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ChinaNet Online Holdings Reports Third Quarter and First Nine Months 2019 Unaudited Financial Results

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BEIJING, Nov. 15, 2019 (GLOBE NEWSWIRE) -- ChinaNet Online Holdings, Inc. (NASDAQ:CNET) ("ChinaNet" or the "Company"), a pioneering data-analysis platform in China harnessing blockchain as well as digital advertising and marketing technologies to serve SMEs and the franchise chain industry, today announced its unaudited financial results for the third quarter and first nine months of 2019.

Recent Developments
On September 25, 2019, the Company closed the first half of a private placement with a select group of investors (the "Investors") in accordance with the Securities Purchase Agreement, originally entered into by the Company and Investors on August 7, 2019. In connection with the closing, the Company issued 1,608,430 shares of common stock (the "Shares") in consideration for approximately $2.4 million, representing half of the total $4.8 million worth of Shares to be disbursed under the aforementioned Securities Purchase Agreement. The Company sold each Share to Investors at $1.4927 per Share and conducted the private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S promulgated thereunder.

On October 14, 2019, the Company announced the appointment of Centurion ZD CPA & Co. ("CZD") on October 7, 2019, as the Company's independent registered public accounting firm for the fiscal year ending December 31, 2019. CZD replaced the Company's previous independent registered public accounting firm Marcum Bernstein & Pinchuk LLP ("MarcumBP"), which the Company dismissed on October 7, 2019. The change of the Company's independent registered public accounting firm was approved by the Audit Committee of ChinaNet's Board of Directors.

On October 28, 2019, the Company closed the second half of a private placement with a select group of investors (the "Investors") in accordance with the Securities Purchase Agreement, originally entered into by the Company and Investors on August 7, 2019. In connection with the closing, the Company issued 1,608,430 shares of common stock (the "Shares") in consideration for approximately $2.4 million, representing half of the total $4.8 million worth of Shares to be disbursed under the aforementioned Securities Purchase Agreement. Pursuant to the Securities Purchase Agreement, the Company totally issued 3,216,860 shares of its common stock in consideration for approximately $4.8 million. The Company sold each Share to Investors at $1.4927 per Share and conducted the private placement pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Regulation S promulgated thereunder.

"Despite the challenging macro headwinds and evolving industry landscape, we continued to stay the course and maintain alignment with our long-term growth strategies," commented Mr. Handong Cheng, Chairman, President, and Chief Executive Officer of ChinaNet. "During the quarter, we actively adjusted our search engine marketing business by refining our customer payment requirements, bolstering our management process for accounts receivables, and actively engaging with our key partners in dialogues, we made significant headway towards improving our access to search engine resources. We also stepped up investments to enhance the effectiveness of our sales lead generation capabilities. Notably, these investments enabled us to improve both the accuracy of ads on the Company's ad portals and boost customer satisfaction. Going forward, we will continue to prudently manage and refine our search engine marketing services business and advertising business, both of which we believe will continue to serve as meaningful growth drivers going forward.

In addition, the successful execution of the private placement from strategic investors has provided ChinaNet with the necessary components to execute its growth strategies and fully capitalize on the coming opportunities for expansion. The combination of our strategic investors' commercial and technological resources will further enable us to penetrate both domestic and international markets while cultivating synergies across business lines. In addition, this capital injection will also shore up our position against the current macro challenges and bolster our investment capabilities in turn, further enabling us to develop new revenue streams through prudent investment. Looking ahead, we are confident that our ability to integrate our industry leadership with strategic partner resources will supercharge our ability to capture the emerging growth opportunities in both domestic and international markets."

Third Quarter 2019 Financial Results

TOTAL REVENUES
Total revenues for the third quarter of 2019 were $15.5 million compared to $17.0 million in the corresponding period of 2018. This decrease was primarily caused by reduced revenues generated from the distribution of search engine marketing services for key search engines in the third quarter of 2019.

Revenues generated from the distribution of rights to use search engine marketing services provided by key search engines decreased to $11.6 million in the third quarter of 2019 from $14.5 million in the corresponding period of 2018. Since the second quarter of 2019, the Company's key suppliers have tightened their credit policies, thus increasing the amount of working capital required to maintain the same volume of search engine resources as in the corresponding period of 2018. However, in response to this credit policy change, the Company has started to require its customers to pay more in advance, strengthened its management process for account receivables, and actively engaged in negotiations with its key suppliers for more favorable credit policies to improve the situation.

Internet advertising revenues for the third quarter of 2019 increased by 57.5% to $3.9 million from $2.5 million in the corresponding period of 2018. Such growth was attributable to additional investments made towards increasing the effectiveness of the Company's sales lead generation capabilities. Notably, such investments helped to both improve the effectiveness of ads on the Company's ad portals while also increasing customer satisfaction in turn.

COST OF REVENUES AND GROSS PROFIT
Cost of revenues decreased to $14.6 million in the third quarter of 2019 from $16.6 million in the corresponding period of 2018. This decrease was primarily due to the decrease in costs associated with the distribution of search engine marketing services from key search engines, which was in line with the decrease in the related revenues during the quarter.

Gross profit in the third quarter of 2019 was $0.89 million, compared to $0.39 million in the corresponding period of 2018. Gross margin improved to 5.8% in the third quarter of 2019 from 2.3% in the corresponding period of 2018.

OPERATING LOSS
Operating expenses decreased to $1.2 million in the third quarter of 2019 from $3.7 million in the corresponding period of 2018. As a percentage of total revenues, operating expenses reduced to 7.5% in the third quarter of 2019 from 22.0% in the corresponding period of 2018.

Sales and marketing expenses in the third quarter of 2019 decreased to $0.11 million from $0.24 million in the corresponding period of 2018. This decrease was primarily attributable to the Company's successful execution of cost control initiatives and the subsequent decrease in staff salary and benefit expenses as well as other general departmental expenses.

General and administrative expenses in the third quarter of 2019 decreased to $0.82 million from $1.74 million in the corresponding period of 2018. The reduction in general and administrative expenses was primarily due to decrease in allowance for doubtful accounts provided and the Company's optimization of its cost structures as well as decreases to professional service expenses, salary and benefit expenses, and other general office expenses.

Research and development expenses in the third quarter of 2019 decreased to $0.24 million from $0.26 million in the corresponding period of 2018.

In the third quarter of 2018, the Company incurred a $1.5 million impairment loss in intangible assets. No such impairment loss was recognized by the Company in the third fiscal quarter of 2019.

As a result, operating loss in the third quarter of 2019 narrowed significantly to $0.28 million from $3.4 million in the corresponding period of 2018.

NET LOSS
Net loss attributable to ChinaNet Online Holdings, Inc. was $0.39 million in the third quarter of 2019, compared to $3.0 million in the corresponding period of 2018.

BALANCE SHEET
As of September 30, 2019, the Company had cash and cash equivalents of $0.81 million, compared to $3.7 million as of December 31, 2018. Advances from customers grew to $5.1 million as of September 30, 2019, increasing significantly from $1.1 million as of December 31, 2018.

First Nine Months 2019 Financial Results
For the first nine months of 2019, total revenues were $39.5 million, compared to $47.8 million in the same period of 2018. Internet advertising revenues for the first half of 2019 increased by 27.8% to $9.4 million from $7.3 million in the corresponding period of 2018. The growth of revenues generated through internet advertising services was attributable to the same reasons that led to a quarterly increase.

Gross profit for the first nine months of 2019 was $1.7 million, compared to $2.0 million in the same period of 2018. Gross margin for the first nine months of 2019 improved to 4.3% from 4.1% in the same period of 2018.

Operating expenses for the first nine months of 2019 decreased to $3.9 million from $15.1 million in the same period of 2018. As a percentage of total revenues, operating expenses for the first nine months of 2019 reduced significantly to 10.0% from 31.5% in the same period of 2018.

Sales and marketing expenses for the first nine months of 2019 decreased to $0.46 million from $1.1 million in the same period of 2018. General and administrative expenses for the first nine months of 2019 decreased to $2.9 million from $4.6 million in the same period of 2018. Research and development expenses for the first nine months of 2019 decreased to $0.60 million from $0.72 million in the same period of 2018.

Net loss attributable to ChinaNet Online Holdings, Inc. for the first nine months of 2019 narrowed to $1.9 million from $12.9 million in the same period of 2018 as a result of significantly reduced operating expenses.

About ChinaNet Online Holdings, Inc.
ChinaNet Online Holdings, Inc., a parent company of ChinaNet Online Media Group Ltd., incorporated in the BVI (ChinaNet), is an integrated online advertising, precision marketing and data-analysis and management services platform. ChinaNet provides prescriptive analysis for its clients to improve business outcomes and to create more efficient enterprises. The Company leverages an optimization framework, provided by its comprehensive data-analysis infrastructure, to blend data, mathematical, and computational sciences into an outcome management platform for which it monetizes on a per client basis. ChinaNet uniquely optimizes and prescribes its clients decision making processes based on its proprietary ecosystem. For more information, visit www.chinanet-online.com.

Safe Harbor Statement
This release contains certain "forward-looking statements" relating to the business of ChinaNet Online Holdings, Inc., which can be identified by the use of forward-looking terminology such as "believes," "expects," "anticipates," "estimates" or similar expressions. Such forward-looking statements involve known and unknown risks and uncertainties, including business uncertainties relating to government regulation of our industry, market demand, reliance on key personnel, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. These forward-looking statements are based on ChinaNet's current expectations and beliefs concerning future developments and their potential effects on the Company. There can be no assurance that future developments affecting ChinaNet will be those anticipated by ChinaNet. These forward-looking statements involve a number of risks, uncertainties (some of which are beyond the control of the Company) or other assumptions that may cause actual results or performance to be materially different from those expressed or implied by such forward-looking statements. ChinaNet undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as may be required under applicable securities laws.

Investor Relations Contact
ICR, Inc.
Jack Wang
Tel: +1-646-308-1635
Email: CNET@icrinc.com

 
CHINANET ONLINE HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(In thousands, except for number of shares and per share data)
 
    Nine Months Ended September 30,   Three Months Ended September 30,
      2019       2018       2019       2018  
    (US $)   (US $)   (US $)   (US $)
    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
Revenues                
From unrelated parties   $ 39,025     $ 47,822     $ 15,113     $ 17,042  
From a related party     503       -       395       -  
Total revenues     39,528       47,822       15,508       17,042  
Cost of revenues     37,828       45,860       14,616       16,649  
Gross profit     1,700       1,962       892       393  
               
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