
|
|
956
|
|
|
|
606
|
|
|
|
350
|
|
Warrants issued and outstanding
as of March 31, 2020 and their movements during the three months then ended are as follows:
|
|
Warrant Outstanding
|
|
Warrant Exercisable
|
|
|
|
Number of underlying shares
|
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
Number of underlying shares
|
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
|
774,000
|
|
|
|
0.63
|
|
|
$
|
1.4927
|
|
|
|
774,000
|
|
|
|
0.63
|
|
|
$
|
1.4927
|
|
Granted/Vested
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 (Unaudited)
|
|
|
774,000
|
|
|
|
0.38
|
|
|
$
|
1.4927
|
|
|
|
774,000
|
|
|
|
0.38
|
|
|
$
|
1.4927
|
|
18.
|
Restricted net assets
|
As substantially all of the
Company’s operations are conducted through its PRC subsidiaries and VIEs, the Company’s ability to pay dividends is
primarily dependent on receiving distributions of funds from its PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations
permit payments of dividends by its PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance
with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves.
Paid in capital of the PRC subsidiaries and VIEs included in the Company’s consolidated net assets are also non-distributable
for dividend purposes.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
In accordance with the PRC regulations
on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely
general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as
reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax
profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC
statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the
board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends.
Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company
Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax
profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic
enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned
reserves can only be used for specific purposes and are not distributable as cash dividends. All of the Company’s other PRC
subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.
In accordance with these PRC
laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their
net assets to the Company. As of March 31, 2020 and December 31, 2019, net assets restricted in the aggregate, which include paid-in
capital and statutory reserve funds of the Company’s PRC subsidiaries and VIEs that are included in the Company’s consolidated
net assets, were both approximately US$12.0 million.
The current PRC Enterprise Income
Tax (“EIT”) Law also imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise
to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement
between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be
subject to a 5% withholding tax rate, subject to approval from the related PRC tax authorities.
The ability of the Company’s
PRC subsidiaries and VIEs to make dividends and other payments to the Company may also be restricted by changes in applicable foreign
exchange and other laws and regulations.
Foreign currency exchange regulation
in China is primarily governed by the following rules:
|
l
|
Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;
|
|
l
|
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration
Rules.
|
Currently, under the Administration
Rules, Renminbi is freely convertible for current account items, including the distribution of dividends, interest payments, trade
and service related foreign exchange transactions, but not for capital account items, such as direct investments, loans, repatriation
of investments and investments in securities outside of China, unless the prior approval of the State Administration of Foreign
Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises like Rise
King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their foreign
exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign shareholders
by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are permitted to
open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with specialized
accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.
Although the current Exchange
Rules allow the converting of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi
into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE,
which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of
foreign currency conversion. The Company cannot be sure that it will be able to obtain all required conversion approvals for its
operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi
in the future. Currently, most of the Company’s retained earnings are generated in Renminbi. Any future restrictions on currency
exchanges may limit the Company’s ability to use its retained earnings generated in Renminbi to make dividends or other payments
in U.S. dollars or fund possible business activities outside China.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
19.
|
Employee defined contribution plan
|
Full time employees of the Company
in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical
care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC
subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’
salaries. The employee benefits were expensed as incurred. The Company has no legal obligation for the benefits beyond the contributions
made. The total amounts for such employee benefits were approximately US$0.04 million and US$0.09 million for the three months
ended March 31, 2020 and 2019, respectively.
|
20.
|
Concentration of risk
|
Credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable.
As of Mach 31, 2020, 99% of the Company’s cash and cash equivalents were held by major financial institutions located in
Mainland and Hong Kong, China, the remaining 1% was held by a financial institution located in the United States of America. The
Company believes that these financial institutions located in China and the United States of America are of high credit quality.
For accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition, generally
without requiring collateral or other security. In order to minimize the credit risk, the Company delegated a team responsible
for credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further,
the Company reviews the recoverable amount of each individual receivable at each balance sheet date to ensure that adequate allowances
are made for doubtful accounts. In this regard, the Company considers that the Company’s credit risk for accounts receivable
is significantly reduced.
Concentration of customers
The following tables summarized
the information about the Company’s concentration of customers for the three months ended March 31, 2020 and 2019, respectively:
|
|
Customer A
|
|
Customer B
|
|
Customer C
|
|
Customer D
|
|
Customer E
|
|
Customer F
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, customer concentration risk
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
*
|
|
|
|
15
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues, customer concentration risk
|
|
|
17
|
%
|
|
|
*
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of March 31, 2020
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, customer concentration risk
|
|
|
27
|
%
|
|
|
12
|
%
|
|
|
24
|
%
|
|
|
11
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, customer concentration risk
|
|
|
57
|
%
|
|
|
13
|
%
|
|
|
12
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
* Less than 10%.
- No
transaction incurred for the reporting period/no balance existed as of the reporting date.
Concentration of suppliers
The following tables summarized
the information about the Company’s concentration of suppliers for the three months ended March 31, 2020 and 2019, respectively:
|
|
Supplier A
|
|
Supplier B
|
Three Months Ended March 31, 2020
|
|
|
|
|
|
|
|
|
Cost of revenues, supplier concentration risk
|
|
|
71
|
%
|
|
|
11
|
%
|
|
|
|
|
|
|
|
|
|
Three Months Ended March 31, 2019
|
|
|
|
|
|
|
|
|
Cost of revenues, supplier concentration risk
|
|
|
89
|
%
|
|
|
-
|
|
- No
transaction incurred for the reporting period/no balance existed as of the reporting date.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
|
21.
|
Commitments and contingencies
|
In
2018, the Company entered into contracts with two unrelated third parties in relation to the development of the Company’s
blockchain technology-powered platform applications. Total contract amount of these two contracts was approximately US$4.92 million.
As of March 31, 2020, the Company had paid approximately US$4.18 million in the aggerate, and the remaining unpaid contract amount
is expected to be paid during the year ending December 31, 2020.
The Company is currently not
a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings
against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings
arising in its ordinary course of business.
The Company follows ASC Topic
280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions
about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an
entity about which separate financial information is available and which operating results are regularly reviewed by the chief
operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to
be allocated to the segment and assess each operating segment’s performance.
Previously,
the Company had four reportable segments, which were Internet advertising and related services, TV advertising service, Blockchain
technology and Corporate. From fiscal 2020, the Company has a new reportable segment, which is Ecommerce O2O advertising and marketing
services segment. In additional, due to the Company’s TV advertising business gradually became dormant since fiscal 2019,
and the remaining general operating expenses, net loss and total assets amounts of the Company’s TV advertising segment were
and are expected to continue be immaterial, the Company combines the results of operations of its TV advertising segment and other
disclosure information with its new Ecommerce O2O advertising and marketing services segment in fiscal 2020. As a result, the related
disclosures for the respective corresponding periods in fiscal 2019 have been reclassified in comfort with the disclosures in fiscal
2020.
Three Months Ended March 31,
2020 (Unaudited)
|
|
|
Internet Ad
and related
services
|
|
|
|
Ecommerce
O2O Ad and
marketing
services
|
|
|
|
Blockchain
technology
|
|
|
|
Corporate
|
|
|
|
Inter- segment
and reconciling
item
|
|
|
|
Total
|
|
|
|
US$(‘000)
|
|
US$(‘000)
|
|
US$(‘000)
|
|
US$(‘000)
|
|
US$(‘000)
|
|
US$(‘000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
3,236
|
|
|
|
503
|
|
|
|
-
|
|
|
|
645
|
|
|
|
-
|
|
|
|
4,384
|
|
Cost of revenues
|
|
|
3,110
|
|
|
|
375
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,485
|
|
Total operating expenses
|
|
|
1,022
|
|
|
|
4
|
|
|
|
1
|
|
|
|
2,148
|
(1)
|
|
|
-
|
|
|
|
3,175
|
|
Depreciation and amortization expense included in total operating expenses
|
|
|
206
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
207
|
|
Operating (loss)/income
|
|
|
(896
|
)
|
|
|
124
|
|
|
|
(1
|
)
|
|
|
(1,503
|
)
|
|
|
-
|
|
|
|
(2,276
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
46
|
|
|
|
-
|
|
|
|
46
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss)/income
|
|
|
(893
|
)
|
|
|
103
|
|
|
|
(1
|
)
|
|
|
(1,519
|
)
|
|
|
-
|
|
|
|
(2,310
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenditure for long-term assets
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
-
|
|
|
|
-
|
|
|
|
302
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets-March 31, 2020
|
|
|
11,521
|
|
|
|
2,844
|
|
|
|
4,180
|
|
|
|
21,940
|
|
|
|
(21,991
|
)
|
|
|
18,494
|
|
Total assets-December 31, 2019
|
|
|
13,332
|
|
|
|
2,075
|
|
|
|
3,885
|
|
|
|
21,338
|
|
|
|
(22,079
|
)
|
|
|
18,551
|
|
|
(1)
|
Including approximately US$1,919 thousands share-based compensation expenses.
|
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Three
Months Ended March 31, 2019 (Unaudited)
|
|
Internet Ad.
and related
services
|
|
Ecommerce
O2O Ad and
marketing
services
|
|
Blockchain
technology
|
|
Corporate
|
|
Inter- segment
and reconciling
item
|
|
Total
|
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
US$
(‘000)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
|
8,567
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,567
|
|
Cost of revenues
|
|
|
8,125
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
8,125
|
|
Total operating expenses
|
|
|
705
|
|
|
|
18
|
|
|
|
5
|
|
|
|
452
|
(1)
|
|
|
-
|
|
|
|
1,180
|
|
Depreciation and amortization expense included in total operating expenses
|
|
|
23
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15
|
|
|
|
-
|
|
|
|
38
|
|
Operating loss
|
|
|
(263
|
)
|
|
|
(18
|
)
|
|
|
(5
|
)
|
|
|
(452
|
)
|
|
|
-
|
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of warrant liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(350
|
)
|
|
|
-
|
|
|
|
(350
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(315
|
)
|
|
|
(19
|
)
|
|
|
(5
|
)
|
|
|
(801
|
)
|
|
|
-
|
|
|
|
(1,140
|
)
|
|
|
(1)
|
Including approximately US$101 thousands share-based compensation expenses.
|
Basic and diluted loss per share
for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are presented
in thousands of U.S. dollars):
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Net loss attributable to ChinaNet Online Holdings, Inc. (numerator for basic and diluted loss per share)
|
|
$
|
(2,310
|
)
|
|
$
|
(1,138
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding -Basic and diluted
|
|
|
20,397,406
|
|
|
|
16,410,543
|
|
|
|
|
|
|
|
|
|
|
Loss per share -Basic and diluted
|
|
$
|
(0.11
|
)
|
|
$
|
(0.07
|
)
|
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended March
31, 2020, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 755,216 shares
of the Company’s common stock, respectively, because their effect was anti-dilutive, as the Company incurred a loss for the
period.
For the three months ended March
31, 2019, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 835,216 shares
of the Company’s common stock, respectively, because their effect was anti-dilutive, as the Company incurred a loss for the
period.
|
24.
|
Share-based compensation expenses
|
In
February 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued in the aggregate of approximately
1.60 million fully-vested shares of the Company’s restricted common stock to its management and employees for their services
provided. These shares were valued at the closing bid price of the Company’s common stock on the date of grant, which is
US$1.18 per share. Total compensation expenses of approximately US$1.89 million was recorded for the three months ended March 31,
2020.
In
March 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued 0.03 million fully-vested shares
of the Company’s restricted common stock to one of its independent directors in exchange for his services for the year ending
December 31, 2020. These shares were valued at the closing bid price of the Company’s common stock on the date of grant,
which is US$1.11 per share. Total compensation expenses amortized for the three months ended March 31, 2020 was approximately US$0.01
million.
In
March 2020, the Company granted and issued 430,000 shares of the Company restricted common stock to a management consulting and
advisory service provider in exchange for its service for a two-year period until February 2022. According to the service agreement,
these shares are fully-vested upon issuance at the contract inception and shall not be subject to forfeiture upon termination of
the agreement. The Company valued these shares at US$1.11 per share, the closing bid price of the Company’s common stock
on the grant date of these shares and recorded the related total cost of approximately US$0.48 million as a prepayment asset in
prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total
compensation expenses amortized for the three months ended March 31, 2020 was approximately US$0.02 million.
The
table below summarized share-based compensation expenses recorded for the three months ended March 31, 2020 and 2019, respectively:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
US$(’000)
|
|
US$(’000)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
122
|
|
|
|
-
|
|
General and administrative expenses
|
|
|
1,651
|
|
|
|
101
|
|
Research and development expenses
|
|
|
146
|
|
|
|
-
|
|
Total
|
|
|
1,919
|
|
|
|
101
|
|
The
aggregate unrecognized share-based compensation expenses as of March 31, 2020 was approximately US$0.48 million, of which approximately
US$0.20 million will be recognized for the year ending December 31, 2020, approximately US$0.24 million will be recognized for
the year ending December 31, 2021 and approximately US$0.04 million will be recognized for the year ending December 31, 2022.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Options issued and outstanding
as of March 31, 2020 and their movements during the three months then ended are as follows:
|
|
Option Outstanding
|
|
Option Exercisable
|
|
|
|
Number of underlying shares
|
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
Number of underlying shares
|
|
|
|
Weighted
Average
Remaining
Contractual
Life (Years)
|
|
|
|
Weighted
Average
Exercise
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2020
|
|
|
755,216
|
|
|
|
1.15
|
|
|
$
|
2.43
|
|
|
|
755,216
|
|
|
|
1.15
|
|
|
$
|
2.43
|
|
Granted/Vested
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2020 (Unaudited)
|
|
|
755,216
|
|
|
|
0.90
|
|
|
$
|
2.43
|
|
|
|
755,216
|
|
|
|
0.90
|
|
|
$
|
2.43
|
|
In May 2020, one of the
Company’s consolidated VIEs, Business Opportunity Online Hubei incorporated a new wholly-owned subsidiary, ChinaNet
Online (Guangdong) Technology Co., Ltd. (“ChinaNet Online Guangdong”). ChinaNet Online Guangdong was established
for the Company to expand its corporate business and technology headquarters to
Southern China. ChinaNet Online Guangdong is currently in its setup period.
The
Company primarily conducts its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19) surfaced in
Wuhan City, Hubei province of the PRC, and spread all over the country during the first fiscal quarter of 2020. The outbreak caused
the Chinese government to require businesses to close, people to quarantine, and also to restrict certain travel within the country.
The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. In
cooperation with the government authorities, the Company’s operating offices (especially that in Xiaogan City, Hubei province)
were shut down for approximately one to two months after the Chinese New Year Holiday and were unable to reopen until mid-March
or early-April in 2020. The Company’s principle business activity is to provide online advertising and marketing services
to small and medium enterprises in the PRC, which is particularly sensitive to changes in general economic conditions. The pandemic
of COVID-19 in the PRC had caused decreases in or delays in advertising spending and had negatively impacted the Company’s
short-term ability to grow revenues. While the COVID-19 pandemic is still in developing stages worldwide, international stock markets
have begun to reflect the uncertainty associated with the slow-down in the global economy and the reduced levels of international
travel experienced since the beginning of January, large declines in oil prices and the significant decline in the Dow Industrial
Average at the end of February and beginning of March 2020 was largely attributed to the effects of COVID-19. Although the Chinese
government have declared the COVID-19 outbreak largely under control within its border, the Company will continue to assess its
financial impacts for the remainder of the year. There can be no assurance that this assessment will enable the Company to avoid
part or all of any impact from the spread of COVID-19 or its consequences, including downturns in business sentiment generally
or in the Company’s sector in particular.
Item 2 Management’s
Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
You
should read the following discussion and analysis of our financial condition and results of operations in conjunction with our
consolidated financial statements and the related notes included elsewhere in this interim report. Our consolidated financial statements
have been prepared in accordance with U.S. GAAP. The following discussion and analysis contains forward-looking statements within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without
limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,”
“anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included
in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking
statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ
materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the
information set forth under the heading “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended
December 31, 2019. Readers are cautioned not to place undue reliance on these forward-looking statements.
Our company
was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result
of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain
contractual arrangements with operating companies in the PRC, is engaged in providing advertising, precision marketing, online
to offline sales channel expansion and the related data and technical services to SMEs in the PRC.
Through
our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising,
precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through
this system, which primarily include distribution of the right to use search engine marketing services we purchased from key search
engines, provision of online advertising placements on our web portals, sales of effective sale lead information as well as provision
of other related value-added data and technical services to maximize market exposure
and effectiveness for our clients.
To enhance the reliability of our future blockchain services and optimize location for client
proximity, we incorporated a new wholly-owned subsidiary, ChinaNet Online (Guangdong) Technology Co., Ltd. (“ChinaNet Online
Guangdong”) in May 2020 as we are in the process of expanding our corporate business and technology headquarters to the city
of Guangzhou in Southern China. We expect to officially open our new Guangzhou headquarters in July 2020.
Basis of presentation,
management estimates and critical accounting policies
Our unaudited
condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the
United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries and VIEs.
We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the
reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements
and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates
and assumptions based on the most recently available information, our own historical experience and various other assumptions that
we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting
process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than
others in their application. In order to understand the significant accounting policies that we adopted for the preparation of
our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 “Summary
of significant accounting policies” to our audited financial statements in our 2019 Form 10-K.
A. RESULTS
OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2020 AND 2019
The following
table sets forth a summary, for the periods indicated, of our consolidated results of operations. Our historical results presented
below are not necessarily indicative of the results that may be expected for any future period. All amounts, except number of shares
and per share data, are presented in thousands of U.S. dollars.
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(US $)
|
|
(US $)
|
|
|
(Unaudited)
|
|
(Unaudited)
|
|
|
|
|
|
Revenues
|
|
|
|
|
|
|
|
|
From unrelated parties
|
|
$
|
4,371
|
|
|
$
|
8,560
|
|
From related parties
|
|
|
13
|
|
|
|
7
|
|
Total revenues
|
|
|
4,384
|
|
|
|
8,567
|
|
Cost of revenues
|
|
|
3,485
|
|
|
|
8,125
|
|
Gross profit
|
|
|
899
|
|
|
|
442
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
Sales and marketing expenses
|
|
|
165
|
|
|
|
169
|
|
General and administrative expenses
|
|
|
2,796
|
|
|
|
810
|
|
Research and development expenses
|
|
|
214
|
|
|
|
201
|
|
Total operating expenses
|
|
|
3,175
|
|
|
|
1,180
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(2,276
|
)
|
|
|
(738
|
)
|
|
|
|
|
|
|
|
|
|
Other income/(expenses)
|
|
|
|
|
|
|
|
|
Interest expense, net
|
|
|
(1
|
)
|
|
|
(11
|
)
|
Other expenses
|
|
|
(1
|
)
|
|
|
(2
|
)
|
Change in fair value of warrant liabilities
|
|
|
46
|
|
|
|
(350
|
)
|
Total other income/(expenses)
|
|
|
44
|
|
|
|
(363
|
)
|
|
|
|
|
|
|
|
|
|
Loss before income tax expense and noncontrolling interests
|
|
|
(2,232
|
)
|
|
|
(1,101
|
)
|
Income tax expense
|
|
|
(78
|
)
|
|
|
(39
|
)
|
Net loss
|
|
|
(2,310
|
)
|
|
|
(1,140
|
)
|
Net loss attributable to noncontrolling interests
|
|
|
-
|
|
|
|
2
|
|
Net loss attributable to ChinaNet Online Holdings, Inc.
|
|
$
|
(2,310
|
)
|
|
$
|
(1,138
|
)
|
The following
tables set forth a breakdown of our total revenues, disaggregated by type of services for the periods indicated, with inter-company
transactions eliminated:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
Revenue type
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
|
|
|
|
|
|
|
-Internet advertising and related data service
|
|
$
|
948
|
|
|
|
21.6
|
%
|
|
$
|
1,837
|
|
|
|
21.4
|
%
|
-Distribution of the right to use search engine marketing service
|
|
|
1,988
|
|
|
|
45.4
|
%
|
|
|
6,725
|
|
|
|
78.5
|
%
|
-Data and technical services
|
|
|
300
|
|
|
|
6.8
|
%
|
|
|
5
|
|
|
|
0.1
|
%
|
Internet advertising and related services
|
|
|
3,236
|
|
|
|
73.8
|
%
|
|
|
8,567
|
|
|
|
100
|
%
|
Ecommerce O2O advertising and marketing services
|
|
|
503
|
|
|
|
11.5
|
%
|
|
|
-
|
|
|
|
-
|
|
Technical solution services
|
|
|
645
|
|
|
|
14.7
|
%
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4,384
|
|
|
|
100.0
|
%
|
|
$
|
8,567
|
|
|
|
100.0
|
%
|
Total Revenues:
Our total revenues decreased to US$4.38 million for the three months ended March 31, 2020 from US$8.57 million for the same period
last year, which was primarily due to the decrease in revenues from our Internet advertising and related services business segment,
as a result of the COVID-19 outbreak during the first fiscal quarter of 2020.
|
l
|
Revenues from our core businesses, Internet advertising and distribution of the right to use search
engine marketing service for the three months ended March 31, 2020 decreased significantly to US$0.95 million and US$1.99 million,
respectively, compared with US$1.84 million and US$6.73 million for the three months ended March 31, 2019, respectively. The decreases
were directly attributable to the COVID-19 outbreak during the first fiscal quarter of 2020 in China, which caused our operating
offices, along with most of our customers and suppliers’ remain closed after
the Chinese New Year holiday in February and March 2020, resulted from the epidemic control measures imposed by the local governments.
|
|
l
|
For the three months ended March 31, 2020, we generated an
approximately US$0.30 million Internet advertising related data and technical service revenue from distribution of the right to
access a data analysis and management system we purchased from a third party.
|
|
l
|
For the three months ended March 31, 2020, we also generated an approximately US$0.50 million
Ecommerce O2O advertising and marketing service revenues from distribution of the advertising spaces in outdoor billboards we
purchased from a third party; and an approximately US$0.65 million revenue from providing E-commence website technical design
service.
|
Cost of revenues
Our
cost of revenues consisted of costs directly related to the offering of our online advertising, precision marketing and
related data and technical services, and cost related to our Ecommerce O2O advertising and marketing service. The
following table sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the
periods indicated, with inter-company transactions eliminated:
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
Revenue
|
|
Cost
|
|
GP ratio
|
|
Revenue
|
|
Cost
|
|
GP ratio
|
|
|
|
|
|
|
|
|
|
|
|
|
|
-Internet advertising and related data service
|
|
$
|
948
|
|
|
|
834
|
|
|
|
12
|
%
|
|
$
|
1,837
|
|
|
|
1,734
|
|
|
|
6
|
%
|
-Distribution of the right to use search engine marketing service
|
|
|
1,988
|
|
|
|
2,011
|
|
|
|
-1
|
%
|
|
|
6,725
|
|
|
|
6,391
|
|
|
|
5
|
%
|
-Data and technical services
|
|
|
300
|
|
|
|
265
|
|
|
|
12
|
%
|
|
|
5
|
|
|
|
-
|
|
|
|
100
|
%
|
Internet advertising and related services
|
|
|
3,236
|
|
|
|
3,110
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Ecommerce O2O advertising and marketing services
|
|
|
503
|
|
|
|
375
|
|
|
|
25
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Technical solution services
|
|
|
645
|
|
|
|
-
|
|
|
|
100
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Total
|
|
$
|
4,384
|
|
|
$
|
3,485
|
|
|
|
21
|
%
|
|
$
|
8,567
|
|
|
$
|
8,125
|
|
|
|
5
|
%
|
Cost of revenues: our
total cost of revenues decreased to US$3.49 million for the three months ended March 31, 2020 from US$8.13 million for the three
months ended March 31, 2019. Our cost of revenues primarily consists of search engine marketing resources purchased from key search
engines, cost of outdoor advertising resource, license fee paid for providing date and technical services, and other direct costs
associated with providing our services. The decrease in our total cost of revenues for the three months ended March 31, 2020 was
primarily due to the decrease in costs associated with distribution of the right to use search engine marketing service we purchased
from key search engines 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.
|
l
|
Costs for internet advertising and data service primarily consist of cost of internet traffic flow
and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to
promote business opportunity advertisements placed on our own ad portals. For the three months ended March 31, 2020, our total
cost of revenues for Internet advertising and data service decreased significantly to US$0.83 million from approximately US$1.73
million for the three months ended March 31, 2019, which was in line with the revenues decrease as a result of the COVID-19 outbreak
during the period. The gross margin rate of our internet advertising and data service was 12% for the three months ended March
31, 2020, compared with 6% for the three months ended March 31, 2019. Along with our enhancement of data analysis capabilities
and optimization of cost control mechanism, the gross profit margin of this business started
to improve from the second half of 2019. However, as the business activities of this business for the three months ended March
31, 2020 was significantly affected by the COVID-19 outbreak during the period, the performance of this business for the three
months ended March 31, 2020 in terms of revenue volume and related cost consumption may not be indicative for the full fiscal year
or any future periods, or comparable to any historical reporting periods.
|
|
l
|
Costs for search engine marketing service was direct
search engine resource costs consumed for the right to use search engine marketing service we purchased from key search
engines and distributed to our customers. We purchased these search engine resources from well-known search engines in China,
for example, Baidu, Qihu 360 and Sohu (Sogou) etc. We purchased the resource in relatively large amounts under our own name
at a relatively lower rate compared to the market. We charged our clients the actual cost they consumed on search engines for
the use of this service and a premium at certain percentage of that actual consumed cost. For the three months ended
March 31, 2020, our total cost of revenues for distribution of the right to use search engine marketing service decreased
significantly to US$2.01 million from approximately US$6.39 million for the three months ended March 31, 2019, which was in
line with the decrease in revenues as a result of the COVID-19 outbreak during the period. Gross margin rate of this service
decreased to -1% for the three months ended March 31, 2020, as we had to sell the resource pre-purchased from key search
engines with no profit to meet our working capital needs under the COVID-19 outbreak circumstance. As stated above, due to
the COVID-19 outbreak impacts during the first fiscal quarter of 2020, the performance
of this business for the three months ended March 31, 2020 in terms of revenue volume and related cost consumption may not be
indicative for the full fiscal year or any future periods, or comparable to any historical reporting periods.
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For the three months ended March 31, 2020, cost for our Internet advertising related data and technical
service revenue of approximately US$0.27 million was the amortized licensee fee for the use of the related data analysis and management
system during the period.
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For the three months ended March 31, 2020, cost for our Ecommerce O2O advertising and
marketing service revenues of approximately US$0.38 million was the amortized cost for the related outdoor billboards ad
spaces we pre-purchased.
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Gross
Profit
As a result of the foregoing, our gross profit was approximately
US$0.90 million and US$0.44 million for the three months ended March 31, 2020 and 2019, respectively. Our overall gross
margin was 21% and 5% for the three months ended March 31, 2020 and 2019, respectively. As stated above, as the business activities
of our core businesses for the three months ended March 31, 2020 were significantly affected by the COVID-19 outbreak during the
period, our financial performance for the three months ended March 31, 2020 in terms of revenue streams, revenue volume and related
cost consumption may not be indicative for the full fiscal year or any future periods, or comparable to any historical reporting
periods.
Operating
Expenses
Our operating
expenses consist of sales and marketing expenses, general and administrative expenses and research and development expenses. The
following tables set forth our operating expenses, divided into their major categories by amount and as a percentage of our total
revenues for the periods indicated.
|
|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
(Amounts expressed in thousands of US dollars, except percentages)
|
|
|
Amount
|
|
% of total revenue
|
|
Amount
|
|
% of total revenue
|
|
|
|
|
|
|
|
|
|
Total Revenues
|
|
$
|
4,384
|
|
|
|
100
|
%
|
|
$
|
8,567
|
|
|
|
100
|
%
|
Gross Profit
|
|
|
899
|
|
|
|
21
|
%
|
|
|
442
|
|
|
|
5
|
%
|
Sales and marketing expenses
|
|
|
165
|
|
|
|
4
|
%
|
|
|
169
|
|
|
|
2
|
%
|
General and administrative expenses
|
|
|
2,796
|
|
|
|
64
|
%
|
|
|
810
|
|
|
|
10
|
%
|
Research and development expenses
|
|
|
214
|
|
|
|
5
|
%
|
|
|
201
|
|
|
|
2
|
%
|
Total operating expenses
|
|
$
|
3,175
|
|
|
|
73
|
%
|
|
$
|
1,180
|
|
|
|
14
|
%
|
Operating Expenses: Our
total operating expenses was approximately US$3.18 million and US$1.18 million for the three months ended March 31, 2020 and
2019, respectively. The increase was primarily attribute to the increase in share-based compensation expenses for the issuance
of restricted shares to our employees under our 2015 Omnibus Securities and Incentive Plan
during the three months ended March 31, 2020.
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Sales and marketing expenses: Sales and marketing expenses was both US$0.17 million for the
three months ended March 31, 2020 and 2019. Our sales and marketing expenses primarily consist of advertising expenses
for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals
and our services, other advertising and promotional expenses, staff salaries, staff benefits, performance bonuses, travelling
expenses, communication expenses and other general office expenses of our sales department. Due to certain aspects of our
business nature, the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with
the fluctuation of our net revenues. For the three months ended March 31, 2020, the changes in our sales and marketing
expenses was primarily due to the following reasons: (1) general departmental expenses decreased by approximately US$0.13
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 approximately US$0.12 million, related to restricted shares granted and issued to our sales staff during the first fiscal
quarter of 2020.
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General and administrative expenses: General and administrative expenses increased to US$2.80 million
for the three months ended March 31, 2020 from US$0.81 million for the same period in 2019. Our
general and administrative expenses primarily consist of salaries and benefits of management, accounting and administrative personnel,
office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities
and other office expenses. For the three months ended March 31, 2020, the change in our general and administrative expenses
was primarily due to the following reasons: (1) the increase in share-based compensation expenses of approximately US$1.55 million,
due to restricted shares granted and issued in the first fiscal quarter of 2020; (2) the increase in allowance for doubtful accounts
of approximately US$0.22 million; and (3) the increase in professional service fees and intangible assets amortization expenses
of approximately US$0.22 million.
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Research and development expenses: Research and development expenses were US$0.21 million
and US$0.20 million for the three months ended March 31, 2020 and 2019, respectively. Our research and development expenses
primarily consist of salaries and benefits of our research and development staff, equipment depreciation expenses, and office
utilities and supplies allocated to our research and development department etc. For the three months ended March 31, 2020, the
changes in our research and development expenses was primarily due to the following reasons: (1) general departmental expenses
decreased by approximately US$0.13 million, due to the same reason related to the COVID-19 outbreak as discussed above;
and (2) the increase in share-based compensation expenses of approximately US$0.15 million, related to restricted shares granted
and issued to our R&D staff during the first fiscal quarter of 2020.
|
Loss
from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$2.28 million and
US$0.74 million for the three months ended March 31, 2020 and 2019, respectively.
Change
in fair value of warrant liabilities: we issued warrants in our Financing consummated in January 2018, which we determined
that should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our
functional currency (Renminbi or Yuan). As a result, a gain of change in fair value of these warrant liabilities of approximately
US$0.05 million was recorded for the three months ended March 31, 2020, compared with a loss of change in fair value of these warrant
liabilities of approximately US$0.35 million recorded for the three months ended March 31, 2019.
Loss
before income tax expense and noncontrolling interests: As a result of the foregoing, our loss before income tax expense
and noncontrolling interest was approximately US$2.23 million and US$1.10 million for the three months ended March 31, 2020 and
2019, respectively.
Income
Tax expense: For the three months ended March 31, 2020, we recognized an approximately US$0.08 million income tax expense
in relation to net income generated by one of our operating subsidiaries for the period, which amount was partially offset by an
approximately US$0.01 million income tax benefit recognized in relation to the net operating loss incurred by another operating
VIE of ours for the period, which we consider likely to be utilized with respect to future earnings of this entity. For the three
months ended March 31, 2019, we recognized an approximately US$0.06 million income tax expense in relation to utilization of previously
recognized deferred tax assets by one of our operating VIEs for the period, which amount was partially offset by an approximately
US$0.02 million income tax benefit recognized in relation to the net operating loss incurred by another operating VIE of ours for
the period, which we consider likely to be utilized with respect to future earnings of this entity.
Net
loss: As a result of the foregoing, for the three months ended March 31, 2020 and 2019, we incurred a total net loss of
approximately US$2.31 million and US$1.14 million, respectively.
Net
loss attributable to noncontrolling interest: In May 2018, we incorporated a majority-owned subsidiary, Business Opportunity
Chain and beneficially owns 51% equity interest in it. For the three months ended March 31, 2020 and 2019, net loss allocated
to the noncontrolling interest of Business Opportunity Chain was approximately US$nil and US$0.002 million, respectively.
Net
loss attributable to ChinaNet Online Holdings, Inc.: Total net loss as adjusted by net loss attributable to the noncontrolling
interest shareholders as discussed above yields the net loss attributable to ChinaNet Online Holdings, Inc. Net loss attributable
to ChinaNet Online Holdings, Inc. was US$2.31 million and US$1.14 million for the three months ended March 31, 2020 and 2019, respectively.
B. LIQUIDITY
AND CAPITAL RESOURCES
Cash and
cash equivalents represent cash on hand and deposits held at call with banks. We consider all highly liquid investments with original
maturities of three months or less at the time of purchase to be cash equivalents. As of March 31, 2020, we had cash and cash equivalents
of approximately US$1.56 million.
Our liquidity
needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued
expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments to search
engine resource and other advertising resource providers, payment of our operating expenses and financing of our accounts receivable;
and (ii) net cash used in investing activities that consist of the investment to expand technologies related to our existing and
future business activities, investment to enhance the functionality of our current advertising portals for providing advertising,
marketing and data services and to secure the safety of our general network. To date, we have financed our liquidity need primarily
through proceeds we generated from financing activities.
As discussed
in Note 3(b) to our unaudited condensed consolidated financial statements, there is substantial doubt about our ability to continue
as a going concern within one year after the date that the financial statements are issued. We intend to improve our cashflow status
through improving gross profit margin, strengthening receivables collection management, negotiating with vendors for more favorable
payment terms and obtaining more credit facilities from banks or other form of financing.
The following
table provides detailed information about our net cash flow for the periods indicated:
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|
Three Months Ended March 31,
|
|
|
2020
|
|
2019
|
|
|
Amounts in thousands of US dollars
|
|
|
|
|
|
Net cash provided by/(used in) operating activities
|
|
$
|
1,518
|
|
|
$
|
(2,270
|
)
|
Net cash used in investing activities
|
|
|
(1,117
|
)
|
|
|
(36
|
)
|
Net cash used in financing activities
|
|
|
(430
|
)
|
|
|
-
|
|
Effect of foreign currency exchange rate changes on cash and cash equivalents
|
|
|
(19
|
)
|
|
|
47
|
|
Net decrease in cash and cash equivalents
|
|
$
|
(48
|
)
|
|
$
|
(2,259
|
)
|
Net cash provided by/(used in) operating activities
For the
three months ended March 31, 2020, our net cash provided by operating activities of approximately US$1.52 million were primarily
attributable to:
|
(1)
|
net loss excluding approximately US$0.21 million of non-cash expenses of depreciation and amortizations;
approximately US$1.92 million share-based compensation; approximately US$0.41 million allowance for doubtful accounts; approximately
US$0.05 million gain from change in fair value of warrant liabilities and approximately US$0.005 million deferred tax benefit,
yielded the non-cash items excluded net income of approximately US$0.18 million.
|
|
(2)
|
the receipt of cash from operations from changes in operating assets and liabilities such as:
|
|
-
|
prepayment and deposit to suppliers decreased by approximately
US$2.24 million, primarily due to utilization of the prepayment made to suppliers in fiscal 2019 through Ad resource and other
services received from suppliers during the first fiscal quarter of 2020;
|
|
-
|
advance from customers increased by approximately US$0.12 million,
primarily due to new advance payments received from customers during the first fiscal quarter of 2020, which was partially offset
by recognition of revenue from opening contract liabilities during the period;
|
|
-
|
due from related parties decreased by approximately US$0.03 million,
due to collection of advertising service fee from related parties;
|
|
-
|
accruals, tax payables, short-term lease payment payables and
other current liabilities increased by approximately US$0.48 million in the aggregate, primarily due to temporary delay of some
payments during the COVID-19 outbreak in the first fiscal quarter of 2020 and some of the payments were not due until later periods.
|
|
(3)
|
offset by the use from operations from changes in operating assets and liabilities such as:
|
|
-
|
accounts receivable increased by approximately US$0.26 million;
|
|
-
|
accounts payable decreased by approximately US$0.15 million; and
|
|
-
|
long-term prepayment increased by approximately US$1.13 million,
which prepayment was made for the purchase of ad resource during the first fiscal quarter of 2020, and this amount was not expected
to be consumed within one year of March 31, 2020.
|
For the
three months ended March 31, 2019, our net cash used in operating activities of approximately US$2.27 million were primarily attributable
to:
|
(1)
|
net loss excluding approximately US$0.04 million of non-cash expenses of depreciation and amortizations;
approximately US$0.08 million amortization of operating lease right-of-use assets; approximately US$0.10 million share-based compensation;
approximately US$0.19 million allowance for doubtful accounts; approximately US$0.35 million loss from change in fair value of
warrant liabilities and approximately US$0.04 million deferred tax expense, yielded the non-cash items excluded net loss of approximately
US$0.34 million.
|
|
(2)
|
the receipt of cash from operations from changes in operating assets and liabilities such as:
|
|
-
|
advance from customers increased by approximately US$0.56 million,
primarily due to new advance payments received from customers during the first fiscal quarter of 2019, which was partially offset
by recognition of revenue from opening contract liabilities during the period;
|
|
-
|
taxes payable increased by approximately US$0.07 million;
|
|
-
|
other current assets decreased by approximately US$0.01 million;
|
|
-
|
loan to a related party of the Company decreased by approximately
US$0.03 million due to repayment received during the period; and
|
|
-
|
prepayment to suppliers decreased by approximately US$0.02 million.
|
|
(3)
|
offset by the use from operations from changes in operating assets and liabilities such as:
|
|
-
|
accounts receivable increased by approximately US$0.55 million;
|
|
-
|
accounts payable decreased by approximately US$1.83 million, due
to settlement with major suppliers of search engine resource in the first fiscal quarter of 2019;
|
|
-
|
accruals and other current liabilities decreased by approximately
US$0.23 million in the aggregate, due to settlement of these operational liabilities and payment for operating lease liabilities
during the first fiscal quarter of 2019; and
|
|
-
|
we also prepaid approximately US$0.01 million lease payment during
the period.
|
Net cash used in investing
activities
For the
three months ended March 31, 2020, (1) we made an additional payment of approximately US$0.30 million for the development of our
blockchain technology-based platform applications and (2) we lent to an unrelated third party a short-term loan of approximately
US$0.82 million. In the aggregate, these transactions resulted in a cash outflow from investing
activities of approximately US$1.12 million for the three months ended March 31, 2020.
For the
three months ended March 31, 2019, we contributed our pro-rata share of cash investment of approximately US$0.04 million to an
ownership investee company incorporated in October 2018, which transaction was recorded as a cash outflow from investing activities
during the period.
Net cash used in financing
activities
For the
three months ended March 31, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January 2020.
For the
three months ended March 31, 2019, we repaid approximately US$0.45 million short-term bank loan matured in the first fiscal quarter
of 2019, which we re-borrowed with the same amount during the same period.
Restricted Net Assets
As substantially
all of our operations are conducted through our PRC subsidiaries and VIEs, our ability to pay dividends is primarily dependent
on receiving distributions of funds from our PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments
of dividends by our PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC
accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in
capital of the PRC subsidiaries and VIEs included in our consolidated net assets are also not distributable for dividend purposes.
In accordance
with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory
reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from
net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual
after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s
PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion
of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash
dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with
the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual
after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts.
A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors.
The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of our other
PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.
In accordance
with these PRC laws and regulations, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their
net assets to us. As of March 31, 2020 and December 31, 2019, net assets restricted in the aggregate, which includes paid-in capital
and statutory reserve funds of our PRC subsidiaries and VIEs that are included in our consolidated net assets were both approximately
US$12.0 million.
The current
PRC Enterprise Income Tax (“EIT”) Law also imposes a 10% withholding income tax for dividends distributed by a foreign
invested enterprise to its immediate holding company outside China, which were exempted under the previous EIT law. A lower withholding
tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding
company. Holding companies in Hong Kong, for example, will be subject to a 5% rate, subject to approval from the related PRC tax
authorities.
The ability
of our PRC subsidiaries to make dividends and other payments to us may also be restricted by changes in applicable foreign exchange
and other laws and regulations.
Foreign
currency exchange regulation in China is primarily governed by the following rules:
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Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules;
|
|
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|
Administration Rules of the Settlement, Sale and Payment of Foreign Exchange (1996), or the Administration
Rules.
|
Currently,
under the Administration Rules, Renminbi is freely convertible for current account items, including the distribution of dividends,
interest payments, trade and service related foreign exchange transactions, but not for capital account items, such as direct investments,
loans, repatriation of investments and investments in securities outside of China, unless the prior approval of the State Administration
of Foreign Exchange (the “SAFE”) is obtained and prior registration with the SAFE is made. Foreign-invested enterprises
like Rise King WFOE that need foreign exchange for the distribution of profits to its shareholders may effect payment from their
foreign exchange accounts or purchase and pay foreign exchange rates at the designated foreign exchange banks to their foreign
shareholders by producing board resolutions for such profit distribution. Based on their needs, foreign-invested enterprises are
permitted to open foreign exchange settlement accounts for current account receipts and payments of foreign exchange along with
specialized accounts for capital account receipts and payments of foreign exchange at certain designated foreign exchange banks.
Although
the current Exchange Rules allow converting of Renminbi into foreign currency for current account items, conversion of Renminbi
into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE,
which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of
foreign currency conversion. We cannot be sure that it will be able to obtain all required conversion approvals for our operations
or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Renminbi in the future. Currently,
most of our retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit our ability to
use retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities
outside China.
C. OFF-BALANCE
SHEET ARRANGEMENTS
None.