UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
______________

FORM 8-K
CURRENT REPORT

PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
 
Date of Report (Date of earliest event reported):  April 17, 2013
 
CHINANET ONLINE HOLDINGS, INC.
(Exact Name of Registrant as Specified in Charter)
  
Nevada	 
001-34647	 
20-4672080	
(State or Other Jurisdiction of Incorporation)	(Commission File Number)	(IRS 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 and Zip Code)	

+86-10-51600828
(Registrant’s telephone number, including area code)
N/A
 (Former Name or Former Address, if Changed Since Last Report)
 
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
 
       [  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
 
       [  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
 
       [  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
 
       [  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

 

 
Item 2.02. Results of Operations and Financial Condition.

On April 17, 2013, ChinaNet Online Holdings, Inc., a Nevada corporation (the “Company”), issued a press release containing certain financial results for its fourth fiscal quarter and fiscal year of 2012.  A copy of the press release is attached to this Current Report on Form 8-K as Exhibit 99.1.

As provided in General Instruction B.2 of SEC Form 8-K, such information shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, and it shall not be deemed incorporated by reference in any filing under the Securities Act of 1933, as amended, or under the Exchange Act, whether made before or after the date hereof, except as expressly set forth by specific reference in such filing to this Current Report on Form 8-K.
 
Item 8.01. Other Events.
 
Attached as Exhibit 99.2 is a slideshow presentation containing information about the Company’s business and certain other financial information that will be made available to investors participating in the Company’s conference call being held on April 17, 2013.
 
Item 9.01. Financial Statements and Exhibits.
 
(d)           Exhibits:
 
No.	Description	
99.1	Press Release dated April 17, 2013	
99.2	Corporate Presentation	

 

 
SIGNATURE
 
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 hereunto duly authorized.
 
Dated:  April 17, 2013	CHINANET ONLINE HOLDINGS, INC.	

 	By:	 /s/ Handong Cheng	

 	Name: Handong Cheng	
 	Title:   Chief Executive Officer	

 

 
Exhibit Index

No.	Description	
99.1	Press Release dated April 17, 2013	
99.2	Corporate Presentation	

Exhibit 99.1
 
ChinaNet Online Holdings Reports Fourth Quarter and Full Year 2012 Financial Results
 
Management to host conference call on Wednesday, April 17th at 8:30 a.m. ET
 
BEIJING, April 17, 2013 -- ChinaNet Online Holdings, Inc. ("ChinaNet" or the “Company”), (Nasdaq: CNET), a leading B2B (business to business) Internet technology company providing online-to-offline ("O2O") sales channel expansion services for small and medium-sized enterprises (SMEs) and entrepreneurial management and networking services for entrepreneurs in the People's Republic of China, today announced financial results for the fourth quarter and full year 2012.
 
Summary Financials
 
Fourth Quarter 2012 Results (USD) (Unaudited)	
 	
 	Q4 2012	Q4 2011	CHANGE	
Sales	$8.3 million	$6.2 million	+34%	
Gross Profit	$4.8 million	$3.0 million	+60%	
Gross Margin	57.7%	49.0%	+18%	
Net Income Attributable to Common Stockholders	$1.2 million	-$3.9 million	N/A	
Adjusted Net Income Attributable to Common Stockholders	$1.4 million(1)	-$1.8 million(2)	N/A	
EPS (Diluted)	$0.06	-$0.19	N/A	
Adjusted EPS (Diluted)	$0.06(1)	-$0.08(2)	N/A	
(1) Non-GAAP adjusted net income attributable to common stockholders and EPS excludes $0.2 million non-cash charge of the changes in fair value of the contingent consideration receivables related to make good provisions upon acquisition of VIEs for the three months ended December 31, 2012.

(2) Non-GAAP adjusted net income attributable to common stockholders and EPS excludes: (1) $0.7 million non-cash gain on deconsolidation of a subsidiary and $0.2 million of the related deferred income tax expenses; (2) $0.1 million of non-cash charge of the changes in fair value of the contingent consideration receivables related to make good provisions upon acquisition of VIEs; and (3) $2.6 million of non-cash stock compensation expenses recognized for restricted stock and options issued to management, directors and employees for the three month ended December 31, 2011.
 
Fourth Quarter 2012 Financial Results
 
Revenues increased by $2.1 million to $8.3 million for the three months ended December 31, 2012 compared to the three months ended December 31, 2011, representing a 34% increase.
 
Mr. Handong Cheng, Chairman and CEO of the Company stated, "Our strong financial results for the second half of 2012 reflects successful execution of our long term strategy. We continued investing in new services such as brand management and sales channel building during the 2011 and 2012 economic

 

 
downturn. Those investments have started to not only expand our client base but also gradually contribute to our overall revenue and profit growth."
 
Fourth Quarter 2012 Revenue Breakdown by Business Unit (USD in thousands)
 
 	Q4 2012	%	Q4 2011	%	% Change	
Internet Advertisement	$6,013	73%	$3,547	57%	+70%	
TV Advertisement	$703	8%	$1,692	27%	-58%	
Bank Kiosk	$68	1%	$72	1%	-6%	
Brand Mgmt. & Sales Channel Building	$1,467	18%	$886	14%	+66%	
 
Revenue from Internet advertisements for the three months ended December 31, 2012 increased by 70% to $6.0 million compared to the three months ended December 31, 2011, primarily due to the additional revenues from Sou Yi Lian Mei (“SOOE”), the company ChinaNet acquired in December 2011. Sales of brand management and sales channel building services increased by 66% to $1.5 million, representing 18% of total sales for the three months ended December 31, 2012. This increase was due to an increase in the average advertising spending per customer from larger-sized clients. TV advertising revenues fell to $0.7 million in the fourth quarter of 2012 from $1.7 million in the fourth quarter of 2011.
 
Gross profit for the three months ended December 31, 2012 was $4.8 million, up 60% from $3.0 million in the same period one year ago. Gross margin was 57.7%, an improvement from 40.1% in the third quarter of 2012 and 49% in the fourth quarter of 2011.
 
Operating expenses for the three months ended December 31, 2012 were approximately $3.1 million, down substantially from $7.5 million in the comparable period in 2011. General and administrative expenses fell by $3.5 million to $1.7 million due to lower non-cash bad debts provision and stock compensation expenses.
 
The Company had $1.7 million of operating income in the three months ended December 31, 2012 compared to $4.5 million of operating loss in the same period one year ago. Operating margin was 20.6% in the fourth quarter of 2012.
 
Net income attributable to common stockholders for the three months ended December 31, 2012 was $1.2 million and earnings per share was $0.06, compared to -$3.9 million and -$0.19 for the three months ended December 31, 2011, respectively.
 
Non-GAAP adjusted net income attributable to common stockholders for the three months ended December 31, 2012 was $1.4 million and adjusted earnings per share was $0.06, compared to -$1.8 million and -$0.08 for the three months ended December 31, 2011, respectively.

 

 
 
Full Year 2012 Results (USD)	
 	
 	FY 2012	FY 2011	CHANGE	
Sales	$46.6 million	$28.7 million	+62%	
Gross Profit	$15.0 million	$16.7 million	-10%	
Gross Margin	32.3%	58.1%	-44%	
Net Income Attributable to Common Stockholders	$3.0 million	$2.6 million	+15%	
Adjusted Net Income Attributable to Common Stockholders	$3.2 million(1)	$4.5 million(2)	-31%	
EPS (Diluted)	$0.14	$0.14	0%	
Adjusted EPS (Diluted)	$0.14(1)	$0.24(2)	-42%	
(1) Non-GAAP adjusted net income attributable to common stockholders and EPS exclude a $0.2 million non-cash charge of the changes in fair value of the contingent consideration receivables for the year ended December 31, 2012.

(2) Non-GAAP adjusted net income attributable to common stockholders and EPS excludes: (1) $0.9 million non-cash gain on deconsolidation of subsidiaries and $0.2 million of the related deferred income tax expenses; (2) $0.1 million non-cash charge of the changes in fair value of the contingent consideration receivables related to make good provisions upon acquisition of VIEs; and (3) $2.6 million non-cash stock compensation expense recognized for restricted stock and options issued to management, directors and employees for the year ended December 31, 2011.
 
Year Ended December 31, 2012 Revenue Breakdown by Business Unit (USD in thousands)
 
 	FY 2012	%	FY 2011	%	% Change	
Internet Advertisement	$21,366	46%	$19,981	70%	+7%	
TV Advertisement	$20,454	44%	$6,434	22%	+218%	
Bank Kiosk	$282	1%	$487	2%	-42%	
Brand Mgmt. & Sales Channel Building	$4,498	10%	$1,829	6%	+146%	
 
Net revenues for the year ended December 31, 2012 increased by 62% to $46.6 million compared to $28.7 million for the year ended December 31, 2011. Higher revenues from Internet and TV advertisement and brand management and sales channel building services offset lower revenues from the bank kiosk segment.
 
Total cost of revenues increased to $31.6 million for the year ended December 31, 2012 from $12.0 million for the same period in 2011. The increase of total cost of revenues for the year ended December 31, 2012 was primarily due to the significant increase in costs associated with the TV advertising business segment. 
 
Gross profit for the year ended December 31, 2012 was $15.0 million compared to $16.7 million in the same period a year ago. Gross margin decreased to 32.3% from 58.1% for the same period in 2011 as a result of the significant increase in revenues from TV advertising, which is a lower margin business. Revenues from TV advertising accounted for approximately 44% of total revenues in the year ended December 31, 2012 compared to 22% for 2011.

 

 
Operating expenses for the year ended December 31, 2012 were approximately $10.5 million, representing a decrease of 22% from $13.5 million in the comparable period in 2011. Even excluding the absence of $1.9 million non-recurring stock compensation expenses related to restricted stock and options granted to management and employees in November 2011, the Company successfully reduced expenses across the board, with year-over-year declines in general and administrative and selling expenses. Research and development expenses were $1.8 million for the twelve months ended December 31, 2012 compared to $2.1 million in the comparable period a year ago due to the absence of a $0.7 million non-cash, non-recurring R&D expense related to restricted stock and options granted to management and employees in November 2011.
 
Operating income for the year ended December 31, 2012 was $4.5 million, representing an operating margin of 9.7% compared to $3.2 million and 11.0%, respectively, in the same period one year ago.
 
GAAP net income attributable to common stockholders for the fiscal year 2012 was $3.0 million and earnings per share was $0.14 compared to $2.6 million and $0.14 for the fiscal year of 2011, respectively. Non-GAAP adjusted net income attributable to common stockholders and earnings per share for 2012 were $3.2 million and $0.14, respectively. The weighted average shares outstanding for the fiscal year of 2012 and 2011 was 22.2 million shares and 18.8 million shares, respectively.
 
Balance Sheet and Cash Flow
 
The Company had $5.5 million in cash and cash equivalents as of December 31, 2012, compared to $10.7 million as of December 31, 2011, working capital of $25.2 million, compared to $27.0 million as of December 31, 2011, and a current ratio of 3.5 to 1 compared 4.5 to 1 as of December 31, 2011. Total shareholders’ equity of ChinaNet was $44.2 million at December 31, 2012 compared to $41.7 million at December 31, 2011.
 
The Company generated $5 million of cash inflows from operations for the full year of 2012 compared to a $0.6 million of cash outflow for the full year of 2011.
 
Guidance for 2013

Management anticipants to release the revenues and net income guidance for fiscal year 2013 in May 2013.

Business Updates

ChinaNet participated as a judge and sponsor for the 2012 International Youth Innovation Games during December 2012. The event, supported by China’s Ministry of Education, signified support of youth innovation by academia, government and private entities.

Liansuo.com, the Company’s subsidiary, signed an agreement to help Super 8 International Limited expand its franchise outside the U.S. Super 8 International, a subsidiary of Wyndham Worldwide, is one of the largest hotel operators in the world with more than 2,600 hotels. Liansuo.com will help Super 8 International build a strong brand in China through traditional and online marketing.

 

 
ChinaNet continued to build its international presence by participating in two major international franchise exhibitions – the Korean Chain Industry Fair in December 2012 and the Beijing Franchise Expo in April 2013.
 
Conference Call
 
Date:	Wednesday, April 17, 2013	
Time:	8:30 a.m. Eastern Time	
Conference Line (U.S.):	1-877-317-6776	
International Dial-In:	1-412-317-6776	
Conference ID:	10027127	
Webcast:	http://webcast.mzvaluemonitor.com/Cover.aspx?PlatformId=1071	

A power point presentation will be available for downloading on the date of the conference call on ChinaNet’s corporate website  www.chinanet-online.com ; under Investor Relations-News/Events-Events and Presentations.

Please dial in at least 10 minutes before the call to ensure timely participation.
A playback of the call will be available until 8:30 a.m. Eastern Time on April 24, 2013. To listen, call 1-877-344-7529 within the United States or 1-412-317-0088 when calling internationally. Please use the replay pin number 10027127.
 
About ChinaNet Online Holdings, Inc.
 
ChinaNet Online Holdings, Inc., a parent company of ChinaNet Online Media Group Ltd., incorporated in the BVI, is a leading business to business Internet technology company focusing on providing online-to-offline sales channel expansion service for small and medium-sized enterprises and entrepreneurial management and networking service for entrepreneurs in China. Founded in 2003 and based in Beijing, PRC, the Company's services include its 28.com portal to connect SME franchisors with new franchisees, Internet advertising and marketing with other value-added communication channels, brand management and sales channel solutions, and cloud-computing based management tools, expected to be officially commercialized in 2013. Website: http://www.chinanet-online.com .
 
About Non-GAAP Financial Measures
 
To supplement the audited consolidated statement of income and comprehensive income presented in accordance with GAAP, we are also providing non-GAAP measures of income from operations, income before income tax expenses, net income, net income attributable to us, net income attributable to our common stockholders and basic and diluted earnings per share for the year ended December 31, 2012 and 2011, which are adjusted from results based on GAAP to exclude the non-cash gain and expenses recorded, which related to changes in fair value of contingent consideration receivables related to the “make-good” provisions upon acquisition of VIEs for the year ended December 31, 2012; the gain on deconsolidation of subsidiaries, the related deferred income tax expenses, changes in fair value of contingent consideration receivables related to the “make-good” provisions upon acquisition of VIEs, and non-cash share-based compensation expenses recognized for the restricted stock and common stock purchase options issued to our management, directors and employees for the year ended December 31, 2011. The non-GAAP financial measures are provided to enhance the investors' overall

 

 
understanding of our current performance in on-going core operations as well as prospects for the future. These measures should be considered in addition to results prepared and presented in accordance with GAAP, but should not be considered a substitute for or superior to GAAP results. We use both GAAP and non-GAAP information in evaluating our operating business results internally and therefore deemed it important to provide all of this information to investors.

The following table presents reconciliations of our non-GAAP financial measures to the audited consolidated statements of income and comprehensive income for the years ended December 31, 2012 and 2011 (all amounts, except number of shares and per share data, are presented in thousands of US dollars):

 	 	Year Ended December 31,	 	
 	 	2012	 	 	2011	 	
 	 	GAAP	 	 	NON GAAP	 	 	GAAP	 	 	NONGAAP	 	
 	 	US$	 	 	US$	 	 	US$	 	 	US$	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Gross Profit	 	$	15,042	 	 	$	15,042	 	 	$	16,704	 	 	$	16,704	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Selling expenses	 	 	2,683	 	 	 	2,683	 	 	 	3,506	 	 	 	2,827	 	
General and administrative expenses	 	 	6,030	 	 	 	6,030	 	 	 	7,904	 	 	 	6,647	 	
Research and development expenses	 	 	1,819	 	 	 	1,819	 	 	 	2,132	 	 	 	1,461	 	
 	 	 	10,532	 	 	 	10,532	 	 	 	13,542	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	10,935	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Income from operations	 	 	4,510	 	 	 	4,510	 	 	$	3,162	 	 	 	 	 	
Adjusted income from operations	 	 	 	 	 	 	 	 	 	 	 	 	 	$	5,769	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Other income (expenses):	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Changes in fair value of contingent consideration receivables	 	 	(160	)	 	 	-	 	 	 	(70	)	 	 	-	 	
Interest income	 	 	186	 	 	 	186	 	 	 	13	 	 	 	13	 	
Gain on deconsolidation of subsidiaries	 	 	-	 	 	 	-	 	 	 	925	 	 	 	-	 	
Other (expenses) income	 	 	(150	)	 	 	(150	)	 	 	5	 	 	 	5	 	
 	 	 	(124	)	 	 	 	 	 	 	873	 	 	 	 	 	
 	 	 	 	 	 	 	36	 	 	 	 	 	 	 	18	 	
Income before income tax expense, equity method investments and noncontrolling interests	 	 	4,386	 	 	 	 	 	 	 	4,035	 	 	 	 	 	
Adjusted income before income tax expense, equity method investments and noncontrolling interests	 	 	 	 	 	 	4,546	 	 	 	 	 	 	 	5,787	 	
Income tax expense	 	 	529	 	 	 	529	 	 	 	1,035	 	 	 	827	 	
Income before equity method investments and noncontrolling interests	 	 	3,857	 	 	 	 	 	 	 	3,000	 	 	 	 	 	
Adjusted income before equity method investments and noncontrolling interests	 	 	 	 	 	 	4,017	 	 	 	 	 	 	 	4,960	 	
Share of losses in equity investment affiliates	 	 	(449	)	 	 	(449	)	 	 	(219	)	 	 	(219	)	
Net income	 	 	3,408	 	 	 	 	 	 	 	2,781	 	 	 	 	 	
Adjusted net income	 	 	 	 	 	 	3,568	 	 	 	 	 	 	 	4,741	 	
Net (income) loss attributable to noncontrolling interest	 	 	(412	)	 	 	(412	)	 	 	214	 	 	 	214	 	
Net income attributable to ChinaNet Online Holdings, Inc.	 	 	2,996	 	 	 	 	 	 	 	2,995	 	 	 	 	 	
Adjusted net income attributable to ChinaNet Online Holdings, Inc.	 	 	 	 	 	 	3,156	 	 	 	 	 	 	 	4,955	 	
Dividend for series A convertible preferred stock	 	 	-	 	 	 	-	 	 	 	(407	)	 	 	(407	)	
Net income attributable to common shareholders of ChinaNet Online	 	$	2,996	 	 	 	 	 	 	$	2,588	 	 	 	 	 	
Adjusted net income attributable to common shareholders of ChinaNet Online	 	 	 	 	 	$	3,156	 	 	 	 	 	 	$	4,548	 	

Earnings per common share-Basic	 	$	0.14	 	 	 	 	 	 	$	0.14	 	 	 	 	 	
Adjusted earnings per common share-Basic	 	 	 	 	 	$	0.14	 	 	 	 	 	 	$	0.25	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Earnings per common share-Diluted	 	$	0.14	 	 	 	 	 	 	$	0.14	 	 	 	 	 	
Adjusted earnings per common share-Diluted	 	 	 	 	 	$	0.14	 	 	 	 	 	 	$	0.24	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Weighted average number of common shares   outstanding:	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Basic	 	 	22,185,556	 	 	 	22,185,556	 	 	 	18,545,609	 	 	 	18,545,609	 	
Diluted	 	 	22,185,556	 	 	 	22,185,556	 	 	 	18,759,240	(1)	 	 	20,384,766	(2)	

(1)	For the year ended December 31, 2011, the effect of the 1,625,526 incremental shares resulted from assumed conversion of the convertible preferred stock was not included, because its effect was anti-dilutive under GAAP measures.	
 	 	
(2)	For the year ended December 31, 2011, the effect of the 1,625,526 incremental shares resulted from assumed conversion of the convertible preferred stock was included, because the effect was dilutive for not including the non-cash gain and expenses related to the non-recurring transactions incurred under NON-GAAP measures.	
 
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.
 
Contact:
 
MZ North America	
Ted Haberfield, President	
Direct: +1-760-755-2716	
Email: thaberfield@mzgroup.us	
Web: www.mzgroup.us	

 

 
-- FINANCIAL TABLES –
 
CHINANET ONLINE HOLDINGS, INC.
 
CONSOLIDATED BALANCE SHEETS
 
(In thousands, except for number of shares)
 
 	 	As of December 31,	 	
 	 	2012	 	 	2011	 	
 	 	(US $)	 	 	(US $)	 	
Assets	 	 	 	 	 	 	
Current assets:	 	 	 	 	 	 	
Cash and cash equivalents	 	$	5,483	 	 	$	10,695	 	
Term deposit	 	 	3,357	 	 	 	-	 	
Accounts receivable, net	 	 	8,486	 	 	 	4,444	 	
Other receivables, net	 	 	3,103	 	 	 	3,631	 	
Prepayment and deposit to suppliers	 	 	14,596	 	 	 	15,360	 	
Due from related parties	 	 	210	 	 	 	324	 	
Contingent consideration receivables	 	 	-	 	 	 	159	 	
Other current assets	 	 	136	 	 	 	129	 	
Deferred tax assets-current	 	 	50	 	 	 	-	 	
Total current assets	 	 	35,421	 	 	 	34,742	 	
 	 	 	 	 	 	 	 	 	
Investment in and advance to equity investment affiliates	 	 	959	 	 	 	1,396	 	
Property and equipment, net	 	 	1,636	 	 	 	1,902	 	
Intangible assets, net	 	 	7,167	 	 	 	8,151	 	
Goodwill	 	 	11,083	 	 	 	10,999	 	
Deferred tax assets-non current	 	 	652	 	 	 	92	 	
Total Assets	 	$	56,918	 	 	$	57,282	 	
 	 	 	 	 	 	 	 	 	
Liabilities and Equity	 	 	 	 	 	 	 	 	
Current liabilities:	 	 	 	 	 	 	 	 	
Accounts payable	 	$	110	 	 	$	268	 	
Advances from customers	 	 	1,065	 	 	 	724	 	
Accrued payroll and other accruals	 	 	904	 	 	 	616	 	
Due to equity investment affiliate	 	 	-	 	 	 	220	 	
Due to related parties	 	 	-	 	 	 	161	 	
Payable for acquisition	 	 	1,266	 	 	 	550	 	
Taxes payable	 	 	6,683	 	 	 	5,040	 	
Other payables	 	 	217	 	 	 	114	 	
Dividend payable	 	 	-	 	 	 	5	 	
Total current liabilities	 	 	10,245	 	 	 	7,698	 	
Long-term liabilities:	 	 	 	 	 	 	 	 	
Deferred tax liability-non current	 	 	1,689	 	 	 	1,893	 	
Long-term borrowing from director	 	 	139	 	 	 	137	 	
Total Liabilities	 	 	12,073	 	 	 	9,728	 	
 	 	 	 	 	 	 	 	 	
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 22,186,540 shares and 22,146,540 shares at December 31, 2012 and 2011, respectively)	 	 	22	 	 	 	22	 	
Additional paid-in capital	 	 	20,008	 	 	 	20,747	 	
Statutory reserves	 	 	2,296	 	 	 	2,117	 	
Retained earnings	 	 	19,505	 	 	 	16,688	 	
Accumulated other comprehensive income	 	 	2,393	 	 	 	2,132	 	
Total ChinaNet Online Holdings, Inc.’s stockholders’ equity	 	 	44,224	 	 	 	41,706	 	
 	 	 	 	 	 	 	 	 	
Noncontrolling interests	 	 	621	 	 	 	5,848	 	
Total equity	 	 	44,845	 	 	 	47,554	 	
 	 	 	 	 	 	 	 	 	
Total Liabilities and Equity	 	$	56,918	 	 	$	57,282	 	

 

 
CHINANET ONLINE HOLDINGS, INC.
 
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
 
(In thousands, except for number of shares and per share data)

 	 	Year Ended December 31,	 	
 	 	2012	 	 	2011	 	
 	 	(US $)	 	 	(US $)	 	
Sales	 	 	 	 	 	 	
From unrelated parties	 	$	46,403	 	 	$	28,105	 	
From related parties	 	 	197	 	 	 	626	 	
 	 	 	46,600	 	 	 	28,731	 	
Cost of sales	 	 	31,558	 	 	 	12,027	 	
Gross margin	 	 	15,042	 	 	 	16,704	 	
 	 	 	 	 	 	 	 	 	
Operating expenses	 	 	 	 	 	 	 	 	
Selling expenses	 	 	2,683	 	 	 	3,506	 	
General and administrative expenses	 	 	6,030	 	 	 	7,904	 	
Research and development expenses	 	 	1,819	 	 	 	2,132	 	
 	 	 	10,532	 	 	 	13,542	 	
 	 	 	 	 	 	 	 	 	
Income from operations	 	 	4,510	 	 	 	3,162	 	
 	 	 	 	 	 	 	 	 	
Other income (expenses)	 	 	 	 	 	 	 	 	
Changes in fair value of contingent consideration receivables	 	 	(160	)	 	 	(70	)	
Interest income	 	 	186	 	 	 	13	 	
Gain on deconsolidation of subsidiaries	 	 	-	 	 	 	925	 	
Other (expenses)/income	 	 	(150	)	 	 	5	 	
 	 	 	(124	)	 	 	873	 	
 	 	 	 	 	 	 	 	 	
Income before income tax expense, equity method investments and noncontrolling interests	 	 	4,386	 	 	 	4,035	 	
Income tax expense	 	 	529	 	 	 	1,035	 	
Income before equity method investments and noncontrolling interests	 	 	3,857	 	 	 	3,000	 	
Share of losses in equity investment affiliates	 	 	(449	)	 	 	(219	)	
Net income	 	 	3,408	 	 	 	2,781	 	
Net (income) / losses attributable to noncontrolling interests	 	 	(412	)	 	 	214	 	
Net income attributable to ChinaNet Online Holdings, Inc.	 	 	2,996	 	 	 	2,995	 	
Dividend of Series A convertible preferred stock	 	 	-	 	 	 	(407	)	
Net income attributable to common stockholders of ChinaNet Online Holdings, Inc.	 	$	2,996	 	 	$	2,588	 	
 	 	 	 	 	 	 	 	 	
Net income	 	 	3,408	 	 	 	2,781	 	
Foreign currency translation gain	 	 	267	 	 	 	1,254	 	
Comprehensive Income	 	$	3,675	 	 	$	4,035	 	
Comprehensive (income) / losses attributable to noncontrolling interests	 	 	(418	)	 	 	162	 	
Comprehensive income attributable to ChinaNet Online Holdings, Inc.	 	$	3,257	 	 	$	4,197	 	
 	 	 	 	 	 	 	 	 	
Earnings per share	 	 	 	 	 	 	 	 	
Earnings per common share	 	 	 	 	 	 	 	 	
Basic	 	$	0.14	 	 	$	0.14	 	
Diluted	 	$	0.14	 	 	$	0.14	 	
 	 	 	 	 	 	 	 	 	
Weighted average number of common shares outstanding:	 	 	 	 	 	 	 	 	
Basic	 	 	22,185,556	 	 	 	18,545,609	 	
Diluted	 	 	22,185,556	 	 	 	18,759,240	 	

 

 
CHINANET ONLINE HOLDINGS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(In thousands)
 
 	 	Year Ended December 31,	 	
 	 	2012	 	 	2011	 	
 	 	(US $)	 	 	(US $)	 	
 	 	 	 	 	 	 	
Cash flows from operating activities	 	 	 	 	 	 	
Net income	 	$	3,408	 	 	$	2,781	 	
Adjustments to reconcile net income to net cash provided by operating activities	 	 	 	 	 	 	 	 	
Depreciation and amortization	 	 	1,637	 	 	 	1,012	 	
Share-based compensation expenses	 	 	48	 	 	 	2,900	 	
Changes in fair value of contingent consideration receivables	 	 	160	 	 	 	70	 	
Allowances for doubtful debts	 	 	1,141	 	 	 	2,583	 	
Share of losses in equity investment affiliates	 	 	449	 	 	 	219	 	
Gain on deconsolidation of subsidiaries	 	 	-	 	 	 	(925	)	
Loss / (gain) on disposal of property and equipment	 	 	2	 	 	 	(3	)	
Deferred taxes	 	 	(828	)	 	 	27	 	
Changes in operating assets and liabilities	 	 	 	 	 	 	 	 	
Accounts receivable	 	 	(5,516	)	 	 	(2,100	)	
Other receivables	 	 	1,400	 	 	 	5,276	 	
Prepayment and deposit to suppliers	 	 	882	 	 	 	(11,247	)	
Due from related parties	 	 	117	 	 	 	(130	)	
Other current assets	 	 	(5	)	 	 	(197	)	
Accounts payable	 	 	(158	)	 	 	27	 	
Advances from customers	 	 	335	 	 	 	(1,575	)	
Accrued payroll and other accruals	 	 	285	 	 	 	166	 	
Due to director	 	 	-	 	 	 	(559	)	
Due to Control Group	 	 	-	 	 	 	(82	)	
Due to related parties	 	 	(4	)	 	 	(139	)	
Other payables	 	 	72	 	 	 	490	 	
Taxes payable	 	 	1,603	 	 	 	803	 	
Net cash provided by (used in) operating activities	 	 	5,028	 	 	 	(603	)	
 	 	 	 	 	 	 	 	 	
Cash flows from investing activities	 	 	 	 	 	 	 	 	
Purchases of vehicles and office equipment	 	 	(314	)	 	 	(741	)	
Purchase of intangible assets	 	 	-	 	 	 	(1,445	)	
Short-term loan to unrelated entities	 	 	(475	)	 	 	-	 	
Project development deposit to a third party	 	 	(2,453	)	 	 	-	 	
Refund of project development deposit from a third party	 	 	2,453	 	 	 	-	 	
Cash from acquisition of VIEs	 	 	-	 	 	 	330	 	
Cash effect on deconsolidation of VIEs	 	 	-	 	 	 	(1,670	)	
Long-term investment in and advance to equity investment affiliates	 	 	-	 	 	 	(1,712	)	
Disposal of investment in and loan repayment from equity investment affiliate	 	 	-	 	 	 	8,885	 	
Payment for acquisition of VIEs	 	 	(5,775	)	 	 	(9,731	)	
Placement of term deposit	 	 	(3,355	)	 	 	-	 	
Net cash used in investing activities	 	 	(9,919	)	 	 	(6,084	)	
 	 	 	 	 	 	 	 	 	
Cash flows from financing activities	 	 	 	 	 	 	 	 	
Cash investment contributed by noncontrolling interests	 	 	-	 	 	 	378	 	
Dividend paid to convertible preferred stockholders	 	 	(5	)	 	 	(657	)	
Short-term loan borrowed from an equity investment affiliate	 	 	316	 	 	 	216	 	
Short-term loan repaid to an equity investment affiliate	 	 	(538	)	 	 	-	 	
Repayment to legal (nominal) shareholders of Shanghai Jing Yang	 	 	(158	)	 	 	-	 	
Capital contributions received in advance from new shareholders of Zhao Shang Ke Hubei before deconsolidation	 	 	-	 	 	 	1,545	 	
Net cash (used in) provided by financing activities	 	 	(385	)	 	 	1,482	 	
 	 	 	 	 	 	 	 	 	
Effect of exchange rate fluctuation on cash and cash equivalents	 	 	64	 	 	 	310	 	
 	 	 	 	 	 	 	 	 	
Net decrease in cash and cash equivalents	 	 	(5,212	)	 	 	(4,895	)	
 	 	 	 	 	 	 	 	 	
Cash and cash equivalents at beginning of the year	 	 	10,695	 	 	 	15,590	 	
Cash and cash equivalents at end of the year	 	$	5,483	 	 	$	10,695	 	

Exhibit 99.2