SOURCE: ChinaNet

ChinaNet

August 17, 2009 08:00 ET

ChinaNet Online Holdings, Inc. Reports Record Results for Second Quarter 2009

BEIJING--(Marketwire - August 17, 2009) - ChinaNet Online Holdings, Inc. ("ChinaNet") (OTCBB: CHNT), a leading full-service media development, advertising and communications company for small and medium companies (SMEs) in the People's Republic of China ("China"), today announced higher revenues, net income and cash flow for the second quarter 2009.

Second quarter and year-to-date 2009 highlights (all comparisons are year-over-year):

--  Revenues increased 79 percent to $9.4 million in the second quarter
    2009
--  Net income increased 76.4 percent to $1.3 million
--  Second quarter 2009 diluted earnings per share increased 80 percent to
    $0.09
--  Six-month 2009 revenues increased 186.1 percent to $19.2 million
--  Net income increased 453 percent to $2.6 million for the six months
    ended June 30, 2009
--  Six-month 2009 diluted earnings per share increased 533 percent to
    $0.19
--  Gross margins improved 970 basis points to 40.2 percent for the second
    quarter 2009
--  YTD cash flow from operations increased 428.5 percent to $2.7 million
    

SUMMARY FINANCIALS

Second Quarter 2009 Results
                                    Q2 2009       Q2 2008        CHANGE
                                  ------------- ------------- ------------
Net Sales                         $ 9.4 million $ 5.2 million        +79.0%
                                  ------------- ------------- ------------
Gross Profit                      $ 3.8 million $ 1.6 million       +135.9%
                                  ------------- ------------- ------------
Net Income                        $ 1.3 million $ 0.7 million        +73.1%
                                  ------------- ------------- ------------
EPS (Fully Diluted)               $        0.09 $        0.05        +80.0%
                                  ------------- ------------- ------------



Six Month 2009 Results
                                  1H 2009        1H 2008         CHANGE
                               -------------- -------------- -------------
Net Sales                      $ 19.2 million $  6.7 million        +186.1%
                               -------------- -------------- -------------
Gross Profit                   $  7.3 million $  1.7 million        +325.0%
                               -------------- -------------- -------------
Net Income                     $  2.6 million $  0.5 million        +453.3%
                               -------------- -------------- -------------
EPS (Fully Diluted)            $         0.19 $         0.03        +533.3%
                               -------------- -------------- -------------

Second Quarter 2009 Financial Results

Revenues for the second quarter of 2009 increased 79 percent to approximately $9.4 million compared to $5.2 million for the second quarter of 2008. The increase resulted from significant increases in Internet advertising and TV advertising. For the second quarter of 2009 Internet advertising comprised approximately 44.6 percent of total revenues, an increase of 45.7 percent year-over-year to $4.2 million. Growth was the result our successful brand building efforts for the www.28.com website which offers customers a comprehensive suite of client service technologies, assisted by the efforts of a more experienced sales team. During the second quarter of 2009 revenues generated by TV advertising increased 177.1 percent year-over-year to approximately $4.7 million or 50.6 percent of total revenues. As of June 30, 2009, the number of active customers for the Company's Internet advertising business was 650 and the number of customers being serviced by its TV advertising business was 275. Approximately 75 customers were being serviced by both platforms.

Cost of sales for the three months ended June 30, 2009 was approximately $5.6 million or 59.8 percent of revenues as compared to $3.6 million or 69.5 percent of revenues for the three months ended June 30, 2008. The costs associated with the Company's advertising services include costs for purchasing resources from other well-known portal websites in China for Internet advertising and purchasing TV advertisement time from about ten different provincial TV stations. Overall, the 55.5 percent increase in cost of sales was less than the corresponding rise in revenues for the second quarter of 2009.

For the second quarter of 2009 the gross profit was $3.8 million, representing gross margins of 40.2 percent, compared to the second quarter of 2008 with $1.6 million in gross profit and a gross margin of 30.5 percent. Gross profit grew by 135.9 percent on a year-over-year basis. The increase in gross profit was a result of increased revenues and leverage in the business model.

Operating expenses for the three months ended June 30, 2009 were approximately $1.9 million, up 195.6 percent from $0.6 million in the same period of 2008. Selling expenses for the period increased to approximately $1.2 million from $0.4 million in the second quarter of 2008 primarily as a result of brand development expenses for www.28.com, increased payrolls for staff incentives and an expanded sales force, and increased marketing expenses. General and administrative expenses were $0.6 million and $0.2 million in the second quarter 2009 and 2008, respectively, with the increase primarily due to non-recurring expenses associated with the US public company listing and non-cash equity compensation for services.

Operating income for the second quarter of 2009 totaled approximately $1.9 million, a 95.8 percent increase from the $1.0 million reported for the second quarter of 2008. Operating margins were 20.0 percent and 18.2 percent for the second quarter of 2009 and 2008, respectively.

For the second quarter of 2009, net income was approximately $1.3 million, a 73.1 percent increase, compared to approximately $0.7 million for the second quarter of 2008. Diluted earnings per share were $0.09 compared to $0.05 for the second quarter of 2009 and 2008, respectively, based on 13.9 million and 13.8 million shares, respectively. The Company had an effective tax rate of 30.4 percent and 21.4 percent for the second quarters of 2009 and 2008, respectively.

"We are very pleased to report strong revenue and net income growth in the second quarter and year-to-date. While operating margins were modestly impacted by non-recurring and non-cash expenses we were able to show the inherent operating leverage in our business model and are enthusiastic about the recent reverse merger with Emazing Interactive, Inc., a US public company," commented Mr. Handong Cheng, Chairman and CEO of the Company. "We continue to see strong growth in both our Internet and TV advertising business, which was driven by both existing and new customers. With the Chinese government's strong support for developing small and medium companies, we believe ChinaNet's advertising platform is well positioned to capitalize on this large growth opportunity with enhanced profitability."

Six Month Results

For the six months ended June 30, 2009, revenues increased approximately 186.1 percent to $19.2 million compared to the same period in 2008. Gross profit was $7.3 million for the first six months of 2009, representing an increase of 324.0 percent from the first six months of 2008. Gross margins were 38.0 percent for the first six months of 2009 compared to 25.6 percent for the same year ago period.

Income from operations was $3.5 million for the first six months of 2009, representing an increase of 395 percent over the first six months of 2008. Operating margins were 18.4 percent for the first six months of 2009 compared to 10.6 percent for the first six months of 2008. The Company incurred cash expenses, in addition to non-cash equity compensation expenses, related to going public. Net income was $2.6 million for the six months ended June 30, 2009, an increase of approximately 453 percent from $0.5 million in the same period in 2008. Fully diluted earnings per share were $0.19 compared to $0.03 for the first six months of 2009 and 2008 respectively, based on 13.8 million and 13.8 million shares, respectively.

"The management team has also been focused on the roll-out of our bank kiosk advertising platform through an exclusive arrangement with the China Construction Bank," Mr. Chen continued. "To date, we have deployed 200 kiosks which provide online access for customers while displaying advertising for both PRC and global based companies alike. Our first large customer is Hengan Standard Life, an insurance company, and we are actively in discussions with several of the largest insurers in China, as well as Toyota, Nissan, and the big three Chinese telecommunications providers. We are pursuing a roll-out of more than 3,000 kiosks in banks located throughout Guandong, Hu Bei, Shanghi and Si Chuan provinces. We estimate a payback of less than one year for all equipment deployed with higher margins and recurring advertising revenue."

Balance Sheet and Cash Flow

The Company had a current ratio of 2.3 to 1 and $3.5 million in cash and equivalents on June 30, 2009. Accounts receivables were $2.1 million on June 30, 2009, compared to $1.0 million on December 31, 2008. The Company's receivables were owed by approximately 230 customers. Since the end of the quarter we have collected at least half of this balance. For the first six months of 2009, the Company generated $2.7 million in cash from operations versus $0.5 million for the same period in 2008, with the variance principally coming from the increase in net income and prudent asset management.

About ChinaNet Online Holdings, Inc.

The Company, a parent company of ChinaNet Online Media Group Ltd., ("China Net" or "Zhong Wang Zai Xian"), is a leading full-service media development, advertising and communications company for small and medium companies (SME) in China. The Company provides Internet advertising and other services for Chinese SMEs via its portal website 28.com, TV commercials and program production via the China-Net TV, and in-house LCD advertising on banking kiosks targeting Chinese banking patrons.

Safe Harbor

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

                CHINANET ONLINE HOLDINGS, INC. (UNAUDITED)
       CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXPECT PER SHARE)



                                                    June 30,   December 31,
                                                      2009         2008
                                                  ------------ ------------
                                                    (US $)       (US $)
Assets                                            (Unaudited)   (Audited)
Current assets:
  Cash and cash equivalents                       $      3,502 $      2,679
  Accounts receivable                                    2,124          978
  Other receivables                                        324            -
  Prepayment and deposit to suppliers                    3,347        4,072
  Due from related parties                                 129          109
  Due from directors                                        81            -
  Due from Control Group                                   248          243
  Inventories                                                2            1
  Other current assets                                      22           46
                                                  ------------ ------------
    Total current assets                                 9,779        8,128

Property and equipment, net                                658          678
Other long-term assets                                      44            7
                                                  ------------ ------------
                                                  $     10,481 $      8,813
                                                  ============ ============

Liabilities and Stockholders' Equity
Current liabilities:
  Accounts payable                                $        160 $         37
  Advances from customers                                  580          608
  Other payables                                           166        1,333
  Accrued Payroll and other accruals                       189           66
  Due to related parties                                    72          346
  Due to Control Group                                   1,187        1,149
  Due to director                                            -           10
  Taxes payable                                          2,169        1,746
                                                  ------------ ------------
    Total current liabilities                     $      4,523 $      5,295

Long-term borrowing from director                          128          128

Stockholders' equity:

  Common stock ($0.001 par value; authorized-
   50,000,000 shares; issued and outstanding-
   15,774,300 shares and 13,790,800 shares at
   June 30, 2009 and December 31, 2008
   respectively)                                            16           14
  Additional paid-in capital                               447          599
  Appropriated retained earnings                           304          304
  Unappropriated retained earnings                       4,954        2,370
  Accumulated other comprehensive income                   109          103
                                                  ------------ ------------
    Total stockholders' equity                    $      5,830 $      3,390

                                                  ------------ ------------
                                                  $     10,481 $      8,813
                                                  ============ ============




                      CHINANET ONLINE HOLDINGS, INC.
 UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
                    (THOUSANDS EXPECT PER SHARE DATA)



                           For the six months       For the three months
                             ended June 30,            ended June 30,
                        ------------------------- -------------------------
                            2009         2008          2009        2008
                        ------------ -----------  ------------ -----------
                            (US $)      (US $)        (US $)      (US $)
                         (Unaudited) (Unaudited)   (Unaudited) (Unaudited)

Sales                   $     19,178 $     6,703  $      9,381 $     5,241
Cost of sales                 11,889       4,988         5,611       3,643
                        ------------ -----------  ------------ -----------
Gross margin                   7,289       1,715         3,770       1,598

Operating expenses
  Selling expenses             2,629         582         1,166         388
  General and
   administrative
   expenses                      916         356           568         220
  Research and
   development expenses          214          64           164          34
                        ------------ -----------  ------------ -----------
                               3,759       1,002         1,898         642
                        ------------ -----------  ------------ -----------

  Income from
   operations                  3,530         713         1,872         956

Other income
 (expenses):
  Interest income                  5           2             2           1
  Other income                     6           -             2           -
  Other expenses                   -         (15)            -         (15)
                        ------------ -----------  ------------ -----------
                                  11         (13)            4         (14)
                        ------------ -----------  ------------ -----------

Income before income
 tax expense                   3,541         700         1,876         942
  Income tax expense             957         233           571         202
                        ------------ -----------  ------------ -----------

Net income                     2,584         467         1,305         740

Other comprehensive
 income
  Foreign currency
   translation gain                6          40             -          14
                        ------------ -----------  ------------ -----------
Comprehensive income           2,590         507         1,305         754
                        ============ ===========  ============ ===========
Earnings (loss) per
 share
Earnings per common
 stock
  Basic and diluted     $       0.19 $      0.03  $       0.09 $      0.05
                        ============ ===========  ============ ===========

Weighted average number
 of common shares
 outstanding:
  Basic and diluted
   shares                 13,845,593  13,790,800    13,899,784  13,790,800
                        ============ ===========  ============ ===========



                      CHINANET ONLINE HOLDINGS, INC.
      UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)



                                                 For the six months ended
                                                         June 30,
                                                     2009          2008
                                                 -----------   -----------
                                                   (US $)        (US $)
                                                 (Unaudited)   (Unaudited)

Cash flows from operating activities
Net income                                       $     2,584   $       467
Adjustments to reconcile net income (loss) to
 net cash provided by (used in) operating
 activities
  Depreciation and Amortization                           85            22
  Share-based compensation expenses                      150             -
Changes in operating assets and liabilities
  Accounts receivable                                 (1,145)       (1,122)
  Other receivables                                      (89)          197
  Prepayment and deposit to suppliers                    731          (172)
  Due from related parties                               (22)         (161)
  Due from/due to Control Group                           32           372
  Other current assets                                    22           (87)
  Accounts payable                                       123           146
  Advances from customers                                (29)          386
  Accrued payroll and other accruals                     123            10
  Due to related parties                                (274)          325
  Taxes payable                                          420           130
                                                 -----------   -----------
Net cash provided by operating activities              2,711           513
                                                 -----------   -----------

Cash flows from investing activities
  Purchases of vehicles and office equipment             (64)          (26)
  Purchases of Intangible and other long-term
   assets                                                (37)            -
                                                 -----------   -----------
Net cash used in investing activities                   (101)          (26)
                                                 -----------   -----------

Cash flows from financing activities
  Increase of long-term borrowing from director            -           124
  Increase of short-term loan to third parties          (235)            -
  Increase/(decrease) in due to director                 (90)          269
  Increase/(decrease) in other payables               (1,169)          964
  Cancellation and retirement of common stock           (300)            -
                                                 -----------   -----------
Net cash provided by (used in) financing
 activities                                           (1,794)        1,357
                                                 -----------   -----------

Effect of exchange rate fluctuation on cash and
 cash equivalents                                          7            73

                                                 -----------   -----------
Net increase in cash and cash equivalents                823         1,917

  Cash and cash equivalents at beginning of year       2,679           317
                                                 -----------   -----------
  Cash and cash equivalents at end of year       $     3,502   $     2,234
                                                 ===========   ===========

Supplemental disclosure of cash flow information

  Interest paid                                  $         -   $         -
                                                 ===========   ===========
  Income taxes paid                              $       831   $        68
                                                 ===========   ===========


Contact Information

  • For further information, contact:
    Mark Elenowitz
    TriPoint Capital Advisors
    US +1-917-512-0822

    Ted Haberfield
    HC International, Inc.
    US +1-760-755-2716
    Email Contact
    www.hcinternational.net