UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30,
2015
or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____ to _____
Commission File Number: 001-34647
ChinaNet Online Holdings, Inc.
(Exact name of registrant as specified in
its charter)
Nevada |
20-4672080 |
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
No. 3 Min Zhuang Road, Building 6,
Yu Quan Hui Gu Tuspark, Haidian District,
Beijing, PRC 100195
(Address
of principal executive offices) (Zip Code)
+86-10-5160-0828
(Registrant’s telephone number, including
area code)
N/A
(Former name, former address and former
fiscal year, if changed since last report)
Indicate by check whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for
the past 90 days: Yes x No o
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant
to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated
filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated
filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o
Accelerated filer o Non-accelerated filer (Do not check if a smaller reporting
company) o Smaller reporting company x
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act). Yes o
No x
As of August 14, 2015, the registrant
had 29,580,130 shares of common stock outstanding.
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
Item 1. Interim Financial Statements
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
| |
June 30,
2015 | |
December 31,
2014 |
| |
(US $) | |
(US $) |
| |
(Unaudited) | |
|
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 4,645 | | |
$ | 5,037 | |
Term deposit | |
| 3,468 | | |
| 3,465 | |
Accounts receivable, net | |
| 4,109 | | |
| 2,407 | |
Other receivables, net | |
| 6,538 | | |
| 8,392 | |
Prepayment and deposit to suppliers | |
| 6,860 | | |
| 8,092 | |
Due from related parties | |
| 108 | | |
| 51 | |
Other current assets | |
| 133 | | |
| 61 | |
Deferred tax assets-current | |
| 355 | | |
| 176 | |
Total current assets | |
| 26,216 | | |
| 27,681 | |
| |
| | | |
| | |
Long-term investments | |
| 1,098 | | |
| 909 | |
Property and equipment, net | |
| 790 | | |
| 943 | |
Intangible assets, net | |
| 8,531 | | |
| 9,238 | |
Deposit and prepayment for purchasing of software technology | |
| 851 | | |
| 850 | |
Goodwill | |
| 6,778 | | |
| 6,772 | |
Deferred tax assets-non current | |
| 1,112 | | |
| 1,037 | |
Total Assets | |
$ | 45,376 | | |
$ | 47,430 | |
| |
| | | |
| | |
Liabilities and Equity | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Short-term bank loan * | |
$ | 818 | | |
$ | 817 | |
Accounts payable * | |
| 510 | | |
| 782 | |
Advances from customers * | |
| 2,325 | | |
| 832 | |
Accrued payroll and other accruals * | |
| 612 | | |
| 585 | |
Due to noncontrolling interest of VIE * | |
| 557 | | |
| 638 | |
Payable for purchasing of software technology * | |
| 865 | | |
| 2,826 | |
Guarantee payment and prepayment from new investors | |
| 1,003 | | |
| - | |
Taxes payable * | |
| 3,226 | | |
| 3,332 | |
Other payables * | |
| 597 | | |
| 602 | |
Total current liabilities | |
| 10,513 | | |
| 10,414 | |
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(CONTINUED)
(In thousands, except for number of shares
and per share data)
| |
June 30,
2015 | |
December 31,
2014 |
| |
(US $) | |
(US $) |
| |
(Unaudited) | |
|
Long-term liabilities: | |
| | | |
| | |
Deferred tax liability-non current * | |
| 887 | | |
| 964 | |
Long-term borrowing from director | |
| 143 | | |
| 143 | |
Total Liabilities | |
| 11,543 | | |
| 11,521 | |
| |
| | | |
| | |
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 29,580,130 shares and 29,030,130 shares at June 30, 2015 and December 31, 2014, respectively) | |
| 30 | | |
| 29 | |
Additional paid-in capital | |
| 25,658 | | |
| 24,703 | |
Statutory reserves | |
| 2,607 | | |
| 2,607 | |
Retained earnings | |
| 2,225 | | |
| 5,222 | |
Accumulated other comprehensive income | |
| 3,648 | | |
| 3,625 | |
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity | |
| 34,168 | | |
| 36,186 | |
| |
| | | |
| | |
Noncontrolling interests | |
| (335 | ) | |
| (277 | ) |
Total equity | |
| 33,833 | | |
| 35,909 | |
| |
| | | |
| | |
Total Liabilities and Equity | |
$ | 45,376 | | |
$ | 47,430 | |
*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)
| |
Six Months Ended June 30, | |
Three Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
(US $) | |
(US $) | |
(US $) | |
(US $) |
| |
(Unaudited) | |
(Unaudited) | |
(Unaudited) | |
(Unaudited) |
Sales | |
| | | |
| | | |
| | | |
| | |
From unrelated parties | |
$ | 15,002 | | |
$ | 15,361 | | |
$ | 9,217 | | |
$ | 10,179 | |
From related parties | |
| 468 | | |
| 183 | | |
| 405 | | |
| 182 | |
| |
| 15,470 | | |
| 15,544 | | |
| 9,622 | | |
| 10,361 | |
Cost of sales | |
| 12,291 | | |
| 12,487 | | |
| 7,345 | | |
| 8,665 | |
Gross profit | |
| 3,179 | | |
| 3,057 | | |
| 2,277 | | |
| 1,696 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Sales and marketing expenses | |
| 2,250 | | |
| 2,095 | | |
| 1,047 | | |
| 1,506 | |
General and administrative expenses | |
| 3,307 | | |
| 2,009 | | |
| 2,005 | | |
| 1,022 | |
Research and development expenses | |
| 1,063 | | |
| 892 | | |
| 573 | | |
| 442 | |
| |
| 6,620 | | |
| 4,996 | | |
| 3,625 | | |
| 2,970 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (3,441 | ) | |
| (1,939 | ) | |
| (1,348 | ) | |
| (1,274 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 63 | | |
| 60 | | |
| 34 | | |
| 29 | |
Interest expense | |
| (34 | ) | |
| (32 | ) | |
| (17 | ) | |
| (16 | ) |
Other income/(expenses) | |
| 31 | | |
| (3 | ) | |
| (1 | ) | |
| (2 | ) |
| |
| 60 | | |
| 25 | | |
| 16 | | |
| 11 | |
| |
| | | |
| | | |
| | | |
| | |
Loss before income tax expense, equity method investments and noncontrolling interests | |
| (3,381 | ) | |
| (1,914 | ) | |
| (1,332 | ) | |
| (1,263 | ) |
Income tax benefit/(expense) | |
| 324 | | |
| (120 | ) | |
| 98 | | |
| (72 | ) |
Loss before equity method investments and noncontrolling interests | |
| (3,057 | ) | |
| (2,034 | ) | |
| (1,234 | ) | |
| (1,335 | ) |
Share of income/(losses) in equity investment affiliates | |
| 2 | | |
| (58 | ) | |
| 1 | | |
| (43 | ) |
Net loss | |
| (3,055 | ) | |
| (2,092 | ) | |
| (1,233 | ) | |
| (1,378 | ) |
Net loss attributable to noncontrolling interests | |
| 58 | | |
| 93 | | |
| 24 | | |
| 47 | |
Net loss attributable to ChinaNet Online Holdings, Inc. | |
$ | (2,997 | ) | |
$ | (1,999 | ) | |
$ | (1,209 | ) | |
$ | (1,331 | ) |
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE LOSS (CONTINUED)
(In thousands, except for number of shares
and per share data)
| |
Six Months Ended June 30, | |
Three Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
(US $) | |
(US $) | |
(US $) | |
(US $) |
| |
(Unaudited) | |
(Unaudited) | |
(Unaudited) | |
(Unaudited) |
| |
| |
| |
| |
|
| |
| |
| |
| |
|
Net loss | |
| (3,055 | ) | |
| (2,092 | ) | |
| (1,233 | ) | |
| (1,378 | ) |
Foreign currency translation gain/(loss) | |
| 23 | | |
| (281 | ) | |
| 143 | | |
| 43 | |
Comprehensive Loss | |
$ | (3,032 | ) | |
$ | (2,373 | ) | |
$ | (1,090 | ) | |
$ | (1,335 | ) |
Comprehensive loss attributable to noncontrolling interests | |
| 58 | | |
| 92 | | |
| 25 | | |
| 47 | |
Comprehensive loss attributable to ChinaNet Online Holdings, Inc. | |
$ | (2,974 | ) | |
$ | (2,281 | ) | |
$ | (1,065 | ) | |
$ | (1,288 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss per share | |
| | | |
| | | |
| | | |
| | |
Loss per common share | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.09 | ) | |
$ | (0.05 | ) | |
$ | (0.06 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 26,572,856 | | |
| 22,376,540 | | |
| 26,776,650 | | |
| 22,376,540 | |
See notes to condensed consolidated financial
statements
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS
(In thousands)
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
(US $) | |
(US $) |
| |
(Unaudited) | |
(Unaudited) |
Cash flows from operating activities | |
| | | |
| | |
Net loss | |
$ | (3,055 | ) | |
$ | (2,092 | ) |
Adjustments to reconcile net loss to net cash provided by/(used in) operating activities | |
| | | |
| | |
Depreciation and amortization | |
| 888 | | |
| 715 | |
Share-based compensation expenses | |
| 956 | | |
| 17 | |
Reverse of allowances for doubtful accounts | |
| (77 | ) | |
| (30 | ) |
Share of (income)/losses in equity investment affiliates | |
| (2 | ) | |
| 58 | |
Deferred taxes | |
| (328 | ) | |
| (257 | ) |
Changes in operating assets and liabilities | |
| | | |
| | |
Accounts receivable | |
| (1,619 | ) | |
| 2,484 | |
Other receivables | |
| 1,856 | | |
| 1,285 | |
Prepayment and deposit to suppliers | |
| 1,236 | | |
| (3,460 | ) |
Due from related parties | |
| (56 | ) | |
| 86 | |
Other current assets | |
| (75 | ) | |
| (62 | ) |
Accounts payable | |
| (273 | ) | |
| (6 | ) |
Advances from customers | |
| 1,490 | | |
| 24 | |
Accrued payroll and other accruals | |
| 26 | | |
| (151 | ) |
Other payables | |
| (8 | ) | |
| 271 | |
Taxes payable | |
| (109 | ) | |
| 174 | |
Net cash provided by/(used in) operating activities | |
| 850 | | |
| (944 | ) |
| |
| | | |
| | |
Cash flows from investing activities | |
| | | |
| | |
Purchases of vehicles and office equipment | |
| (20 | ) | |
| (15 | ) |
Payment for purchasing of software technology | |
| (1,958 | ) | |
| (846 | ) |
Repayment of short-term loan from unrelated entities | |
| - | | |
| 390 | |
Long-term investment in cost/equity method investees | |
| (186 | ) | |
| - | |
Net cash used in investing activities | |
| (2,164 | ) | |
| (471 | ) |
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF
CASH FLOWS (CONTINUED)
(In thousands)
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
(US $) | |
(US $) |
| |
(Unaudited) | |
(Unaudited) |
Cash flows from financing activities | |
| | | |
| | |
Short-term loan from noncontrolling interest of VIE | |
| - | | |
| 717 | |
Repayment of short-term loan to noncontrolling interest of VIE | |
| (82 | ) | |
| - | |
Guarantee payment and prepayment from new investors | |
| 1,000 | | |
| - | |
Net cash provided by financing activities | |
| 918 | | |
| 717 | |
| |
| | | |
| | |
Effect of exchange rate fluctuation on cash and cash equivalents | |
| 4 | | |
| (21 | ) |
| |
| | | |
| | |
Net decrease in cash and cash equivalents | |
| (392 | ) | |
| (719 | ) |
| |
| | | |
| | |
Cash and cash equivalents at beginning of the period | |
| 5,037
| | |
| 3,442 | |
Cash and cash equivalents at end of the period | |
$ | 4,645
| | |
$ | 2,723 | |
| |
| | | |
| | |
Supplemental disclosure of cash flow information | |
| | | |
| | |
| |
| | | |
| | |
Income taxes paid | |
$ | 134 | | |
$ | 204 | |
Interest expense paid | |
$ | 34 | | |
$ | 32 | |
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, marketing, brand management and online-to-offline (O2O) sales channel
building services for small and medium-sized enterprises (SMEs) and entrepreneurial management and networking services for entrepreneurs
in the PRC.
The Company’s wholly owned
subsidiary, China Net BVI was incorporated in the British Virgin Islands. China Net BVI is the parent holding company of CNET Online
Technology Limited, a Hong Kong company (“China Net HK”), which established and is the parent company of Rise King
Century Technology Development (Beijing) Co., Ltd., a wholly foreign-owned enterprise (“WFOE”) established in the PRC
(“Rise King WFOE”).
To satisfy PRC laws and regulations,
the Company conducts certain business in the PRC through its Variable Interest Entities (“VIEs”). Through a series
of contractual agreements between Rise King WFOE and Business Opportunity Online (Beijing) Network Technology Co., Ltd. (“Business
Opportunity Online”), Beijing CNET Online Advertising Co., Ltd. (“Beijing CNET Online”) and Rise King (Shanghai)
Advertisement Media Co., Ltd. (“Shanghai Jing Yang”) (collectively the “PRC Operating Entities” or the
“VIEs”), the Company, through the WFOE, secures significant rights to influence the PRC Operating Entities’ business
operations, policies and management, approve all matters requiring shareholder approval, and the right to receive 100% of the income
earned by the VIEs. Pursuant to the contractual agreements, all of the equity owners' rights and obligations of the VIEs were assigned
to Rise King WFOE, which resulted in the equity owners lacking the ability to make decisions that have a significant effect on
the VIEs, Rise King WFOE's ability to extract the profits from the operation of the VIEs and assume the residual benefits of the
VIEs. Due to the fact that Rise King WFOE and its indirect parent are the sole interest holders of the VIEs, the Company included
the assets, liabilities, revenues and expenses of the VIEs in its consolidated financial statements, which is consistent with the
provisions of FASB Accounting Standards Codification ("ASC") Topic 810 “Consolidation”, subtopic 10.
Beijing CNET Online is a 51%
shareholder of Shanghai Borongdingsi Computer Technology Co., Ltd. (“Shanghai Borongdingsi”) and a 10% shareholder
of Beijing Saturday Education Technology Co., Ltd. (“Beijing Saturday”). Business Opportunity Online is a 51% shareholder
of Beijing Chuang Fu Tian Xia Network Technology Co., Ltd. (“Beijing Chuang Fu Tian Xia”), the sole shareholder of
Business Opportunity Online (Hubei) Network Technology Co., Ltd. (“Business Opportunity Online Hubei”), the sole shareholder
of Quanzhou City Zhilang Network Technology Co., Ltd. (“Quanzhou Zhi Lang”), the sole shareholder of Beijing Chuang
Shi Xin Qi Advertising Media Co., Ltd. (“Beijing Chuang Shi Xin Qi”), the sole shareholder of Beijing Hong Da Shi Xing
Network Technology Co., Ltd. (“Beijing Hong Da Shi Xing”), the sole shareholder of Beijing Shi Ji Cheng Yuan Advertising
Media Co., Ltd. (“Beijing Shi Ji Cheng Yuan”) and a 23.18% shareholder of Shenzhen City Mingshan Network Technology
Co., Ltd. (“Shenzhen Mingshan”). Business Opportunity Online Hubei is the sole shareholder of Hubei CNET Advertising
Media Co., Ltd. (“Hubei CNET”), the sole shareholder of Sheng Tian Network Technology (Hubei) Co., Ltd. (“Sheng
Tian Hubei”) and a 25.5% shareholder of Zhao Shang Ke Network Technology (Hubei) Co., Ltd. (“Zhao Shang Ke Hubei”).
In January 2015, the Company
through its wholly-owned subsidiary, China Net BVI incorporated a new wholly-owned BVI company named ChinaNet Investment Holding
Ltd. (“ChinaNet Investment BVI”). In March 2015, ChinaNet Investment BVI together with three individuals who were not
affiliated with the Company, established ChinaNet Online Holdings Korea (“ChinaNet Korea”), an entity incorporated
in the Republic of Korea. ChinaNet Investment BVI invested US$20,000 cash and beneficially own 40% of the equity interest in ChinaNet
Korea.
In January 2015, the Company
through one of its VIEs, Beijing CNET Online made an investment of RMB1,000,000 (approximately US$0.16 million) to Chuangshi Meiwei
Food and Beverage Investment Management (Beijing) Co., Ltd. (“Chuangshi Meiwei” or “O'Yummy”). The Company
beneficially owns 10% of the equity interest in Chuangshi Meiwei.
In April 2015, the Company made
an investment of RMB0.02 million (approximately US$0.003 million) to Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua
Shiji”) and obtained 19% equity interest in Guohua Shiji.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The Company operated its business
primarily in China through its PRC subsidiary and PRC operating entities, or VIEs as discussed above.
| 2. | Variable Interest Entities |
Summarized below is the information
related to the consolidated VIEs’ assets and liabilities as of June 30, 2015 and December 31, 2014, respectively:
| |
June 30, 2015 | |
December 31,
2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
Assets | |
| | | |
| | |
Current assets: | |
| | | |
| | |
Cash and cash equivalents | |
$ | 3,613 | | |
$ | 4,239 | |
Term deposit | |
| 3,468 | | |
| 3,465 | |
Accounts receivable, net | |
| 3,954 | | |
| 2,407 | |
Other receivables, net | |
| 6,520 | | |
| 8,349 | |
Prepayment and deposit to suppliers | |
| 6,859 | | |
| 8,091 | |
Due from related parties | |
| 56 | | |
| - | |
Other current assets | |
| 43 | | |
| 58 | |
Deferred tax assets-current | |
| 285 | | |
| 107 | |
Total current assets | |
| 24,798 | | |
| 26,716 | |
| |
| | | |
| | |
Long-term investments | |
| 1,034 | | |
| 865 | |
Property and equipment, net | |
| 723 | | |
| 869 | |
Intangible assets, net | |
| 8,531 | | |
| 9,238 | |
Deposit and prepayment for purchasing of software technology | |
| 851 | | |
| 850 | |
Goodwill | |
| 6,778 | | |
| 6,772 | |
Deferred tax assets-non current | |
| 869 | | |
| 795 | |
Total Assets | |
$ | 43,584 | | |
$ | 46,105 | |
| |
| | | |
| | |
Liabilities | |
| | | |
| | |
Current liabilities: | |
| | | |
| | |
Short-term bank loan | |
$ | 818 | | |
$ | 817 | |
Accounts payable | |
| 510 | | |
| 782 | |
Advances from customers | |
| 2,325 | | |
| 832 | |
Accrued payroll and other accruals | |
| 330 | | |
| 357 | |
Due to Control Group | |
| 11 | | |
| 11 | |
Due to noncontrolling interest of VIE | |
| 557 | | |
| 638 | |
Payable for purchasing of software technology | |
| 865 | | |
| 2,826 | |
Taxes payable | |
| 2,744 | | |
| 2,846 | |
Other payables | |
| 556 | | |
| 580 | |
Total current liabilities | |
| 8,716 | | |
| 9,689 | |
| |
| | | |
| | |
Deferred tax Liabilities-non current | |
| 887 | | |
| 964 | |
Total Liabilities | |
$ | 9,603 | | |
$ | 10,653 | |
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)
For the six
months ended June 30, 2015, the financial performance of the VIEs reported in the Company’s consolidated statements of operations
and comprehensive loss includes sales of approximately US$15,244,000, cost of sales of approximately US$12,291,000, operating expenses
of approximately US$5,049,000 and net loss before allocation to noncontrolling interests of approximately US$1,710,000.
For the three
months ended June 30, 2015, the financial performance of the VIEs reported in the Company’s consolidated statements of operations
and comprehensive loss includes sales of approximately US$9,500,000, cost of sales of approximately US$7,345,000, operating expenses
of approximately US$2,772,000 and net loss before allocation to noncontrolling interests of approximately US$502,000.
For the six
months ended June 30, 2014, the financial performance of the VIEs reported in the Company’s consolidated statements of operations
and comprehensive loss includes sales of approximately US$15,307,000, cost of sales of approximately US$12,486,000, operating expenses
of approximately US$4,337,000 and net loss before allocation to noncontrolling interests of approximately US$1,668,000.
For the three
months ended June 30, 2014, the financial performance of the VIEs reported in the Company’s consolidated statements of operations
and comprehensive loss includes sales of approximately US$10,208,000, cost of sales of approximately US$8,664,000, operating expenses
of approximately US$2,725,000 and net loss before allocation to noncontrolling interests of approximately US$1,283,000.
| 3. | Summary of significant accounting policies |
The 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 condensed
consolidated interim financial information as of June 30, 2015 and for the six and three months ended June 30, 2015 and 2014 have
been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).
Certain information and footnote disclosures, which are normally included in annual consolidated financial statements prepared
in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The 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, 2014, previously filed with the SEC (the “2014 Form 10-K”).
In the opinion
of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s
consolidated financial position as of June 30, 2015, its consolidated results of operations for the six and three months ended
June 30, 2015 and 2014, and its consolidated cash flows for the six months ended June 30, 2015 and 2014, 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.
| b) | Principles of consolidation |
The condensed
consolidated interim financial statements include the financial statements 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 condensed
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.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| d) | 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:
| |
June 30, 2015 | |
December 31, 2014 |
Balance sheet items, except for equity accounts | |
| 6.1136 | | |
| 6.1190 | |
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
Items in the statements of income and comprehensive income, and statements of cash flows | |
| 6.1288 | | |
| 6.1441 | |
| |
Three Months Ended June 30, |
| |
2015 | |
2014 |
Items in the statements of income and comprehensive income, and statements of cash flows | |
| 6.1203 | | |
| 6.1681 | |
No representation
is made that the RMB amounts could have been, or could be converted into US$ at the above rates.
Advertising
costs for the Company’s own brand building are not includable in cost of sales, they are expensed when incurred or amortized
over the estimated beneficial period and are included in “sales and marketing expenses” in the statements of operations
and comprehensive loss. For the six months ended June 30, 2015 and 2014, advertising expenses for the Company’s own brand
building were approximately US$1,220,000 and US$973,000, respectively. For the three months ended June 30, 2015 and 2014, advertising
expenses for the Company’s own brand building were approximately US$572,000 and US$942,000, respectively.
| f) | Research and development expenses |
The Company
accounts for the cost of developing and upgrading technologies and platforms and intellectual property that are used in its daily
operations in research and development cost. Research and development costs are charged to expense when incurred. Expenses for
research and development for the six months ended June 30, 2015 and 2014 were approximately US$1,063,000 and US$892,000, respectively.
Expenses for research and development for the three months ended June 30, 2015 and 2014 were approximately US$573,000 and US$442,000,
respectively.
Term deposit as of June 30, 2015 and December 31,
2014 represented the amount of cash placed as a term deposit by one of the Company’s operating VIEs in a major financial
institution in China, which management believes is of high credit quality. The term deposit matured on July 7, 2015 and was extended
to July 7, 2016 with an interest rate of 2.925% per annual.
| 5. | Accounts receivable, net |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Accounts receivable | |
| 7,056 | | |
| 5,429 | |
Allowance for doubtful accounts | |
| (2,947 | ) | |
| (3,022 | ) |
Accounts receivable, net | |
| 4,109 | | |
| 2,407 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
All of the accounts receivable
are non-interest bearing. Based on the assessment of the collectability of the accounts receivable as of June 30, 2015 and December
31, 2014, the Company provided approximately US$2,947,000 and US$3,022,000 allowance for doubtful accounts, which were primarily
related to the accounts receivable of the Company’s internet advertising and TV advertising business segment with an aging
over six months. For the six months ended June 30, 2015, approximately US$77,000 allowance for doubtful accounts was reversed.
For the three months ended June 30, 2015, approximately US$143,000 allowance for doubtful accounts was provided. For the six and
three months ended June 30, 2014, the Company reversed approximately US$30,000 of allowance for doubtful accounts.
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Short-term loan made for marketing campaign | |
| - | | |
| 65 | |
Term deposit interest receivable | |
| 114 | | |
| 56 | |
Staff advances for normal business purpose | |
| 52 | | |
| 73 | |
TV advertisement deposit and prepayment receivable | |
| 6,209 | | |
| 8,034 | |
Overdue deposits | |
| 1,020 | | |
| 1,020 | |
Allowance for doubtful accounts | |
| (857 | ) | |
| (856 | ) |
Other receivables, net | |
| 6,538 | | |
| 8,392 | |
TV advertisement deposit and
prepayment receivable represented deposit and prepayment made to an agent of one of the provincial satellite TV stations partnered
with the Company. The Company had decided to terminate its cooperation with this TV station and its agent upon expiration of the
2014 contract on December 31, 2014. In accordance with the agreement between the Company and the agent, the amount will be refunded
to the Company within 2015. For the six and three months ended June 30, 2015, the Company collected RMB11.2 million (approximately
US$1.8 million) and RMB10 million (approximately US$1.6 million) of this amount, respectively.
For advertising resources purchase
contracts signed by the Company and its resources providers, the Company was required to make deposits, which were either applied
to the contract amounts that were needed to be paid with the consent of the counterparty or to be refunded to the Company of the
remaining balance upon expiration of the cooperation. Overdue deposits represented the portion of the contractual deposits, which
related advertising resources purchase contracts had been completed as of each of the reporting dates with no further cooperation.
Based on the assessment of the collectability of these overdue deposits as of June 30, 2015 and December 31, 2014, the Company
provided approximately US$857,000 and US$856,000 allowance for doubtful accounts, respectively, which was related to the deposits
of its internet advertising and TV advertising business segment. For the six and three months ended June 30, 2015 and 2014, no
allowance for doubtful accounts was provided or reversed.
| 7. | Prepayments and deposit to suppliers |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Deposits to TV advertisement and internet resources providers | |
| 1,479 | | |
| 3,575 | |
Prepayments to TV advertisement and internet resources providers | |
| 5,326 | | |
| 4,451 | |
Other deposits and prepayments | |
| 55 | | |
| 66 | |
| |
| 6,860 | | |
| 8,092 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
In order to provide advertising
and marketing services, the Company partners with TV stations or its agents to obtain time slots for resale through broadcast advertisements
to advertise brands, business information, products and services of its clients. The Company also purchases internet resources
from large internet search engines to attract more internet traffic to its advertising portals and provide value-added services
to its clients.
Deposits to TV advertisement
and internet resources providers are paid as contractual deposits to the Company’s resources and services suppliers.
As of June 30, 2015, deposit
to suppliers primarily consisted of the contractual deposits of approximately US$0.7 million to two of the Company’s largest
internet resources suppliers and the contractual deposits of approximately US$0.8 million for the purchasing of TV advertising
time slots.
According to the contracts signed
between the Company and its suppliers, the Company is normally required to pay the contract amounts in advance. These prepayments
will be transferred to cost of sales when the related services are provided.
As of June 30, 2015, prepayment
to suppliers primarily consisted of approximately US$3.3 million prepayments to the Company’s internet resources suppliers
and approximately US$2.0 million prepayment for the purchasing of TV advertising time slots. This US$2.0 million advanced payment
was carried forward from previous years and was paid to a TV station which had been partnered with the Company for over five years.
In response to the restrictions on TV shopping infomercial implemented by the related government authorities, which resulted in
the decrease in the Company’s TV advertisement revenue, the Company discussed with the TV station possible alternatives of
applying the balance of the advanced payment, as the amount was unlikely to be refunded to the Company, due to internal administrative
policies of the TV station. The TV station and the Company agreed that the unconsumed advanced payment balance can be consumed
by any third parties designated by the Company and approved by the TV station, who will broadcast advertisements or other similar
TV programs using the balance of available time slots, and the Company will directly collect the amounts from the third parties
for the time slots they utilized. In August 2015, the Company collected approximately US$0.40 million of this amount.
The Company expects that the remaining advanced payment balance will be fully utilized within 2015.
| 8. | Due from related parties |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Beijing Saimeiwei Food Equipment Technology Co., Ltd. | |
| 59 | | |
| 51 | |
Chuangshi Meiwei Food and Beverage Investment Management (Beijing) Co., Ltd. | |
| 49 | | |
| - | |
| |
| 108 | | |
| 51 | |
Related parties of the Company
represented direct or indirect unconsolidated investees of the Company or entities that are directly or indirectly owned by Mr.
Handong Cheng or Mr. Xuanfu Liu, the owners of the Company’s PRC VIEs, Business Opportunities Online and Beijing CNET Online
before the Offshore Restructuring. The Company provides advertising and marketing services to these related parties in its normal
course of business on the same terms as those provided to its unrelated clients. Due from related parties represented the outstanding
receivables for the advertising and marketing services that the Company provided to these related parties as of each reporting
date.
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
Equity method investments: | |
| | | |
| | |
Investment in equity method investees | |
| 829 | | |
| 806 | |
Advance to equity method investees | |
| 85 | | |
| 85 | |
| |
| 914 | | |
| 891 | |
Cost method investments: | |
| | | |
| | |
Investment in cost method investees | |
| 184 | | |
| 18 | |
Total long-term investments | |
| 1,098 | | |
| 909 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
As of June 30, 2015, the Company
beneficially owned 40%, 23.18% and 25.5% equity interest in ChinaNet Korea, Shenzhen Mingshan and Zhao Shang Ke Hubei, respectively.
The Company accounts for its investments in these entities under equity method of accounting. The following table summarizes the
movement of the investment in and advance to equity investment affiliates for the six months ended June 30, 2015:
| |
ChinaNet
Korea | |
Shenzhen
Mingshan | |
Zhao Shang
Ke Hubei | |
Total |
| |
US$(’000) | |
US$(’000) | |
US$(’000) | |
US$(’000) |
| |
| |
| |
| |
|
Balance as of December 31, 2014 (audited) | |
| - | | |
| 461 | | |
| 430 | | |
| 891 | |
Share of income in equity investment affiliates | |
| - | | |
| 2 | | |
| - | | |
| 2 | |
Investment in equity investment affiliates | |
| 20 | | |
| - | | |
| - | | |
| 20 | |
Exchange translation adjustment | |
| - | | |
| 1 | | |
| - | | |
| 1 | |
Balance as of June 30, 2015 (unaudited) | |
| 20 | | |
| 464 | | |
| 430 | | |
| 914 | |
ChinaNet Korea is a new entity
incorporated in March 2015 by ChinaNet Investment BVI and three other unaffiliated individuals in the Republic of Korea. The Company
made an investment of US$20,000 and obtained 40% of the equity interest in ChinaNet Korea.
For the six and three months
ended June 30, 2015, the Company recognized its pro-rata shares of income in Shenzhen Mingshan of approximately US$2,000 and US$1,000,
respectively. For the six and three months ended June 30, 2014, the Company recognized its pro-rata shares of loss in Shenzhen
Mingshan of approximately US$2,000 and US$nil, respectively. For the six and three months ended June 30, 2015, the Company did
not recognized any of its pro-rata shares of income in Zhao Shang Ke Hubei, as the amounts were immaterial. For the six and three
months ended June 30, 2014, the Company recognized its pro-rata shares of loss in Zhao Shang Ke Hubei of approximately US$56,000
and US$43,000, respectively.
In January 2015, the Company
through one of its VIEs, Beijing CNET Online made an investment of RMB1,000,000 (approximately US$0.16 million) to Chuangshi Meiwei
and obtained 10% equity interest in Chuangshi Meiwei. In April 2015, the Company made an investment of RMB0.02 million (approximately
US$0.003 million) to Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua Shiji”) and obtained 19% equity interest
in Guohua Shiji.
As of June 30, 2015, the Company
beneficially owns 19%, 10% and 10% equity interest in Guohua Shijie, Chuangshi Meiwei and Beijing Saturday. The Company accounts
for these investments under cost method. For the six and three months ended June 30, 2015, the Company did not receive any distribution
of earnings from these entities.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| 10. | Property and equipment, net |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Leasehold improvement | |
| 181 | | |
| 180 | |
Vehicles | |
| 891 | | |
| 890 | |
Office equipment | |
| 1,437 | | |
| 1,415 | |
Electronic devices | |
| 1,244 | | |
| 1,244 | |
Property and equipment, cost | |
| 3,753 | | |
| 3,729 | |
Less: accumulated depreciation | |
| (2,963 | ) | |
| (2,786 | ) |
Property and equipment, net | |
| 790 | | |
| 943 | |
Depreciation expenses in the
aggregate for the six months ended June 30, 2015 and 2014 were approximately US$174,000 and $189,000, respectively.
Depreciation expenses in the
aggregate for the three months ended June 30, 2015 and 2014 were approximately US$87,000 and $93,000, respectively.
| 11. | Intangible assets, net |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
Intangible assets not subject to amortization: | |
| | | |
| | |
Domain name | |
| 1,580 | | |
| 1,579 | |
Intangible assets subject to amortization: | |
| | | |
| | |
Contract backlog | |
| 203 | | |
| 202 | |
Customer relationship | |
| 3,548 | | |
| 3,545 | |
Non-compete agreements | |
| 1,404 | | |
| 1,402 | |
Software technologies | |
| 335 | | |
| 335 | |
SMEs operation management applications | |
| 5,282 | | |
| 5,277 | |
Cloud-computing based software platforms | |
| 1,518 | | |
| 1,517 | |
Other computer software | |
| 78 | | |
| 78 | |
Intangible assets, cost | |
| 13,948 | | |
| 13,935 | |
Less: accumulated amortization | |
| (4,423 | ) | |
| (3,704 | ) |
Less: accumulated impairment losses | |
| (994 | ) | |
| (993 | ) |
Intangible assets, net | |
| 8,531 | | |
| 9,238 | |
Amortization expenses in aggregate
for the six months ended June 30, 2015 and 2014 were approximately US$714,000 and US$526,000, respectively.
Amortization expenses in aggregate
for the three months June 30, 2015 and 2014 were approximately US$357,000 and US$262,000, respectively.
Based on the carrying value of
the finite-lived intangible assets recorded as of June 30, 2015, and assuming no subsequent impairment of the underlying intangible
assets, the estimated future amortization expenses is approximately US$715,000 for the six months ended December 31, 2015, approximately
US$1,424,000 for the year ended December 31, 2016, approximately US$921,000 for the year ended December 31, 2017, approximately
US$869,000 for the year ended December 31, 2018 and approximately US$812,000 for the year ended December 31, 2019.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| 12. | Deposit for purchasing of software technology |
The Company entered into a contract
to engage an unrelated third party to develop several software systems related to internet environment monitoring, network security
and system optimization to enhance the overall safety and efficiency of the Company’s network system. The total contract
amount was RMB13 million (approximately US$2 million). The Company has paid a first installment of RMB5.2 million (approximately
US$0.85 million). As of the date hereof, the Company is trial testing these software applications. The transaction as contemplated
under the contract is expected to be consummated within 2015.
| |
Amount |
| |
US$(’000) |
| |
|
Balance as of December 31, 2014 (audited) | |
| 6,772 | |
Exchange translation adjustment | |
| 6 | |
Balance as of June 30, 2015 (unaudited) | |
| 6,778 | |
Short-term bank loan as of June
30, 2015 and December 31, 2014 represented a short-term bank loan of approximately RMB5.0 million (approximately US$0.8 million)
borrowed by one of the Company’s VIEs from a major financial institution in China to supplement its short-term working capital
needs. The short-term loan will mature on September 29, 2015. The interest rate of the short-term bank loan is a floating lending
rate, which is 40% over the benchmark rate of the People’s Bank of China (the “PBOC”). As of June 30, 2015 and
December 31, 2014, the interest rate of the short-term loan was 8.4%.
| 15. | Accrued payroll and other accruals |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Accrued payroll and staff welfare | |
| 364 | | |
| 388 | |
Accrued operating expenses | |
| 248 | | |
| 197 | |
| |
| 612 | | |
| 585 | |
| 16. | Due to noncontrolling interest of VIE |
As of June 30, 2015 and
December 31, 2014, due to noncontrolling interest of VIE represented the outstanding balance of the short-term loan borrowed by
one of the Company’s VIEs, Chuang Fu Tian Xia, from its noncontrolling interest to supplement the short-term working capital
needs of Chuang Fu Tian Xia. The short-term loan is unsecured, interest free and is payable on demand.
In July 2015, as approved by the shareholders of Chuang Fu
Tian Xia, the majority interest shareholder and noncontrolling interest shareholder, on a pro-rata basis, converted RMB2.04 million
(approximately US$0.33 million) and RMB1.96 million (approximately US$0.32 million) of its amount due from Chuang Fu Tian Xia into
the registered and paid-in capital of Chuang Fu Tian Xia, respectively. Accordingly, the registered and paid-in capital of Chuang
Fu Tian Xia increased from RMB1 million to RMB5 million.
The Company expects to repay the remaining balance of the amount due to noncontrolling interest of Chuang
Fu Tian Xia of approximately US$0.24 million within fiscal 2015.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| 17. | Payable for purchasing of software technology |
Payable for purchasing of software
technology as of June 30, 2015 represented the outstanding balance payment of approximately RMB5.29 million (approximately US$0.87
million) for purchasing of software technology, which transaction consummated in December 2014. As of the date hereof, the Company
has fully settled the remaining balance with the counter party.
| 18. | Guarantee payment and prepayment from new investors |
On May 5, 2015, the Company
entered into a Securities Purchase Agreement with Beijing Jinrun Fangzhou Science & Technology Co, Ltd. (“Jinrun
Fangzhou”), a public company listed on the National Equities Exchange and Quotations of the PRC (the”NEEQ”),
pursuant to which Jinrun Fangzhou agreed to purchase 2,800,000 shares of common stock of the Company for an aggregate purchase
price of US$3,500,000. On May 26, 2015, the Company entered into another Securities Purchase Agreement with Dongsys Innovation
(Beijing) Technology Development Co., Ltd. (“Dongsys Innovation”), a public company listed on the NEEQ, pursuant to
which Dongsys Innovation agreed to purchase 1,000,000 shares of common stock of the Company for an aggregate purchase price of
US$1,250,000.
In accordance with the Securities
Purchase Agreements described above, Jinrun Fangzhou and Dongsys Innovation were required to pay 10% of its respective total purchase
price as guarantee payments, which was US$350,000 and US$125,000, respectively, within five days of the date the agreements were
signed, and pay an additional 15% of its respective total purchase price, which was US$525,000 and US$187,500, respectively, within
thirty days of the date of the agreements were signed.
As of June 30, 2015, the Company
has received the 10% guarantee payment and 15% prepayment in an aggregate amount equal to US$875,000 from Jinrun Fangzhou, and
the 10% guarantee payment in an amount equal to US$125,000 from Dongsys Innovation, respectively.
In accordance with the Securities
Purchase Agreements, Jinrun Fangzhou and Dongsys Innovation shall pay the remaining 75% of its respective purchase price at the
closing which shall take place on the date mutually agreed to by the parties.
The entities within the Company
file separate tax returns in the respective tax jurisdictions in which they operate.
i). The Company is incorporated
in the state of Nevada. Under the current law of Nevada, the Company is not subject to state corporate income tax. Following the
Share Exchange, the Company became a holding company and does not conduct any substantial operations of its own. No provision for
federal corporate income tax has been made in the financial statements as the Company has no assessable profits for the six and
three months ended June 30, 2015, or any prior periods. The Company does not provide for U.S. taxes or foreign withholding taxes
on undistributed earnings from its non-U.S. subsidiaries because such earnings are intended to be reinvested indefinitely. If undistributed
earnings were distributed, foreign tax credits could become available under current law to reduce the resulting U.S. income tax
liability.
ii). China Net BVI was incorporated
in the British Virgin Islands (“BVI”). Under the current law of the BVI, China Net BVI is not subject to tax on income
or capital gains. Additionally, upon payments of dividends by China Net BVI to its shareholders, no BVI withholding tax will be
imposed.
iii). China Net HK was incorporated
in Hong Kong and does not conduct any substantial operations of its own. No provision for Hong Kong profits tax has been made in
the financial statements as China Net HK has no assessable profits for the six and three months ended June 30, 2015 or any prior
periods. Additionally, upon payments of dividends by China Net HK to its shareholders, no Hong Kong withholding tax will be imposed.
iv). The Company’s PRC
operating subsidiary and VIEs, being incorporated in the PRC, are governed by the income tax law of the PRC and is subject to PRC
enterprise income tax (“EIT”). The EIT rate of PRC is 25%, which applies to both domestic and foreign invested enterprises.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| l | In July 2012, Business Opportunity Online was approved by the related PRC governmental authorities
as a High and New Technology Enterprise under the current EIT law, and was approved by the local tax authorities of Beijing, the
PRC, to be entitled to a favorable statutory tax rate of 15% until December 31, 2014. After fiscal year 2014, the applicable income
tax rate for Business Opportunity Online will be 25% under the current EIT law of PRC unless the entity regains the qualification
as a High and New Technology Enterprise in fiscal 2015. The Company is currently in the process of applying for the High and New
Technology Enterprise qualification with the related government authorities and the Company believes that more likely than not
Business Opportunity Online will be able to regain its qualification as a High and New Technology Enterprise and continue to enjoy
the favorable statutory tax rate of 15% after fiscal 2014. Therefore, for the six and three months ended June 30, 2015 and 2014,
the Company used 15% as the applicable income tax rate for Business Opportunity Online. |
| l | Business Opportunity Online Hubei was approved by the related PRC governmental authorities to be
qualified as a software company and was approved by the local tax authorities of Xiaogan City, Hubei province, the PRC, to be entitled
to a EIT exemption for fiscal 2012, as its first profitable year was determined as fiscal 2011 instead of fiscal 2012 in August
2013 by the local tax authorities of Xiaogan City, Hubei province, and a 50% reduction of its applicable EIT rate which is 25%
to 12.5% of its taxable income for the succeeding three years through fiscal 2015. Therefore, the applicable income tax rate for
Business Opportunity Online Hubei was both 12.5% for the six and three months ended June 30, 2015 and 2014. After fiscal 2015,
the applicable income tax rate for Business Opportunity Online Hubei will be 25% under the current EIT law of PRC. |
| l | The applicable income tax rate for other PRC operating entities of the Company was 25% for the
six and three months ended June 30, 2015 and 2014. |
| l | The current EIT law also imposed 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. |
For the six and three months
ended June 30, 2015 and 2014, all of the preferential income tax treatments enjoyed by the Company’s PRC VIEs were based
on the current applicable laws and regulations of the PRC and approved by the related government regulatory authorities and local
tax authorities where the Company’s respective PRC VIEs operate in. Business Opportunity Online and Business Opportunity
Online Hubei were most affected by these preferential income tax treatments within the structure of the Company. The preferential
income tax treatments are subject to change in accordance with the PRC government economic development policies and regulations.
These preferential income tax treatments are primarily determined by the regulation and policies of the PRC government in the context
of the overall economic policy and strategy. As a result, the uncertainty of theses preferential income tax treatments are subject
to, but not limited to, the PRC government policy on supporting any specific industry’s development under the outlook and
strategy of overall macroeconomic development.
2)
Turnover taxes and the relevant surcharges
Service revenues provided by
the Company’s PRC operating subsidiary and VIEs were subject to Value Added Tax (“VAT”). VAT rate for provision
of modern services (other than lease of corporeal movables) is 6% and for small scale taxpayer, 3%. Therefore, for the six and
three months ended June 30, 2015 and 2014, the Company’s service revenues are subject to VAT at a rate of 6%, after deducting
the VAT paid for the services purchased from suppliers, or at a rate of 3% without any deduction of VAT paid for the services purchased
from suppliers. The surcharges of the VAT is 12%-14% of the VAT, depending on which tax jurisdiction the Company’s PRC operating
subsidiary and VIE operate in.
As of June 30, 2015 and December
31, 2014, taxes payable consists of:
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Turnover tax and surcharge payable | |
| 1,196 | | |
| 1,173 | |
Enterprise income tax payable | |
| 2,030 | | |
| 2,159 | |
| |
| 3,226 | | |
| 3,332 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
For the six and three months
ended June 30, 2015 and 2014, the Company’s income tax benefit/(expense) consisted of:
| |
Six Months Ended June 30, | |
Three Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
US$(’000) | |
US$(’000) | |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
(Unaudited) | |
(Unaudited) | |
(Unaudited) |
| |
| |
| |
| |
|
Current-PRC | |
| (4 | ) | |
| (377 | ) | |
| (4 | ) | |
| (197 | ) |
Deferred-PRC | |
| 328 | | |
| 257 | | |
| 102 | | |
| 125 | |
| |
| 324 | | |
| (120 | ) | |
| 98 | | |
| (72 | ) |
The Company’s deferred
tax liabilities at June 30, 2015 and changes for the six months then ended were as follows:
| |
Amount |
| |
US$(’000) |
| |
|
Balance as of December 31, 2014 (audited) | |
| 964 | |
Reversal during the period | |
| (77 | ) |
Exchange translation adjustment | |
| - | |
Balance as of June 30, 2015 (unaudited) | |
| 887 | |
Deferred tax liabilities arose
on the recognition of the identifiable intangible assets acquired from acquisition transactions and deconsolidation of VIEs consummated
in previous years. Reversal for the six months ended June 30, 2015 of approximately US$77,000 was due to amortization of the acquired
intangible assets.
The Company’s deferred
tax assets at June 30, 2015 and December 31, 2014 were as follows:
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Tax effect of net operating losses carried forward | |
| 7,407 | | |
| 6,655 | |
Bad debts provision | |
| 922 | | |
| 943 | |
Valuation allowance | |
| (6,862 | ) | |
| (6,385 | ) |
| |
| 1,467 | | |
| 1,213 | |
| |
June 30, 2015 | |
December 31, 2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
|
| |
| |
|
Deferred tax assets reclassified as current asset | |
| 355 | | |
| 176 | |
Deferred tax assets reclassified as non-current asset | |
| 1,112 | | |
| 1,037 | |
| |
| 1,467 | | |
| 1,213 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
The net operating losses carried
forward incurred by the Company (excluding its PRC operating subsidiary and VIEs) were approximately US$13,309,000 and US$12,161,000
at June 30, 2015 and December 31, 2014, respectively, which loss carry forwards gradually expire over time, the last of which expires
in 2035. A full valuation allowance has been recorded because it is considered more likely than not that the deferred tax assets
will not be realized through sufficient future earnings of the entity to which the operating losses relate.
The net operating losses carried
forward (excluding bad debts provision, amortization of intangible assets acquired from business combinations and non-deductible
expenses) incurred by the Company’s PRC subsidiary and VIEs were approximately US$14,426,000 and US$12,401,000 at June 30,
2015 and December 31, 2014, respectively, which loss carry forwards gradually expire over time, the last of which expires in 2020.
The related deferred tax assets was calculated based on the respective net operating losses incurred by each of the PRC subsidiary
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. The Company recorded approximately US$96,000 and US$572,000 valuation allowance for the six months ended June 30,
2015 and 2014, respectively, and recorded approximately US$16,000 and US$333,000 valuation allowance for the three months ended
June 30, 2015 and 2014, respectively because it is considered more likely than not that this portion of the deferred tax assets
will not be realized through sufficient future earnings of the entities to which the operating losses relate.
Full valuation allowance to bad
debts provision related deferred tax assets were recorded because it is considered more likely than not that this portion of deferred
tax assets will not be realized through bad debts verification by the local tax authorities where the PRC subsidiary and VIEs operate
in.
The Company’s non-current
portion of deferred tax assets and deferred tax liabilities were attributable to different tax-paying components of the entity,
which were under different tax jurisdictions. Therefore, in accordance with ASC Topic 740 “Income taxes”, the non-current
portion of deferred tax assets and deferred tax liabilities were presented separately in the Company’s balance sheets.
The tax authority of the PRC
government conducts periodic and ad hoc tax filing reviews on business enterprises operating in the PRC after those enterprises
had completed their relevant tax filings, hence the Company’s tax filings may not be finalized. It is therefore uncertain
as to whether the PRC tax authority may take different views about the Company’s tax filings which may lead to additional
tax liabilities.
| 20. | Long-term borrowing from director |
Long-term
borrowing from 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.
As most of the Company’s
operations are conducted through its PRC subsidiary and VIEs, the Company’s ability to pay dividends is primarily dependent
on receiving distributions of funds from its PRC subsidiary and VIEs. Relevant PRC statutory laws and regulations permit payments
of dividends by its PRC subsidiary 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 subsidiary and VIEs included in the Company’s consolidated net assets are also non-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 the Company’s PRC VIEs
are subject to the above mandated restrictions on distributable profits.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
As a result of these PRC laws
and regulations, the Company’s PRC subsidiary and VIEs are restricted in their ability to transfer a portion of their net
assets to the Company. As of June 30, 2015 and December 31, 2014, net assets restricted in the aggregate, which include paid-in
capital and statutory reserve funds of the Company’s PRC subsidiary and VIEs that are included in the Company’s consolidated
net assets, was both approximately US$7.3 million.
The current PRC Enterprise Income
Tax (“EIT”) Law also imposed 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% rate. Rise King WFOE is invested by its immediate holding company in Hong Kong and will be entitled to the 5% preferential
withholding tax rate upon distribution of the dividends to its immediate holding company.
The ability of the Company’s
PRC subsidiary 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:
|
● |
Foreign Exchange Administration Rules (1996), as amended in August 2008, or the Exchange Rules; |
|
● |
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 convertibility 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.
As of June 30, 2015 and December
31, 2014, there was approximately US$29.0 million and US$30.8 million retained earnings in the aggregate, respectively, which was
generated by the Company’s PRC subsidiary and VIEs in Renminbi included in the Company’s consolidated net assets, aside
from US$2.8 million statutory reserve funds as of June 30, 2015 and December 31, 2014, that may be affected by increased restrictions
on currency exchanges in the future and accordingly may further limit the Company’s PRC subsidiary’s and VIEs’
ability to make dividends or other payments in U.S. dollars to the Company, in addition to the approximately US$7.3 million restricted
net assets as of June 30, 2015 and December 31, 2014, as discussed above.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| 22. | Related party transactions |
Revenue from related parties:
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
(Unaudited) |
| |
| |
|
-Chuangshi Meiwei Food and Beverage Investment Management (Beijing) Co., Ltd. | |
| 349 | | |
| - | |
-Beijing Saimeiwei Food Equipment Technology Co., Ltd, | |
| 58 | | |
| 182 | |
-Beijing Fengshangyinli Technology Co., Ltd. | |
| - | | |
| 1 | |
-Beijing Saturday Education Technology Co., Ltd. | |
| 61 | | |
| - | |
| |
| 468 | | |
| 183 | |
| |
Three Months Ended June 30, |
| |
2015 | |
2014 |
| |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
(Unaudited) |
| |
| |
|
-Chuangshi Meiwei Food and Beverage Investment Management (Beijing) Co., Ltd. | |
| 349 | | |
| - | |
-Beijing Saimeiwei Food Equipment Technology Co., Ltd. | |
| 21 | | |
| 182 | |
-Beijing Fengshangyinli Technology Co., Ltd. | |
| - | | |
| - | |
- Beijing Saturday Education Technology Co., Ltd. | |
| 35 | | |
| - | |
| |
| 405 | | |
| 182 | |
| 23. | 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$279,000 and US$265,000 for the six months ended June 30,
2015 and 2014, respectively. The total amounts for such employee benefits were approximately US$135,000 and US$136,000 for the
three months ended June 30, 2015 and 2014, respectively.
Credit risk
Financial instruments that potentially
subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents, accounts receivable,
other receivables and prepayments and deposits to suppliers. As of June 30, 2015 and December 31, 2014, substantially all of the
Company’s cash and cash equivalents were held by major financial institutions located in Mainland China, which management
believes are of high credit quality.
Risk arising
from operations in foreign countries
All of the Company’s operations
are conducted within the PRC. The Company’s operations in the PRC are subject to various political, economic, and other risks
and uncertainties inherent in the PRC. Among other risks, the Company’s operations in the PRC are subject to the risks of
restrictions on transfer of funds, changing taxation policies, foreign exchange restrictions; and political conditions and governmental
regulations.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Currency convertibility
risk
Significant part of the Company’s
businesses is transacted in RMB, which is not freely convertible into foreign currencies. All foreign exchange transactions take
place either through the People’s Bank of China or other banks authorized to buy and sell foreign currencies at the exchange
rates quoted by the People’s Bank of China. Approval of foreign currency payments by the People’s Bank of China or
other regulatory institutions requires submitting a payment application form together with suppliers’ invoices and signed
contracts. These exchange control measures imposed by the PRC government authorities may restrict the ability of the Company’s
PRC subsidiary and VIEs to transfer its net assets, which to the Company through loans, advances or cash dividends.
Concentration
of customers
For the six months ended June
30, 2015, two customers individually accounted for 17% and 14% of the Company’s sales, respectively. For the three months
ended June 30, 2015, one of the two customers individually accounted for 11% of the Company’s sales. Except for the aforementioned
customers, there was no other single customer who accounted for more than 10% of the Company’s sales for the six or three
months ended June 30, 2015.
For the six months ended June
30, 2014, two customers individually accounted for 20% and 19% of the Company’s sales, respectively. For the three months
ended June 30, 2014, the same two customers individually accounted for 30% and 17% of the Company’s sales, respectively.
Except for the aforementioned customer, there was no other single customer who accounted for more than 10% of the Company’s
sales for the six or three months ended June 30, 2014.
As of June 30, 2015, one customer
individually accounted for 21% of the Company’s accounts receivable. As of December 31, 2014, the same one customer individually
accounted for 18% of the Company’s accounts receivable, another one customer individually accounted for 19% of the Company’s
accounts receivable. Except for the afore-mentioned, there was no other single customer who accounted for more than 10% of the
Company’s accounts receivable as of June 30, 2015 or December 31, 2014.
Concentration of suppliers
For the six months ended June
30, 2015, two suppliers individually accounted for 50% and 32% of the Company’s cost of sales, respectively. For the three
months ended June 30, 2015, the same two suppliers individually accounted for 28% and 48% of the Company’s cost of sales,
respectively. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company’s
cost of sales for the six or three months ended June 30, 2015.
For the six months ended June
30, 2014, two suppliers individually accounted for 64% and 22% of the Company’s cost of sales, respectively. For the three
months ended June 30, 2014, the same two suppliers individually accounted for 71% and 19% of the Company’s cost of sales,
respectively. Except for the afore-mentioned, there was no other single supplier who accounted for more than 10% of the Company’s
cost of sales for the six or three months ended June 30, 2014.
The following table sets forth
the Company’s operating lease commitment as of June 30, 2015:
| |
Office Rental |
| |
US$(’000) |
| |
(Unaudited) |
Six months ending December 31, | |
| | |
-2015 | |
| 191 | |
Year ending December 31, | |
| | |
-2016 | |
| 135 | |
Total | |
| 326 | |
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
For the six months ended June
30, 2015 and 2014, rental expenses under operating leases were approximately US$222,000 and US$261,000, respectively. For the three
months ended June 30, 2015 and 2014, rental expenses under operating leases were approximately US$112,000 and US$117,000, respectively.
The Company entered into a contract
to engage an unrelated third party to develop several software systems related to internet environment monitoring and system optimization
to enhance the overall safety and efficiency of the Company’s network system. The total contract amount was RMB13 million
(approximately US$2.11 million) and the first installment of RMB5.2 million (approximately US$0.84 million) was paid in the first
fiscal quarter of 2014. The transaction as contemplated under the contract is expected to be consummated during 2015 and the remaining
unpaid contract amount is expected to be paid in 2015.
Legal Proceedings
Business Opportunity Online has been named as a defendant in a civil lawsuit filed in the PRC. The action
was filed by Haifeng Wang in the Haidian District People’s Court, Beijing, PRC, on April 29, 2014. The complaint alleges
that the plaintiff did not attend any shareholders meeting with respect to the transfer of the plaintiff’s
investment in Business Opportunity Online to another party, and did not execute any written shareholders resolutions approving
such transfer. The complaint seeks a court order to declare the shareholders resolutions null and void. Business Opportunity Online
denied all of the allegations against it and defended vigorously against the lawsuit. On June 5, 2015, Haifeng Wang filed an application
to withdraw the lawsuit in the Haidian District People’s Court of Beijing. The Haidian District People’s Court of Beijing
rendered a ruling to permit the withdrawal of this lawsuit on the same date.
The Company follows ASC Topic
280 “Segment Reporting”, which requires that companies disclose segment data based on how management makes decisions
about allocating resources to segments and evaluating their performance. Reportable operating segments include components of an
entity about which separate financial information is available and which operating results are regularly reviewed by the chief
operating decision maker (“CODM”), the Company’s Chief Executive Officer, to make decisions about resources to
be allocated to the segment and assess each operating segment’s performance.
Six Months Ended June 30,
2015 (Unaudited)
| |
Internet Ad. | |
TV Ad. | |
Bank kiosk | |
Brand management and sales channel building | |
Others | |
Inter-
segment and
reconciling
item | |
Total |
| |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) |
| |
| |
| |
| |
| |
| |
| |
|
Revenue | |
| 14,084 | | |
| 1,081 | | |
| 138 | | |
| 167 | | |
| - | | |
| - | | |
| 15,470 | |
Cost of sales | |
| 11,141 | | |
| 1,041 | | |
| 5 | | |
| 104 | | |
| - | | |
| - | | |
| 12,291 | |
Total operating expenses | |
| 4,632 | | |
| 220 | | |
| 61 | | |
| 188 | | |
| 1,519 | * | |
| - | | |
| 6,620 | |
Depreciation and amortization expense included in total operating expenses | |
| 777 | | |
| 2 | | |
| 61 | | |
| 32 | | |
| 16 | | |
| - | | |
| 888 | |
Operating income (loss) | |
| (1,689 | ) | |
| (180 | ) | |
| 72 | | |
| (125 | ) | |
| (1,519 | ) | |
| - | | |
| (3,441 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share of income in equity investment affiliates | |
| - | | |
| - | | |
| - | | |
| - | | |
| 2 | | |
| - | | |
| 2 | |
Expenditure for long-term assets | |
| 1,964 | | |
| - | | |
| - | | |
| - | | |
| 14 | | |
| - | | |
| 1,978 | |
Net income (loss) | |
| (1,331 | ) | |
| (171 | ) | |
| 72 | | |
| (109 | ) | |
| (1,516 | ) | |
| - | | |
| (3,055 | ) |
Total assets – June 30, 2015 | |
| 41,644 | | |
| 10,808 | | |
| 236 | | |
| 2,820 | | |
| 6,874 | | |
| (17,006 | ) | |
| 45,376 | |
Total assets – December 31, 2014 | |
| 43,851 | | |
| 13,228 | | |
| 296 | | |
| 2,989 | | |
| 6,558 | | |
| (19,492 | ) | |
| 47,430 | |
*Including approximately US$956,000 share-based compensation
expenses.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Three Months Ended June 30,
2015 (Unaudited)
| |
Internet Ad. | |
TV Ad. | |
Bank kiosk | |
Brand management and sales channel building | |
Others | |
Inter-
segment and
reconciling
item | |
Total |
| |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) |
| |
| |
| |
| |
| |
| |
| |
|
Revenue | |
| 8,486 | | |
| 1,023 | | |
| 69 | | |
| 44 | | |
| - | | |
| - | | |
| 9,622 | |
Cost of sales | |
| 6,386 | | |
| 932 | | |
| 2 | | |
| 25 | | |
| - | | |
| - | | |
| 7,345 | |
Total operating expenses | |
| 2,535 | | |
| 122 | | |
| 31 | | |
| 114 | | |
| 823 | * | |
| - | | |
| 3,625 | |
Depreciation and amortization expense included in total operating expenses | |
| 389 | | |
| 1 | | |
| 31 | | |
| 16 | | |
| 7 | | |
| - | | |
| 444 | |
Operating income (loss) | |
| (435 | ) | |
| (31 | ) | |
| 36 | | |
| (95 | ) | |
| (823 | ) | |
| - | | |
| (1,348 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share of income in equity investment affiliates | |
| - | | |
| - | | |
| - | | |
| - | | |
| 1 | | |
| - | | |
| 1 | |
Expenditure for long-term assets | |
| 1,638 | | |
| - | | |
| - | | |
| - | | |
| 14 | | |
| - | | |
| 1,652 | |
Net income (loss) | |
| (343 | ) | |
| (21 | ) | |
| 36 | | |
| (84 | ) | |
| (821 | ) | |
| - | | |
| (1,233 | ) |
*Including approximately US$501,000 share-based compensation
expenses.
Six Months Ended June 30,
2014 (Unaudited)
| |
Internet Ad. | |
TV Ad. | |
Bank kiosk | |
Brand management and sales channel building | |
Others | |
Inter-
segment and
reconciling
item | |
Total |
| |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) |
| |
| |
| |
| |
| |
| |
| |
|
Revenue | |
| 11,808 | | |
| 2,994 | | |
| 138 | | |
| 604 | | |
| - | | |
| - | | |
| 15,544 | |
Cost of sales | |
| 9,395 | | |
| 2,772 | | |
| 5 | | |
| 315 | | |
| - | | |
| - | | |
| 12,487 | |
Total operating expenses | |
| 3,850 | | |
| 222 | | |
| 63 | | |
| 283 | | |
| 578 | * | |
| - | | |
| 4,996 | |
Depreciation and amortization expense included in total operating expenses | |
| 489 | | |
| 22 | | |
| 63 | | |
| 100 | | |
| 41 | | |
| - | | |
| 715 | |
Operating income (loss) | |
| (1,437 | ) | |
| - | | |
| 70 | | |
| 6 | | |
| (578 | ) | |
| - | | |
| (1,939 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share of losses in equity investment affiliates | |
| - | | |
| - | | |
| - | | |
| (56 | ) | |
| (2 | ) | |
| - | | |
| (58 | ) |
Expenditure for long-term assets | |
| 850 | | |
| - | | |
| - | | |
| 1 | | |
| 12 | | |
| - | | |
| 863 | |
Net income (loss) | |
| (1,493 | ) | |
| (32 | ) | |
| 70 | | |
| (57 | ) | |
| (580 | ) | |
| - | | |
| (2,092 | ) |
*Including approximately US$17,000 share-based compensation
expenses.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
Three Months Ended June 30,
2014 (Unaudited)
| |
Internet Ad. | |
TV Ad. | |
Bank kiosk | |
Brand management and sales channel building | |
Others | |
Inter-
segment and
reconciling
item | |
Total |
| |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) | |
US$ (‘000) |
| |
| |
| |
| |
| |
| |
| |
|
Revenue | |
| 8,228 | | |
| 1,812 | | |
| 67 | | |
| 254 | | |
| - | | |
| - | | |
| 10,361 | |
Cost of sales | |
| 6,853 | | |
| 1,677 | | |
| 5 | | |
| 130 | | |
| - | | |
| - | | |
| 8,665 | |
Total operating expenses | |
| 2,325 | | |
| 128 | | |
| 32 | | |
| 143 | | |
| 342 | * | |
| - | | |
| 2,970 | |
Depreciation and amortization expense included in total operating expenses | |
| 242 | | |
| 11 | | |
| 32 | | |
| 50 | | |
| 20 | | |
| - | | |
| 355 | |
Operating income (loss) | |
| (950 | ) | |
| 7 | | |
| 30 | | |
| (19 | ) | |
| (342 | ) | |
| - | | |
| (1,274 | ) |
| |
| | | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
Share of losses in equity investment affiliates | |
| - | | |
| - | | |
| - | | |
| (43 | ) | |
| - | | |
| - | | |
| (43 | ) |
Expenditure for long-term assets | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | | |
| - | |
Net income (loss) | |
| (994 | ) | |
| (10 | ) | |
| 30 | | |
| (62 | ) | |
| (342 | ) | |
| - | | |
| (1,378 | ) |
*Including approximately US$9,000 share-based compensation expenses.
Basic and diluted loss per
share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are
presented in thousands of U.S. dollars):
| |
Six Months Ended June 30, | |
Three Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
US$(’000) | |
US$(’000) | |
US$(’000) | |
US$(’000) |
| |
(Unaudited) | |
(Unaudited) | |
(Unaudited) | |
(Unaudited) |
| |
| |
| |
| |
|
Net loss attributable to ChinaNet Online Holdings, Inc. (numerator for basic and diluted earnings per share) | |
$ | (2,997 | ) | |
$ | (1,999 | ) | |
$ | (1,209 | ) | |
$ | (1,331 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding - Basic | |
| 26,572,856 | | |
| 22,376,540 | | |
| 26,776,650 | | |
| 22,376,540 | |
Effect of diluted securities: | |
| | | |
| | | |
| | | |
| | |
Unvested restricted common stocks | |
| - | | |
| - | | |
| - | | |
| - | |
Warrants and options | |
| - | | |
| - | | |
| - | | |
| - | |
Weighted average number of common shares outstanding -Diluted | |
| 26,572,856 | | |
| 22,376,540 | | |
| 26,776,650 | | |
| 22,376,540 | |
| |
| | | |
| | | |
| | | |
| | |
Loss per share-Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.09 | ) | |
$ | (0.05 | ) | |
$ | (0.06 | ) |
For the six and three months
ended June 30, 2015, the diluted loss per share calculation did not include the 2,666,667 shares of unvested restricted common
stock and the options to purchase up to 894,940 shares of the Company’s common stock, respectively, because their effect
was anti-dilutive, as the Company incurred a loss during the periods.
For the six and three months
ended June 30, 2014, the diluted earnings per share calculation both did not include the warrants and options to purchase up to
2,363,456 and 939,440 shares of common stock, respectively, because their effect was anti-dilutive, as the Company incurred a loss
during the periods.
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS (UNAUDITED)
| 28. | Share-based compensation expenses |
The Company granted 50,000 shares
and 40,000 shares of the Company’s restricted common stock to its investor relations services provider, in exchange for its
services to the Company for the years ended December 31, 2015 and 2014, respectively. These shares were valued at US$1.20 per share
and US$0.84 per share, the closing bid price of the Company’s common stock on the date of grant, respectively. Total compensation
expense recognized for the services was US$30,000 and US$16,800 for the six months ended June 30, 2015 and 2014, respectively.
Total compensation expense recognized for the services was US$15,000 and US$8,400 for the three months ended June 30, 2015 and
2014, respectively.
The Company granted 300,000
shares of the Company’s restricted common stock to a technical service provider in exchange for its services to the Company
for a 12-month period commencing on August 1, 2014, of which 150,000 restricted shares was vested on August 1, 2014, and 150,000
restricted shares were vested on February 1, 2015. These shares were valued at US$0.67 per share, the closing bid price of the
Company’s common stock on the date of grant. Total compensation expense recognized for the six and three months ended June
30, 2015 was US$100,500 and US$50,250, respectively.
The Company granted 350,000
shares of the Company restricted common stock to a management consulting service provider in exchange for its services to the Company
for a 24-month period commencing on May 1, 2015. These shares were valued at US$1.57 per share, the closing bid price of the Company’s
common stock on the date of grant. Total compensation expense recognized for the six and three months ended June 30, 2015 was both
approximately US$45,800.
On December 30, 2014, the Company
granted 4,200,000 shares of the Company’s restricted common stock to its executive officers, of which 1,533,333 restricted
shares was vested upon issuance, 1,333,333 restricted shares will be vested on December 30, 2015 and the remaining 1,333,334 restricted
shares will be vested on December 30, 2016. The restricted stock was valued at $1.17 per share, the closing bid price of the Company’s
common stock on the date of grant. Total compensation cost recognized for the six and three months ended June 30, 2015 was US$780,000
and US$390,000, respectively.
Under the Company’s 2011
Omnibus Securities and Incentive Plan, the Company granted common stock purchase options to its management, employees and directors.
Options issued and outstanding
at June 30, 2015 and their movements during the six 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, December 31, 2014 (audited) | |
| 894,940 | | |
| 6.48 | | |
$ | 1.21 | | |
| 894,940 | | |
| 6.48 | | |
$ | 1.21 | |
Granted/Vested | |
| - | | |
| | | |
| | | |
| - | | |
| | | |
| | |
Forfeited | |
| - | | |
| | | |
| | | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | | |
| - | | |
| | | |
| | |
Balance, June 30, 2015 (unaudited) | |
| 894,940 | | |
| 5.99 | | |
$ | 1.21 | | |
| 894,940 | | |
| 5.99 | | |
$ | 1.21 | |
The aggregate unrecognized share-based compensation
expenses as of June 30, 2015 and 2014 was approximately US$2,890,000 and US$17,000, respectively.
The Company has performed an evaluation of subsequent
events through the date the financial statements were issued.
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,
2014. Readers are cautioned not to place undue reliance on these forward-looking statements.
Overview
We were incorporated in the
State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, we 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 us and we are now a holding company, which, through certain contractual arrangements with operating
entities in the PRC, is engaged in providing advertising, marketing, brand management and online-to-offline (O2O) sales channel
building services for SMEs and entrepreneurial management and networking services for entrepreneurs in the PRC.
Through our PRC operating subsidiary
and VIEs, we primarily operate a one-stop services for our clients through our integrated service platforms, including multi-channel
advertising and promotion platform, brand management and sales channel building platform and management tools platform. Our multi-channel
advertising and promotion platform primarily consists of internet advertising and marketing portals, including www.28.com (“28.com”),
www.liansuo.com (“liansuo.com”) and www.sooe.cn (“sooe.cn”), ChinaNet TV as our TV production and advertising
unit and the bank kiosk advertising unit. We provide varieties of marketing campaigns through this platform by the combination
of the Internet, mobile, television, bank kiosks and printed-medias to maximize market exposure and effectiveness for our clients.
Our band management and sales channel building platform consists of our brand consulting and management service and offline sales
channel expansion service, which is to physically help small businesses to recruit dealers, wholesalers, partners or franchisees
based on their business needs. Management tools platform consists of a mobile-based sales and administrative management tools specifically
designed for small business in China to match their simplicity.
Basis of presentation,
management estimates and critical accounting policies
Our unaudited condensed consolidated
interim financial statements have been prepared in accordance with U.S. GAAP for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X, as promulgated by the SEC, 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, you should refer to the information set forth in Note 3
“Summary of significant accounting policies” to our audited financial statements in our 2014 Form 10-K.
A. RESULTS OF OPERATIONS
FOR THE SIX AND THREE MONTHS ENDED JUNE 30, 2015 AND 2014
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.
| |
Six Months Ended June 30, | |
Three Months Ended June 30, |
| |
2015 | |
2014 | |
2015 | |
2014 |
| |
US$ | |
US$ | |
US$ | |
US$ |
| |
(Unaudited) | |
(Unaudited) | |
(Unaudited) | |
(Unaudited) |
| |
| |
| |
| |
|
Sales | |
| | | |
| | | |
| | | |
| | |
From unrelated parties | |
$ | 15,002 | | |
$ | 15,361 | | |
$ | 9,217 | | |
$ | 10,179 | |
From related parties | |
| 468 | | |
| 183 | | |
| 405 | | |
| 182 | |
| |
| 15,470 | | |
| 15,544 | | |
| 9,622 | | |
| 10,361 | |
Cost of sales | |
| 12,291 | | |
| 12,487 | | |
| 7,345 | | |
| 8,665 | |
Gross profit | |
| 3,179 | | |
| 3,057 | | |
| 2,277 | | |
| 1,696 | |
| |
| | | |
| | | |
| | | |
| | |
Operating expenses | |
| | | |
| | | |
| | | |
| | |
Sales and marketing expenses | |
| 2,250 | | |
| 2,095 | | |
| 1,047 | | |
| 1,506 | |
General and administrative expenses | |
| 3,307 | | |
| 2,009 | | |
| 2,005 | | |
| 1,022 | |
Research and development expenses | |
| 1,063 | | |
| 892 | | |
| 573 | | |
| 442 | |
| |
| 6,620 | | |
| 4,996 | | |
| 3,625 | | |
| 2,970 | |
| |
| | | |
| | | |
| | | |
| | |
Loss from operations | |
| (3,441 | ) | |
| (1,939 | ) | |
| (1,348 | ) | |
| (1,274 | ) |
| |
| | | |
| | | |
| | | |
| | |
Other income (expenses) | |
| | | |
| | | |
| | | |
| | |
Interest income | |
| 63 | | |
| 60 | | |
| 34 | | |
| 29 | |
Interest expense | |
| (34 | ) | |
| (32 | ) | |
| (17 | ) | |
| (16 | ) |
Other income/(expenses) | |
| 31 | | |
| (3 | ) | |
| (1 | ) | |
| (2 | ) |
| |
| 60 | | |
| 25 | | |
| 16 | | |
| 11 | |
Loss before income tax expense, equity method investments and noncontrolling interests | |
| (3,381 | ) | |
| (1,914 | ) | |
| (1,332 | ) | |
| (1,263 | ) |
Income tax benefit/(expense) | |
| 324 | | |
| (120 | ) | |
| 98 | | |
| (72 | ) |
Loss before equity method investments and noncontrolling interests | |
| (3,057 | ) | |
| (2,034 | ) | |
| (1,234 | ) | |
| (1,335 | ) |
Share of income/(losses) in equity investment affiliates | |
| 2 | | |
| (58 | ) | |
| 1 | | |
| (43 | ) |
Net loss | |
| (3,055 | ) | |
| (2,092 | ) | |
| (1,233 | ) | |
| (1,378 | ) |
Net loss attributable to noncontrolling interests | |
| 58 | | |
| 93 | | |
| 24 | | |
| 47 | |
Net loss attributable to ChinaNet Online Holdings, Inc. | |
$ | (2,997 | ) | |
$ | (1,999 | ) | |
$ | (1,209 | ) | |
$ | (1,331 | ) |
| |
| | | |
| | | |
| | | |
| | |
Loss per share | |
| | | |
| | | |
| | | |
| | |
Loss per common share | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
$ | (0.11 | ) | |
$ | (0.09 | ) | |
$ | (0.05 | ) | |
$ | (0.06 | ) |
| |
| | | |
| | | |
| | | |
| | |
Weighted average number of common shares outstanding: | |
| | | |
| | | |
| | | |
| | |
Basic and diluted | |
| 26,572,856 | | |
| 22,376,540 | | |
| 26,776,650 | | |
| 22,376,540 | |
Revenue
The following tables set forth
a breakdown of our total revenue, divided into six segments for the periods indicated, with inter-segment transactions eliminated:
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
Revenue type | |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
| |
| |
| |
|
-Internet advertisement | |
$ | 8,215 | | |
| 53.1 | % | |
$ | 8,454 | | |
| 54.4 | % |
-Technical services | |
| 226 | | |
| 1.4 | % | |
| 237 | | |
| 1.5 | % |
-Search engine marketing service | |
| 5,643 | | |
| 36.5 | % | |
| 3,117 | | |
| 20.0 | % |
Internet advertisement and related services | |
| 14,084 | | |
| 91.0 | % | |
| 11,808 | | |
| 75.9 | % |
TV advertisement | |
| 1,081 | | |
| 7.0 | % | |
| 2,994 | | |
| 19.3 | % |
Bank kiosk | |
| 138 | | |
| 0.9 | % | |
| 138 | | |
| 0.9 | % |
Brand management and sales channel building | |
| 167 | | |
| 1.1 | % | |
| 604 | | |
| 3.9 | % |
Total | |
$ | 15,470 | | |
| 100 | % | |
$ | 15,544 | | |
| 100 | % |
| |
Three Months Ended June 30, |
| |
2015 | |
2014 |
Revenue type | |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
| |
| |
| |
|
-Internet advertisement | |
$ | 5,768 | | |
| 60.0 | % | |
$ | 4,958 | | |
| 47.9 | % |
-Technical services | |
| 122 | | |
| 1.2 | % | |
| 153 | | |
| 1.5 | % |
-Search engine marketing service | |
| 2,596 | | |
| 27.0 | % | |
| 3,117 | | |
| 30.0 | % |
Internet advertisement and related services | |
| 8,486 | | |
| 88.2 | % | |
| 8,228 | | |
| 79.4 | % |
TV advertisement | |
| 1,023 | | |
| 10.6 | % | |
| 1,812 | | |
| 17.5 | % |
Bank kiosks | |
| 69 | | |
| 0.7 | % | |
| 67 | | |
| 0.6 | % |
Brand management and sales channel building | |
| 44 | | |
| 0.5 | % | |
| 254 | | |
| 2.5 | % |
Total | |
$ | 9,622 | | |
| 100 | % | |
$ | 10,361 | | |
| 100 | % |
Total Revenues: For the six months
ended June 30, 2015 and 2014, our total revenues were both approximately US$15.5 million. For the three months ended June 30, 2015
and 2014, our total revenues were US$9.62 million and US$10.36 million, respectively.
We derive the majority of our
advertising service revenues from the sale of advertising space on our internet portals and from providing the related value-added
technical support and services, internet marketing service and content management services to unrelated third parties and to certain
related parties. Beginning in the second fiscal quarter of 2014, we elaborated an existing stream of internet marketing service
by providing enhanced third-party search engine marketing (“SEM”) services to the SMEs as a strategic supplement to
the internet advertising services provided to our clients. We also derive revenue from the sale of advertising time purchased from
different provincial satellite TV stations. Our advertising and marketing services to related parties were provided in the ordinary
course of business on the same terms as those provided to our unrelated clients. For the six and three months ended June 30, 2015
and 2014, our service revenue from related parties in the aggregate was less than 5% of the total revenue for each respective reporting
period.
Our advertising service revenues
are recorded net of any sales discounts. Sales discounts include volume discounts and other customary incentives offered to our
small and medium-sized franchise and merchant clients, including providing them with additional advertising time for their advertisements
if we have unused space available on our websites and represent the difference between our official list price and the amount we
actually charge our clients. For advertising services, we typically sign service contracts with our small and medium-sized franchisor
and other clients that require us to place the advertisements on our portal websites in specified locations on the sites and for
agreed periods; and/or place the advertisements onto our purchased advertisement time during specific TV programs for agreed periods.
We recognize revenues as the advertisement airs over the contractual term based on the schedule agreed upon with our clients. Revenue
from SEM services is recognized on a monthly basis based on the direct cost consumed through search engines for providing such
services with a premium. We recognize this revenue on a gross basic, as we believe that we act as the primary obligor of this transaction,
which is considered the most important factor for a gross revenue recognition in accordance with ASC Topic 605, subtopic 45. We
also sell effective sales lead information to our clients, which is recognized based on fixed price per sales lead when information
is delivered and accepted by clients.
The tables below summarize
the revenues, cost of sales, gross margin and net loss generated from each of our VIEs and subsidiaries for the six and three months
ended June 30, 2015 and 2014, respectively, with inter-company transactions eliminated:
For
the six months ended June 30, 2015:
Name of subsidiary or VIE | |
Revenue from
unrelated parties | |
Revenue from
related parties | |
Total |
| |
($’000) | |
($’000) | |
($’000) |
| |
| |
| |
|
Rise King WFOE | |
| 226 | | |
| - | | |
| 226 | |
Business Opportunity Online and subsidiaries | |
| 14,637 | | |
| 468 | | |
| 15,105 | |
Beijing CNET Online and subsidiaries | |
| 139 | | |
| - | | |
| 139 | |
Total revenue | |
| 15,002 | | |
| 468 | | |
| 15,470 | |
For the three months ended June 30, 2015:
Name of subsidiary or VIE | |
Revenue from
unrelated parties | |
Revenue from
related parties | |
Total |
| |
($’000) | |
($’000) | |
($’000) |
| |
| |
| |
|
Rise King WFOE | |
| 122 | | |
| - | | |
| 122 | |
Business Opportunity Online and subsidiaries | |
| 9,025 | | |
| 405 | | |
| 9,430 | |
Beijing CNET Online and subsidiaries | |
| 70 | | |
| - | | |
| 70 | |
Total revenue | |
| 9,217 | | |
| 405 | | |
| 9,622 | |
For the six months ended June 30, 2015:
|
| |
| |
|
Name of subsidiary or VIE |
| |
Cost of Sales | |
Gross Margin |
|
| |
($’000) | |
($’000) |
|
| |
| |
|
Rise King WFOE |
| |
| - | | |
| 226 | |
Business Opportunity Online and subsidiaries |
| |
| 12,286 | | |
| 2,819 | |
Beijing CNET Online and subsidiaries |
| |
| 5 | | |
| 134 | |
Total |
| |
| 12,291 | | |
| 3,179 | |
For the three months ended June 30, 2015:
|
|
| |
| |
|
Name of subsidiary or VIE |
| |
Cost of Sales | |
Gross Margin |
|
| |
($’000) | |
($’000) |
|
| |
| |
|
Rise King WFOE |
| |
| - | | |
| 122 | |
Business Opportunity Online and subsidiaries |
| |
| 7,343 | | |
| 2,087 | |
Beijing CNET Online and subsidiaries |
| |
| 2 | | |
| 68 | |
Total |
| |
| 7,345 | | |
| 2,277 | |
For the six months ended June 30, 2015:
Name of subsidiary or VIE |
| |
Net Loss |
|
| |
($’000) |
|
| |
|
Rise King WFOE |
| |
| (197 | ) |
Business Opportunity Online and subsidiaries |
| |
| (1,658 | ) |
Beijing CNET Online and subsidiaries |
| |
| (51 | ) |
Shanghai Jing Yang |
| |
| (1 | ) |
ChinaNet Online Holdings, Inc. |
| |
| (1,148 | ) |
Total net loss before allocation to the noncontrolling interest |
| |
| (3,055 | ) |
For the three months ended June 30, 2015:
|
| |
|
Name of subsidiary or VIE |
| |
Net Loss |
|
| |
($’000) |
|
| |
|
Rise King WFOE |
| |
| (112 | ) |
Business Opportunity Online and subsidiaries |
| |
| (474 | ) |
Beijing CNET Online and subsidiaries |
| |
| (27 | ) |
Shanghai Jing Yang |
| |
| (1 | ) |
ChinaNet Online Holdings, Inc. |
| |
| (619 | ) |
Total net loss before allocation to the noncontrolling interest |
| |
| (1,233 | ) |
For the six months ended June 30, 2014:
Name of subsidiary or VIE | |
Revenue from
unrelated parties | |
Revenue from
related parties | |
Total |
| |
($’000) | |
($’000) | |
($’000) |
| |
| |
| |
|
Rise King WFOE | |
| 237 | | |
| - | | |
| 237 | |
Business Opportunity Online and subsidiaries | |
| 14,986 | | |
| 183 | | |
| 15,169 | |
Beijing CNET Online and subsidiaries | |
| 138 | | |
| - | | |
| 138 | |
Total revenue | |
| 15,361 | | |
| 183 | | |
| 15,544 | |
For the three months ended June 30, 2014:
Name of subsidiary or VIE | |
Revenue from
unrelated parties | |
Revenue from
related parties | |
Total |
| |
($’000) | |
($’000) | |
($’000) |
| |
| |
| |
|
Rise King WFOE | |
| 153 | | |
| - | | |
| 153 | |
Business Opportunity Online and subsidiaries | |
| 9,959 | | |
| 182 | | |
| 10,141 | |
Beijing CNET Online and subsidiaries | |
| 67 | | |
| - | | |
| 67 | |
Total revenue | |
| 10,179 | | |
| 182 | | |
| 10,361 | |
For the six months ended June 30, 2014:
Name of subsidiary or VIE |
| |
Cost of Sales | |
Gross Margin |
|
| |
($’000) | |
($’000) |
|
| |
| |
|
Rise King WFOE |
| |
| 1 | | |
| 236 | |
Business Opportunity Online and subsidiaries |
| |
| 12,481 | | |
| 2,688 | |
Beijing CNET Online and subsidiaries |
| |
| 5 | | |
| 133 | |
Total |
| |
| 12,487 | | |
| 3,057 | |
For the three months ended June 30, 2014:
Name of subsidiary or VIE |
| |
Cost of Sales | |
Gross Margin |
|
| |
($’000) | |
($’000) |
|
| |
| |
|
Rise King WFOE |
| |
| 1 | | |
| 152 | |
Business Opportunity Online and subsidiaries |
| |
| 8,659 | | |
| 1,482 | |
Beijing CNET Online and subsidiaries |
| |
| 5 | | |
| 62 | |
Total |
| |
| 8,665 | | |
| 1,696 | |
For the six months ended June 30, 2014:
Name of subsidiary or VIE |
| |
Net Loss |
|
| |
($’000) |
|
| |
|
Rise King WFOE |
| |
| (291 | ) |
Business Opportunity Online and subsidiaries |
| |
| (1,599 | ) |
Beijing CNET Online and subsidiaries |
| |
| (50 | ) |
Shanghai Jing Yang |
| |
| (19 | ) |
ChinaNet Online Holdings, Inc. |
| |
| (133 | ) |
Total net loss before allocation to the noncontrolling interest |
| |
| (2,092 | ) |
For the three months ended June 30, 2014:
Name of subsidiary or VIE |
| |
Net Income/(loss) |
|
| |
($’000) |
|
| |
|
Rise King WFOE |
| |
| 7 | |
Business Opportunity Online and subsidiaries |
| |
| (1,226 | ) |
Beijing CNET Online and subsidiaries |
| |
| (40 | ) |
Shanghai Jing Yang |
| |
| (17 | ) |
ChinaNet Online Holdings, Inc. |
| |
| (102 | ) |
Total net loss before allocation to the noncontrolling interest |
| |
| (1,378 | ) |
Management considers revenues
generated from internet advertising, SEM services and other related technical services as one aggregate business operation and
relies upon the consolidated results of all the operations in this business unit to make decisions about allocating resources and
evaluating performance.
| l | Internet
advertising revenues for the six months ended June 30, 2015 were approximately US$8.22 million compared to approximately
US$8.45 million for the same period in 2014, representing a 3% decrease. For the three months ended June 30, 2015, internet advertising
revenue was approximately US$5.77 million compared to US$4.96 million for the same period in 2014, representing a 16% increase.
For the six months ended June 30, 2015, the decrease in our internet advertising revenues was primarily due to lower internet
advertising revenues achieved in the first fiscal quarter of 2015 as compared with that achieved in the same period last year.
However, for the three months ended June 30, 2015, the performance of our internet advertising segment was improved. During the
second fiscal quarter of 2015, we continued to place persistent effort in integrating and upgrading
our internet advertising and marketing services to our SME clients. As a result, along with eliminating smaller clients, we successfully
signed approximately 140 new clients during the second fiscal quarter of 2015, and the number of larger customers served by liansuo.com,
our premium advertising and marketing web portal continued to increase, and as compare with the same period last year, our client’s
average consumption amount for our internet advertising services also increased. We also launched Business Direct 3.0 service
in cooperation with Baidu Direct Reach. Business Direct 3.0 is a technically marked-up service based on the Baidu Direct Reach
mobile platform for traditional service enterprises, which is centered on mobile search, accounts, maps, personalized recommendations
and other ways for customers to direct the online attentions to offline stores and create revenue for customers. We believe the
launch of this service will help to increase our market penetration in the SME segment, thereby increasing our recurring revenues
in the future. |
| l | Revenues generated from technical services offered by Rise King WFOE were US$0.23 million and US$0.12
million for the six and three months ended June 30, 2015, compared to US$0.24 million and US$0.15 million for the same periods
in 2014, respectively. |
| l | Search engine marketing services were introduced to our clients in the second fiscal
quarter of 2014. Revenue generated from search engine marketing services for the six and three months ended June 30, 2015
was approximately
US$5.64 million and US$2.60 million, respectively. For the six and three months ended June 30, 2014, revenue
generated from search engine marketing services were both approximately US$3.12 million. This enhanced third-party search
engine marketing service is designed to help our clients select the most effective key words and to prioritize the ranking
of the anticipated
search engine results on selected key words in order to increase the sales lead conversion rate for our
clients’ business promotion on both mobile and PC searches. Management believes this service will be an effective
supplement to the internet advertising services provided to our clients, and will help increase the overall satisfaction on
our services, thereby increasing recurring revenues and number of clients from online advertising and marketing in the
future. |
| l | Our TV advertising revenue decreased to US$1.08 million and US$1.02 million for the six and
three months ended June 30, 2015, respectively, compared to US$2.99 million and US$1.81 million for the same periods in 2014,
respectively. The decrease in our TV advertising revenue for the six and three months ended June 30, 2015 was primarily
due to the adoption of a restriction notice to TV shopping infomercials broadcasted in provincial satellite television
station, issued by the SARFT in October 2013, which further restricts the content, air time and duration of these
infomercials, as a result, the demand of TV advertising service from our clients decreased accordingly. However, with
management’s continue efforts, we improved the financial performance of this segment during the three months ended June
30, 2015 by increasing the gross margin of the segment to 9%, compared to 7% for the same period last year and a negative
gross margin for the first fiscal quarter of 2015. We will continue to monitor our clients’ needs of the TV advertising
services, work with our clients to develop non-TV shopping infomercials programs and improve the profitability of this
business segment in future periods. |
| l | For the six months ended June 30, 2015 and 2014, we earned both approximately US$0.14 million of
revenue from the bank kiosk business segment. For the three months ended June 30, 2015 and 2014, we earned both approximately US$0.07
million of revenue from the bank kiosk business segment. The bank kiosk advertising business is not intended to expand at the moment
as management’s primary focus is expanding our internet business. It was not a significant contributor to revenue for the
six and three months ended June 30, 2015 or 2014. Management currently maintains this business without any expansion plans. Some of the technology used in this business unit will need to be fully integrated into the overall advertising and marketing platform. |
| l | For the six and three months ended June 30, 2015, we generated approximately US$0.17 million
and US$0.04 million service revenue from our brand management and sales channel building segment, respectively, compared to
US$0.60 million and US$0.25 million service revenue generated in the same periods of 2014, respectively. The decrease in
revenue from this business segment was primarily due to the hesitation of our client’s investment in offline marketing
expending due to the overall economic decline and uncertainty in China. Due to the slow recovery of economy and tightening of
our clients’ advertising budget, we do not expect prompt recovery in this business segment in 2015. In order to improve
the business performance in future periods, management is further enhancing the cross selling efforts of this business
segment with our online advertising business segment to launch O2O business solutions in connection with brand management and
developing solution. |
Cost of revenues
Our cost of revenue consisted
of costs directly related to the offering of our advertising services, technical services, marketing services and brand management
and sales channel building services. The following table sets forth our cost of revenues, divided into six segments, by amount
and gross profit ratio for the periods indicated, with inter-segment transactions eliminated:
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
Revenue | |
Cost | |
GP ratio | |
Revenue | |
Cost | |
GP ratio |
| |
| |
| |
| |
| |
| |
|
-Internet advertisement | |
$ | 8,215 | | |
$ | 5,662 | | |
| 31 | % | |
$ | 8,454 | | |
$ | 6,368 | | |
| 25 | % |
-Technical services | |
| 226 | | |
| - | | |
| 100 | % | |
| 237 | | |
| 1 | | |
| 100 | % |
-Search engine marketing service | |
| 5,643 | | |
| 5,479 | | |
| 3 | % | |
| 3,117 | | |
| 3,026 | | |
| 3 | % |
Internet advertisement and related services | |
$ | 14,084 | | |
$ | 11,141 | | |
| 21 | % | |
$ | 11,808 | | |
$ | 9,395 | | |
| 20 | % |
TV advertisement | |
| 1,081 | | |
| 1,041 | | |
| 4 | % | |
| 2,994 | | |
| 2,772 | | |
| 7 | % |
Bank kiosk | |
| 138 | | |
| 5 | | |
| 96 | % | |
| 138 | | |
| 5 | | |
| 96 | % |
Brand management and sales channel building | |
| 167 | | |
| 104 | | |
| 38 | % | |
| 604 | | |
| 315 | | |
| 48 | % |
Total | |
$ | 15,470 | | |
$ | 12,291 | | |
| 21 | % | |
$ | 15,544 | | |
$ | 12,487 | | |
| 20 | % |
| |
Three Months Ended June 30, |
| |
2015 | |
2014 |
| |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
Revenue | |
Cost | |
GP ratio | |
Revenue | |
Cost | |
GP ratio |
| |
| |
| |
| |
| |
| |
|
-Internet advertisement | |
$ | 5,768 | | |
$ | 3,864 | | |
| 33 | % | |
$ | 4,958 | | |
$ | 3,826 | | |
| 23 | % |
-Technical services | |
| 122 | | |
| - | | |
| 100 | % | |
| 153 | | |
| 1 | | |
| 99 | % |
-Search engine marketing service | |
| 2,596 | | |
| 2,522 | | |
| 3 | % | |
| 3,117 | | |
| 3,026 | | |
| 3 | % |
Internet advertisement and related services | |
$ | 8,486 | | |
$ | 6,386 | | |
| 25 | % | |
$ | 8,228 | | |
$ | 6,853 | | |
| 17 | % |
TV advertisement | |
| 1,023 | | |
| 932 | | |
| 9 | % | |
| 1,812 | | |
| 1,677 | | |
| 7 | % |
Bank kiosk | |
| 69 | | |
| 2 | | |
| 97 | % | |
| 67 | | |
| 5 | | |
| 93 | % |
Brand management and sales channel building | |
| 44 | | |
| 25 | | |
| 43 | % | |
| 254 | | |
| 130 | | |
| 49 | % |
Total | |
$ | 9,622 | | |
$ | 7,345 | | |
| 24 | % | |
$ | 10,361 | | |
$ | 8,665 | | |
| 16 | % |
Cost of revenues: Our total cost of
revenues decreased to US$12.29 million for the six months ended June 30, 2015 from US$12.49 million for the same period in 2014.
For the three months ended June 30, 2015, our total cost of revenues decreased to US$7.35 million from US$8.67 million for the
same period in 2014. Our cost of revenues related to advertising and marketing services we provided primarily consists of internet
resources purchased from key search engines and technical services providers related to lead generation, sponsored search, TV advertisement
time costs purchased from TV stations and direct labor cost associated with providing services.
| l | For internet advertisement, cost associated with obtaining internet resources was the largest component
of our cost of revenue, accounting for over 80% of our total internet advertisement cost of sales. We purchased these internet
resources from other well-known search engines and portal websites in China, such as: Baidu, Qihu 360 and Sohu (Sogou). The purchase
of these internet resources in large volumes allowed us to negotiate discounts with our suppliers. For the six months ended June
30, 2015 and 2014, our total cost of sales for internet advertising was US$5.66 million and US$6.37 million, respectively. For
the three months ended June 30, 2015 and 2014, our total cost of sales for internet advertising was US$3.86 million and US$3.83
million, respectively. For the six and three months ended June 30, 2015, the gross margin for our internet advertising revenue
was 31% and 33%, respectively, compared to 25% and 23% for the same periods of last year, respectively. This improvement was benefited
from our efforts and investments in brand marketing to promote our websites and services, and in return created additional traffic
to our advertising portals and enabled us to save certain of our internet resources cost. |
| l | Costs for search engine marketing services were direct internet resource costs consumed for search
engine marketing services provided to clients as described above. We normally charge our clients service fees for this service
as a certain percentage of the related direct cost consumed. Gross margin of this service for the six and three months ended
June 30, 2015 and 2014 was approximately 3%. |
| l | TV advertisement time cost is the largest component of cost of revenue for TV advertisement revenue.
We purchase TV advertisement time from provincial satellite TV stations in China and resell it to our TV advertisement clients.
Our TV advertisement time cost was approximately US$1.04 million and US$2.77 million for the six months ended June 30, 2015 and
2014, respectively. For the three months ended June 30, 2015 and 2014, our TV advertisement time cost was approximately US$0.93
million and US$1.68 million, respectively. The fluctuations of our total TV advertisement time cost were consistent with the fluctuations
of our TV advertising revenue for the six and three months ended June 30, 2015, compared to the same periods of 2014, respectively,
as discussed above. Gross margin of this business segment was 4% and 9% for the six and three months ended June 30, 2015, respectively,
compared to 7% and 7% for the six and three months ended June 30, 2014, respectively. |
| l | Cost recognized for brand management and sales channel building business segment primarily consisted
of director labor cost for providing these services to our clients and other related direct cost. |
Gross Profit
As a result of the foregoing,
our gross profit was US$3.18 million and US$3.06 million for the six months ended June 30, 2015 and 2014, respectively. For
the three months ended June 30, 2015 and 2014, our gross profit was US$2.28 million and US$1.70 million, respectively. Our overall
gross margin increased to 21% and 24% for the six and three months ended June 30, 2015, respectively, compared to 20% and 16% for
the same periods in 2014, respectively. The improvement of gross margin for the six and three months ended June 30, 2015 was a
direct result of the increase in gross margin of our internet advertising segment to 21% and 25% for the six and three months ended
June 30, 2015, respectively, compared to 20% and 17% for the same periods of last year, respectively.
Operating Expenses and
Net Loss
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.
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
Amount | |
% of total
revenue | |
Amount | |
% of total
revenue |
| |
| |
| |
| |
|
Total Revenue | |
$ | 15,470 | | |
| 100 | % | |
$ | 15,544 | | |
| 100 | % |
Gross Profit | |
| 3,179 | | |
| 21 | % | |
| 3,057 | | |
| 20 | % |
Sales and marketing expenses | |
| 2,250 | | |
| 15 | % | |
| 2,095 | | |
| 13 | % |
General and administrative expenses | |
| 3,307 | | |
| 21 | % | |
| 2,009 | | |
| 13 | % |
Research and development expenses | |
| 1,063 | | |
| 7 | % | |
| 892 | | |
| 6 | % |
Total operating expenses | |
$ | 6,620 | | |
| 43 | % | |
$ | 4,996 | | |
| 32 | % |
| |
Three Months Ended June 30, |
| |
2015 | |
2015 |
| |
(Amounts expressed in thousands of US dollars, except percentages) |
| |
Amount | |
% of total
revenue | |
Amount | |
% of total
revenue |
| |
| |
| |
| |
|
Total Revenue | |
$ | 9,622 | | |
| 100 | % | |
$ | 10,361 | | |
| 100 | % |
Gross Profit | |
| 2,277 | | |
| 24 | % | |
| 1,696 | | |
| 16 | % |
Sales and marketing expenses | |
| 1,047 | | |
| 11 | % | |
| 1,506 | | |
| 15 | % |
General and administrative expenses | |
| 2,005 | | |
| 21 | % | |
| 1,022 | | |
| 10 | % |
Research and development expenses | |
| 573 | | |
| 6 | % | |
| 442 | | |
| 4 | % |
Total operating expenses | |
$ | 3,625 | | |
| 38 | % | |
$ | 2,970 | | |
| 29 | % |
Operating Expenses: Our
operating expenses increased to US$6.62 million for the six months ended June 30, 2015 from US$5.00 million for the same period
of 2014. For the three months ended June 30, 2015, our operating expenses increased to US$3.63 million from US$2.97 million
for the same period of 2014.
| l | Sales and marketing expenses: Sales and marketing expenses increased to US$2.25 million for the
six months ended June 30, 2015 from US$2.10 million for the same period of 2014. For the three months ended June 30, 2015,
sales and marketing expense decreased to US$1.05 million, compared to US$1.51 million for the same period last year. 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, other advertising and promotional expenses, website server hosting
and broadband leasing expenses, staff salaries, staff benefits, performance bonuses, travelling expenses, communication expenses
and other general office expenses of our sales department. For the six months ended June 30, 2015, the change in our selling expenses
was primarily due to the following reasons: (1) the decrease in staff salary, bonus, employee related benefit expenses and other
general selling expenses, such as travelling expenses, business and entertainment expenses and communication expenses of approximately
US$0.26 million, due to decrease in number of sales staff as compared with the same period last year; (2) the increase in website
server hosting, broadband leasing and website performance analysis expense of approximately US$0.17 million; and (3) the increase
in brand marketing expenses of approximately US$0.25 million. For the three months ended June 30, 2015, the decrease in our sales
and marketing expenses were primarily due to the decrease in brand marketing expenses of approximately US$0.37 million as compared
to the same period last year. |
| l | General and administrative expenses: General and administrative expenses increased to US$3.31 million
for the six months ended June 30, 2015 from US$2.01 million for the same period of 2014. For the three months ended June 30,
2015, our general and administrative expenses increased to US$2.01 million from US$1.02 million for the same period last year.
Our general and administrative expenses primarily consist of salaries and benefits for management, accounting and administrative
personnel, office rentals, depreciation of office equipment, professional service fees, maintenance, utilities and other office
expenses. For the six months ended June 30, 2015, the change in our general and administrative expenses was primarily due to the
following reasons: (1) the increase in general administrative expenses, such as: professional service expenses, staff salary and
benefit expenses and office expenses of approximately US$0.36 million; and (2) the increase in share-based compensation expense
of approximately US$0.94 million, which was related to the restricted common stock awarded to the executive officers. For the three
months ended June 30, 2015, the reasons for the increase in our general and administrative expenses were similar to those discussed
for the six months ended June 30, 2014. |
| l | Research and development expenses: Research and development expenses were US$1.06 million and US$0.90
million for the six months ended June 30, 2015 and 2014, respectively. For the three months ended June 30, 2015 and 2014, research
and development expenses were US$0.57 million and US$0.44 million, respectively. Our research and development expenses primarily
consist of salaries and benefits for the research and development staff, equipment depreciation expenses, and office utilities
and supplies allocated to our research and development department. |
Loss
from operations: As a result of the foregoing, for the six months ended June 30, 2015 and 2014, our loss from operations
was approximately US$3.44 million and US$1.94 million, respectively. For the three months ended June 30, 2015 and 2014, our loss
from operations was approximately US$1.35 million and US$1.27 million, respectively.
Interest
income: For the six and three months ended June 30, 2015 and 2014, interest income we earned was primarily contributed
from the approximately US$3.5 million of term deposit we placed in one of the major financial institutions in the PRC.
Interest
expense: For the six and three months ended June 30, 2015 and 2014, interest expenses we paid were primarily related to
the approximately US$0.8 million of short-term bank loan we borrowed from a major financial institution in the PRC to supplement
our short-term working capital needs.
Loss
before income tax expense, equity method investments and noncontrolling interests: As a result of the foregoing, for the
six months ended June 30, 2015 and 2014, our loss before income tax expense, equity method investments and noncontrolling interests
was approximately US$3.38 million and US$1.91 million respectively. Our loss before income tax expense, equity method investments
and noncontrolling interests was approximately US$1.33 million and US$1.26 million for the three months ended June 30, 2015 and
2014, respectively.
Income
Tax benefit/(expense): We recognized a net income tax benefit of approximately US$0.32 million and US$0.10 million for
the six and three months ended June 30, 2015, respectively. For the six and three months ended June 30, 2015, current income tax
expense was both approximately US$0.004 million. For the six months ended June 30, 2015, our deferred income tax benefit was approximately
US$0.33 million, of which approximately US$0.08 million was in relation to the amortization expenses of the intangible assets identified
in the acquisition transactions consummated in previous years, and approximately US$0.25 million was in relation to the net operating
loss incurred by our PRC operating VIEs for the period, which we consider likely to be able to be utilized with respect to future
earnings of the entities to which the operating losses relate, after net of utilized amount of approximately US$0.004 million.
For the three months ended June 30, 2015, our deferred income tax benefit was approximately US$0.10 million, of which approximately
US$0.04 million was in relation to the amortization expenses of the intangible assets identified in the acquisition transactions
consummated in previous years, and approximately US$0.06 million was in relation to the net operating loss incurred by our PRC
operating VIEs for the period, which we consider likely to be able to be utilized with respect to future earnings of the entities
to which the operating losses relate, after net of utilized amount of approximately US$0.004 million.
We recognized
a net income tax expense of approximately US$0.12 million and US$0.07 million for the six and three months ended June 30, 2014,
respectively. For the six and three months ended June 30, 2014, current income tax expense was approximately US$0.38 million and
US$0.20 million, respectively. For the six months ended June 30, 2014, our net income tax expense also included an approximately
US$0.26 million deferred income tax benefit, of which approximately US$0.11 million was in relation to the amortization expenses
of the intangible assets identified in the acquisition transactions consummated in previous years and approximately US$0.15 million
was in relation to the net operating loss incurred by our PRC operating VIEs for the period, which we consider likely to be able
to be utilized with respect to future earnings of the entities to which the operating losses relate. For the three months ended
June 30, 2014, our net income tax benefit also included an approximately US$0.13 million deferred income tax benefit, of which
approximately US$0.06 million was in relation to the amortization expenses of the intangible assets identified in the acquisition
transactions consummated in previous years and approximately US$0.07 million was in relation to the net operating loss incurred
by our PRC operating VIEs, which we consider likely to be able to be utilized with respect to future earnings of the entities to
which the operating losses relate.
Loss
before equity method investments and noncontrolling interests: As a result of the foregoing, our loss before equity method
investments and noncontrolling interests was approximately US$3.06 million and US$2.03 million for the six months ended June 30,
2015 and 2014, respectively. Our loss before equity method investments and noncontrolling interests was approximately US$1.23 million
US$1.34 million for the three months ended June 30, 2015 and 2014, respectively.
Share
of income/(loss) in equity investment affiliates: For the six and three months ended June 30, 2015 and 2014, we beneficially
own 23.18% and 25.5% equity interest in Shenzhen Mingshan and Zhao Shang Ke Hubei, respectively. Accordingly, for the six and three
months ended June 30, 2015, we recognized our pro-rata shares of income in Shenzhen Mingshan of approximately US$0.002 million
and US$0.001 million, respectively. We did not recognize any of our pro-rata shares of income in Zhao Shang Ke Hubei, because the
amounts were immaterial. For the six and three months ended June 30, 2014, we recognized our pro-rata share of losses in these
two affiliates of approximately US$0.06 million US$0.04 million, respectively.
Net
loss: As a result of the foregoing, our net loss incurred for the six months ended June 30, 2015 and 2014 was approximately
US$3.06 million and US$2.09 million, respectively. Our net loss incurred for the three months ended June 30, 2015 and 2014 was
approximately US$1.23 million and US$1.38 million, respectively.
Net
loss attributable to noncontrolling interests: Beijing Chuang Fu Tian Xia was 51% owned by Business Opportunity Online
upon incorporation. For the six months ended June 30, 2015 and 2014, net loss allocated to the noncontrolling interest of Beijing
Chuang Fu Tian Xia was approximately US$0.06 million and US$0.09 million, respectively. For the three months ended June 30, 2015
and 2014, net loss allocated to the noncontrolling interests of Beijing Chuang Fu Tian Xia was approximately US$0.02 million and
US$0.05 million, respectively.
Net
loss attributable to ChinaNet Online Holdings, Inc.: Total net loss as adjusted by the 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 approximately US$3.0 million and US$2.0 million for the six months ended June 30, 2015 and
2014, respectively. Net loss attributable to ChinaNet Online Holdings, Inc. was approximately US$1.21 million and US$1.33 million
for the three months ended June 30, 2015 and 2014, 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 June 30, 2015, we had cash and cash equivalents of approximately
US$4.6 million. We also had approximately US$3.5 million of term deposit placed in one of the major financial institutions in China
which expired in July 2015 and was extended to July 2016.
Our liquidity needs include
(i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out and continued expansion
of our network and (b) our working capital needs, which include deposits and advance payments to TV advertising slots and internet
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 payment for acquisitions to further expand our business and client base, investment in software
technologies to enhance the functionality of the management tools provided by our advertising portals and our general network securities,
and investment in other general office equipment. To date, we have financed our liquidity need primarily through proceeds from
operating activities we generated. Our existing cash is adequate to fund operations for the next 12 months.
The following table provides
detailed information about our net cash flow for the periods indicated:
| |
Six Months Ended June 30, |
| |
2015 | |
2014 |
| |
Amounts in thousands of US dollars |
| |
| |
|
Net cash provided by/(used in) operating activities | |
| 850 | | |
| (944 | ) |
Net cash used in investing activities | |
| (2,164 | ) | |
| (471 | ) |
Net cash provided by financing activities | |
| 918 | | |
| 717 | |
Effect of foreign currency exchange rate changes on cash | |
| 4 | | |
| (21 | ) |
Net decrease in cash and cash equivalents | |
| (392 | ) | |
| (719 | ) |
Net cash provided by/(used
in) operating activities:
For the six months ended June
30, 2015, our net cash provided by operating activities of approximately US$0.85 million were primarily attributable to:
| (1) | net loss of US$3.05 million, adjusted by excluding an approximately
US$0.33 million net deferred income tax benefit, an US$1.84 million non-cash expenses of depreciation, amortization, and share-based
compensation and an US$0.08 million of reversal of bad debts provisions, yielded the non-cash items excluded net loss of approximately
US$1.62 million; |
| (2) | the receipt of cash from operations from changes in operating assets
and liabilities such as: |
| - | other receivable decreased by approximately US$1.86 million, primarily
due to the partial collection of the TV advertisement deposit and prepayment receivable related to a contract expired on December
31, 2014; |
| - | prepayment and deposit to suppliers decreased by approximately
US$1.24 million, primarily due to decrease in contractual deposit amount paid to internet resources providers in 2015 as compared
to that in 2014; |
| - | advance from customers increased by approximately US$1.49 million
and |
| - | accruals increased by approximately US$0.03 million. |
| (3) | offset by the use from operations from changes in operating assets
and liabilities such as: |
| - | accounts receivable and due from related parties for advertising
services provided increased by approximately US$1.68 million; |
| - | accounts payable decreased by approximately US$0.27 million, |
| - | taxes payable decreased by approximately US$0.11 million and |
| - | other current assets increased by approximately US$0.08 million. |
For the six months ended June
30, 2014, our net cash used in operating activities of approximately US$0.94 million were primarily attributable to:
| (1) | net loss of US$2.09 million, adjusted by excluding an approximately
US$0.26 million net deferred income tax benefit, a US$0.79 million non-cash expenses of depreciation, amortizations, share-based
compensation and our share of losses in equity investment affiliates and a reversal of approximately US$0.03 million allowance
for doubtful accounts, yielded the non-cash items excluded net loss of approximately US$1.59 million; |
| (2) | the receipt of cash from operations from changes in operating assets
and liabilities such as: |
| - | accounts receivable and due from related parties for the advertising
services provided decreased by approximately US$2.57 million; |
| - | other receivable decreased by approximately US$1.29 million, primarily
due to the partial collection of the marketing-related loan made for the production of the TV series “Xiao Zhan Feng Yun”
and receivables on disposal of subsidiaries; |
| - | other current liabilities increased by approximately US$0.30 million;
and |
| - | taxes payable increased by approximately US$0.17 million. |
| (3) | offset by the use from operations from changes in operating assets
and liabilities such as: |
| - | deposit and prepayment to suppliers increased by approximately
US$3.46 million for the purchasing of internet resources and TV advertising slots; |
| - | accruals decreased by approximately US$0.16 million, and |
| - | other current assets increased by approximately US$0.07 million. |
Net cash used in investing
activities:
For the six months ended June
30, 2015, our cash used in investing activities included the following transactions: (1) we spent approximately US$0.02 million
for the purchase of general office equipment; (2) we paid approximately US$1.96 million to settle the remaining balance related
to the purchasing of software technology, which transaction consummated in December 2014; and (3) we made investments of approximately
US$0.19 million in the aggregate to our cost/equity method investees during the period. In the aggregate, these transactions resulted
in a net cash outflow from investing activities of approximately US$2.16 million for the six months ended June 30, 2015.
For the six months ended June
30, 2014, our cash used in investing activities included the following transactions: (1) we spent approximately US$0.02 million
for purchase of general office equipment; (2) we prepaid approximately US$0.85 million for the development of software systems
related to internet environment monitoring and system optimization to enhance the overall safety and efficiency of our network
system; and (3) we collected approximately US$0.39 million of short-term loan that we lent to an unrelated entity in previous year.
In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$0.47 million
for the six months ended June 30, 2014.
Net cash provided by
financing activities:
For the six months ended June
30, 2015, our cash provided by investing activities included the following transactions: (1) we received approximately US$1.0 million
guarantee payment and prepayment from two of our new investors in relation to the security purchase agreements we entered into
with them in May 2015; and (2) we repaid approximately US$0.08 million to the noncontrolling interest of one of our VIEs in relation
to the working capital loan we borrow from the noncontrolling interest in previous year. In the aggregate, these transactions resulted
in a net cash inflow from financing activities of approximately US$0.92 million for the six months ended June 30, 2015.
For the six months ended June
30, 2014, we borrowed approximately US$0.72 million from the noncontrolling interest of one of our VIEs to supplement the short-term
working capital needs of this VIE.
Restricted Net Assets
As most of our operations are
conducted through our PRC subsidiary and VIEs, our ability to pay dividends is primarily dependent on receiving distributions of
funds from our PRC subsidiary and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiary
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 subsidiary 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 PRC VIEs are subject to
the above mandated restrictions on distributable profits.
As a result of these PRC laws
and regulations, our PRC subsidiary and VIEs are restricted in their ability to transfer a portion of their net assets to us. As
of June 30, 2015 and December 31, 2014, net assets restricted in the aggregate, which includes paid-in capital and statutory reserve
funds of our PRC subsidiary and VIEs that are included in our consolidated net assets, was both approximately US$7.3 million.
The current PRC Enterprise
Income Tax (“EIT”) Law also imposed 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% rate. Rise King WFOE is invested by its immediate holding company in Hong Kong and will be entitled to the 5% preferential
withholding tax rate upon distribution of the dividends to its immediate holding company.
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:
| 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 convertibility 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. 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 Chinese 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.
As of June 30, 2015 and December
31, 2014, there were approximately US$29.0 million and US$30.8 million retained earnings in the aggregate, respectively, which
were generated by our PRC subsidiary and VIEs in Renminbi included in our consolidated net assets, aside from US$2.8 million statutory
reserve funds as of June 30, 2015 and December 31, 2014, that may be affected by increased restrictions on currency exchanges in
the future and accordingly may further limit our PRC subsidiary’s or VIEs’ ability to make dividends or other payments
in U.S. dollars to us, in addition to the approximately US$7.3 million restricted net assets as of June 30, 2015 and December 31,
2014, as discussed above.
C. OFF-BALANCE SHEET ARRANGEMENTS
None.
Item 3. Quantitative
and Qualitative Disclosures About Market Risk
Not applicable to smaller reporting companies.
Item 4. Controls
and Procedures
Evaluation of Disclosure Controls and
Procedures
Under the supervision and with
the participation of our management, including our principal executive officer and principal accounting and financial officer,
we conducted an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the fiscal quarter ended
June 30, 2015, as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on this evaluation, our principal
executive officer and principal financial officer have concluded that during the period covered by this report, the Company’s
disclosure controls and procedures were effective as of such date to ensure that information required to be disclosed by us in
our Exchange Act reports is recorded, processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms, and that such information is accumulated and communicated to our management, including our principal executive
officer and principal financial officer or persons performing similar functions, as appropriate to allow timely decisions regarding
required disclosure.
Changes in Internal Control over Financial
Reporting
There was no change in our
internal control over financial reporting that occurred during the second fiscal quarter of 2015 covered by this Quarterly Report
on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Business
Opportunity Online has been named as a defendant in a civil lawsuit filed in the PRC. The action was filed by Haifeng Wang in
the Haidian District People’s Court, Beijing, PRC, on April 29, 2014. The complaint alleges that the plaintiff
did not attend any shareholders meeting with respect to the transfer of the plaintiff’s investment in Business
Opportunity Online to another party, and did not execute any written shareholders resolutions approving such transfer. The
complaint seeks a court order to declare the shareholders resolutions null and void. Business Opportunity Online denies all
of the allegations against it and intends to defend vigorously against the lawsuit. On June 5, 2015, Haifeng Wang filed an
application to withdraw the lawsuit in the Haidian District People’s Court of Beijing. The Haidian District
People’s Court of Beijing rendered a ruling to permit the withdrawal of this lawsuit on the same date.
Item 1A. Risk Factors
This information has been omitted
based on the Company’s status as a smaller reporting company.
Item 2. Unregistered Sales
of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon
Senior Securities
None.
Item 4. Mine Safety Disclosures
None.
Item 5. Other Information
None.
Item 6. Exhibits
The exhibits
listed on the Exhibit Index below are provided as part of this report.
Exhibit No. |
|
Document Description |
31.1 |
|
Certification of the Principal Executive Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
31.2 |
|
Certification of the Principal Accounting and Financial Officer pursuant to Rule 13A-14(A)/15D-14(A) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
|
|
|
32.1 |
|
Certification of the Principal Executive Officer and of the Principal Accounting and Financial Officer pursuant to 18 U.S.C. 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
|
|
|
101 |
|
Interactive Data Files |
SIGNATURES
Pursuant to the requirements of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
CHINANET ONLINE HOLDINGS, INC. |
|
|
|
|
|
|
Date: August 14, 2015 |
By: |
/s/ Handong Cheng |
|
|
Name: Handong Cheng |
|
|
Title: Chief Executive Officer
(Principal Executive Officer) |
|
|
|
|
By: |
/s/ Zhige Zhang |
|
|
Name: Zhige Zhang |
|
|
Title: Chief Financial Officer
(Principal Accounting and Financial Officer) |
43
Exhibit 31.1
CERTIFICATION
I, Handong Cheng, certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ChinaNet Online Holdings,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
August 14, 2015
/s/ Handong Cheng_______________________
Handong Cheng
Chief Executive Officer
(Principal Executive Officer)
Exhibit 31.2
CERTIFICATION
I, Zhige Zhang certify that:
1. I have reviewed this Quarterly Report on Form 10-Q of ChinaNet Online Holdings,
Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information
included in this report, fairly present in all material respects the financial condition, results of operations and cash flows
of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e))
and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure
controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including
its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this
report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal
control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability
of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted
accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and
procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of
the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant’s internal control
over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the
registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee
of the registrant’s board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation
of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to
record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees
who have a significant role in the registrant’s internal control over financial reporting.
August 14, 2015
/s/ Zhige Zhang____________________
Zhige Zhang
Chief Financial Officer
(Principal Accounting and Financial Officer)
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
Each of the undersigned hereby certifies, in his capacity as an officer of ChinaNet
Online Holdings, Inc. (the “Company”), for the purposes of 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of his knowledge:
(1) The Quarterly Report of the Company on Form 10-Q for the quarter ended June
30, 2015 fully complies with the requirements of Section 13a-14(b) or 15d-14(b) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects,
the financial condition and results of operations of the Company.
August 14, 2015
/s/ Handong Cheng___________________
Handong Cheng
Chief Executive Officer
(Principal Executive Officer)
/s/ Zhige Zhang____________
Zhige Zhang
Chief Financial Officer
(Principal Accounting and Financial Officer)
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