June 30,
2019 December 31,
2018
(US $) (US $)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $
1,379
$
3,717

Term deposit, restricted 25 25
Accounts receivable, net of allowance for doubtful accounts of $1,373 and $3,393, respectively 6,749 6,359
Prepayment and deposit to suppliers, net 2,049 2,154
Due from related parties, net - 226
Other current assets, net 8 19
Total current assets 10,210 12,500

Long-term investments 36 -
Property and equipment, net 99 142
Intangible assets, net 36 45
Operating lease right-of-use assets 17 -
Blockchain application platform development costs 3,724 3,725
Deferred tax assets, net 549 556
Total Assets $ 14,671 $ 16,968

Liabilities and Equity
Current liabilities:
Short-term bank loan * $ 873 $ 874
Accounts payable * 742 2,869
Advance from customers * 2,768 1,061
Advance from a customer, related * 53 -
Accrued payroll and other accruals * 289 521
Taxes payable * 3,082 2,997
Lease payment liability related to a short-term lease * 118 -
Other current liabilities * 162 118
Warrant liabilities 135 606
Total current liabilities 8,222 9,046

March 31,
2020
December 31,
2019
(US $) (US $)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 1,555 $ 1,603
Accounts receivable, net of allowance for doubtful accounts of $3,504 and $3,148, respectively 3,070 3,260
Prepayment and deposit to suppliers 4,946 6,980
Due from related parties, net 51 81
Other current assets, net 831 11
Total current assets 10,453 11,935

Long-term investments 34 35
Operating lease right-of-use assets 9 12
Property and equipment, net 75 78
Intangible assets, net 1,698 1,899
Blockchain platform applications development costs 4,175 3,879
Long-term prepayments 1,344 -
Deferred tax assets, net 706 713
Total Assets $ 18,494 $ 18,551

Liabilities and Equity
Current liabilities:
Short-term bank loan * $ - $ 430
Accounts payable * 257 408
Advances from customers * 2,104 2,006
Accrued payroll and other accruals * 524 491
Taxes payable * 3,261 3,214
Lease payment liabilities related to short-term leases * 170 136
Other current liabilities * 442 221
Warrant liabilities 61 107
Total current liabilities 6,819 7,013

Three Months Ended March 31,
2020 2019
(US $) (US $)
(Unaudited) (Unaudited)

Revenues
From unrelated parties $ 4,371 $ 8,560
From related parities 13 7
Total revenues 4,384 8,567
Cost of revenues 3,485 8,125
Gross profit 899 442

Operating expenses
Sales and marketing expenses 165 169
General and administrative expenses 2,796 810
Research and development expenses 214 201
Total operating expenses 3,175 1,180

Loss from operations (2,276 ) (738 )

Other income/(expenses)
Interest expense, net (1 ) (11 )
Other expenses (1 ) (2 )
Change in fair value of warrant liabilities 46 (350 )
Total other income/(expenses) 44 (363 )

Loss before income tax expense and noncontrolling interests (2,232 ) (1,101 )
Income tax expense (78 ) (39 )
Net loss (2,310 ) (1,140 )
Net loss attributable to noncontrolling interests - 2
Net loss attributable to ChinaNet Online Holdings, Inc. $ (2,310 ) $ (1,138 )

Six Months Ended June 30, Three Months Ended June 30,
2019 2018 2019 2018
(US $) (US $) (US $) (US $)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
From unrelated parties $ 23,912 $ 30,780 $ 15,352 $ 22,520
From a related party 108 - 101 -
Total revenues 24,020 30,780 15,453 22,520
Cost of revenues 23,212 29,211 15,087 21,552
Gross profit 808 1,569 366 968

Operating expenses
Sales and marketing expenses 350 844 181 280
General and administrative expenses 2,058 2,842 1,248 1,478
Research and development expenses 360 458 159 240
Impairment on intangible assets - 1,878 - 1,878
Impairment on goodwill - 5,412 - 5,412
Total operating expenses 2,768 11,434 1,588 9,288

Loss from operations (1,960 ) (9,865 ) (1,222 ) (8,320 )

Other income (expenses)
Impairment on long-term investments - (471 ) - -
Interest expense, net (23 ) (19 ) (12 ) (9 )
Other expenses (4 ) (28 ) (2 ) (6 )
Change in fair value of warrant liabilities 471 948 821 (526 )
Total other income/(expenses) 444 430 807 (541 )

Loss before income tax (expense)/benefit and noncontrolling interests (1,516 ) (9,435 ) (415 ) (8,861 )
Income tax (expense)/benefit (6 ) (689 ) 33 (693 )
Net loss (1,522 ) (10,124 ) (382 ) (9,554 )
Net loss attributable to noncontrolling interests 5 55 3 50
Net loss attributable to ChinaNet Online Holdings, Inc. $ (1,517 ) $ (10,069 ) $ (379 ) $ (9,504 )

Common stock Additional
paid-in
capital Statutory
reserves Accumulated
deficit Accumulated other
comprehensive
income Noncontrolling
interests Total equity
Number of
shares Amount
(US $) (US $) (US $) (US $) (US $) (US $) (US $)

Balance, January 1, 2019 16,382,543 $ 16 $ 38,275 $ 2,607 $ (34,512 ) $ 1,457 $ (49 ) $ 7,794
Share-based compensation 30,000 - 13 - - - - 13
Net loss for the period - - - - (1,138 ) - (2 ) (1,140 )
Foreign currency translation adjustment - - - - - (35 ) (1 ) (36 )
Balance, March 31, 2019 (unaudited) 16,412,543 16 38,288 2,607 (35,650 ) 1,422 (52 ) 6,631
Share-based compensation - - 13 - - - - 13
Net loss for the period - - - - (379 ) - (3 ) (382 )
Foreign currency translation adjustment - - - - - 59 1 60
Balance, June 30, 2019 (Unaudited) 16,412,543 $ 16 $ 38,301 $ 2,607 $ (36,029 ) $ 1,481 $ (54 ) $ 6,322

Common stock Additional paid-in capital Statutory reserves Accumulated deficit Accumulated other comprehensive income (loss) Noncontrolling interests Total equity
Number of shares Amount
(US $) (US $) (US $) (US $) (US $) (US $) (US $)

Balance, January 1, 2020 19,629,403 $ 20 $ 43,111 $ 2,607 $ (35,773 ) $ 1,505 $ (57 ) $ 11,413
Share-based compensation in exchange for services from nonemployees 430,000 - 477 - - - - 477
Share-based compensation in exchange for services from employees and directors 1,632,523 2 1,897 - - - - 1,899
Net loss for the period - - - - (2,310 ) - - (2,310 )
Foreign currency translation adjustment - - - - - 71 1 72
Balance, March 31, 2020 (unaudited) 21,691,926 $ 22 $ 45,485 $ 2,607 $ (38,083 ) $ 1,576 $ (56 ) $ 11,551

1.	Organization and nature of operations

ChinaNet Online Holdings, Inc. (the “Company”) was incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. On June 26, 2009, the Company consummated a share exchange transaction with China Net Online Media Group Limited (the “Share Exchange”), a company organized under the laws of British Virgin Islands (“China Net BVI”). As a result of the Share Exchange, China Net BVI became a wholly owned subsidiary of the Company and the Company is now a holding company, which, through certain contractual arrangements with operating companies in the People’s Republic of China (the “PRC”), is engaged in providing advertising, precision marketing, online to offline (O2O) sales channel expansion and the related data and technical services to small and medium enterprises in the ~~PRC, through distribution of the right to use search engine marketing service~~PRC. In early 2018, the Company ~~purchased from key search engines, online advertising placements on~~commenced to expand its business into the ~~Company’s advertising portals, sales~~blockchain industry and the related technology. As of ~~effective sales lead information and provision~~March 31, 2020, the Company was in the process of ~~TV advertising service.~~developing its blockchain-powered platform applications (See Note 11).

2.	Variable interest entities

Summarized below is the information related to the VIEs’ assets and liabilities reported in the Company’s condensed consolidated balance sheets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively:

	June 30, 2019		December 31, 2018		March 31, 2020		December 31, 2019
	US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)				(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	660	$	2,303	$	1,301	$	699
Term deposit, restricted		25		25
Accounts receivable, net		6,749		6,359		2,384		2,876
Prepayment and deposit to suppliers, net		1,773		1,724
Prepayment and deposit to suppliers						2,302		3,998
Due from related parties, net		-		26		51		81
Other current assets, net		3		11		9		6
Total current assets		9,210		10,448		6,047		7,660

Long-term investments		36		-		34		35
Operating lease right-of-use assets						9		12
Property and equipment, net		58		84		39		40
Intangible assets, net		34		42		20		25
Operating lease right-of-use assets		17		-
Deferred tax assets, net		549		556		706		713
Total Assets	$	9,904	$	11,130	$	6,855	$	8,485

Liabilities
Current liabilities:
Short-term bank loan	$	873	$	874	$	-	$	430
Accounts payable		740		2,868		257		408
Advance from customers		2,766		1,059
Advance from a customer, related		53		-
Advances from customers						1,601		2,006
Accrued payroll and other accruals		152		155		86		132
Taxes payable		2,648		2,562		2,539		2,568
Lease payment liability related to a short-term lease		48		-
Lease payment liabilities related to short-term leases						39		19
Other current liabilities		75		55		112		84
Total current liabilities		7,355		7,573		4,634		5,647

Total Liabilities	$	7,355	$	7,573	$	4,634	$	5,647

All of the VIEs' assets can be used to settle obligations of their primary beneficiary. Liabilities recognized as a result of consolidating these VIEs do not represent additional claims on the Company’s general assets. ~~See additional discussion related to restrictions on foreign currency exchange in the PRC in Note 18 and Note 20.~~

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Summarized below is the information related to the financial performance of the VIEs reported in the Company’s condensed consolidated statements of operations and comprehensive loss for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

	Six Months Ended June 30,						Three Months Ended June 30,						Three Months Ended March 31,
	2019			2018			2019			2018			2020			2019
	US$(’000)			US$(’000)			US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)

Revenues	$	24,020		$	30,773		$	15,453		$	22,520		$	2,936		$	8,567
Cost of revenues		(23,212	)		(29,211	)		(15,087	)		(21,552	)		(2,845	)		(8,125	)
Total operating expenses		(1,862	)		(10,025	)		(1,151	)		(8,763	)		(744	)		(711	)
Net loss before allocation to noncontrolling interests		(1,086	)		(8,861	)		(764	)		(8,183	)		(651	)		(322	)

3.	Summary of significant accounting policies

Basis of presentation

The unaudited condensed consolidated interim financial statements are prepared and presented in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”).

The unaudited condensed consolidated interim financial information as of ~~June 30, 2019~~March 31, 2020 and for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). Certain information and footnote disclosures, which are normally included in complete consolidated financial statements prepared in accordance with U.S. GAAP, have been omitted pursuant to those rules and regulations. The unaudited condensed consolidated interim financial information should be read in conjunction with the financial statements and the notes thereto, included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, ~~2018,~~2019, previously filed with the SEC (the ~~“2018~~“2019 Form 10-K”) on ~~April 15, 2019.~~May 27, 2020.

In the opinion of management, all adjustments (which include normal recurring adjustments) necessary to present a fair statement of the Company’s condensed consolidated financial position as of ~~June 30, 2019,~~March 31, 2020, its condensed consolidated results of operations for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ and its condensed consolidated cash flows for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ 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.

~~Liquidity and management’s plan~~Going concern

The Company incurred operating losses ~~and had negative operating cash flows~~ and may continue to incur operating losses, and as a result, to generate negative cash flows as the Company implements its future business plan. The Company’s net loss attributable to stockholders for the ~~six and~~ three months ended ~~June 30, 2019~~March 31, 2020 was approximately US$~~1.52~~2.31 million, ~~and US$0.38 million, respectively,~~ compared with approximately US$~~10.07 million and US$9.50~~1.14 million for the ~~six and~~ three months ended ~~June 30, 2018, respectively.~~March 31, 2019. As of ~~June 30, 2019,~~March 31, 2020, the Company had cash and cash equivalents of approximately US$~~1.40~~1.56 million, ~~and net cash used in operating activities during the six months ended June 30, 2019 was~~compared with approximately US$~~2.33 million.~~1.60 million as of December 31, 2019.

~~On August 7, 2019,~~The Company does not currently have sufficient cash or commitments for financing to sustain its operation for the twelve months from the issuance date of these financial statements. The Company plans to optimize its internet resources cost investment strategy to improve the gross profit margin of its core business and to further strengthen the accounts receivables collection management and negotiate with vendors for more favorable payment terms, all of which will help to substantially increase the cashflows from operations. However, the COVID-19 outbreak incurred in the first fiscal quarter of 2020 in the PRC has had and may continue to have an adverse effect on the Company’s business operations and cashflows. If the Company ~~entered into~~fails to achieve these goals, the Company may need additional financing to execute its business plan. If additional financing is required, the Company cannot predict whether this additional financing will be in the form of equity, debt, or another form, and the Company may not be able to obtain the necessary additional capital on a ~~Securities Purchase Agreement (the “Securities Purchase Agreement”) with selected investors (the “Investors”) related~~timely basis, on acceptable terms, or at all. In the event that financing sources are not available, or that the Company is unsuccessful in increasing its gross profit margin and reducing operating losses, the Company may be unable to ~~the purchase and sale~~implement its current plans for expansion, repay debt obligations or respond to competitive pressures, any of which would have a material adverse effect on the Company’s ~~common stock (the “Shares”). The Company has agreed~~business, prospects, financial condition and results of operations. These factors raise substantial doubt about the Company's ability to issue an aggregate of 3,216,860 Shares in consideration for approximately $4.8 million. Each Share was sold to the Investors at $1.4927 per Share. The private placement was conducted pursuant to Section 4(2) of the Securities Act of 1933,continue as ~~amended, and Regulation S promulgated thereunder (the “PIPE transaction”). Although the PIPE transaction has not been closed as of~~a going concern within one year after the date ~~hereof, the Company determined it is probable~~ that the ~~PIPE transaction will be closed within the assessment period.~~

financial statements are issued.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The unaudited condensed consolidated financial statements as of March 31, 2020 have been prepared under the assumption that the Company will continue as a going concern, which contemplates, among other things, the realization of assets and the satisfaction of liabilities in the normal course of business over a reasonable period of time. The Company's ability to continue as a going concern is dependent upon its uncertain ability to increase gross profit margin and reduce operating loss from its core business and/or obtain additional equity and/or debt financing. The accompanying financial statements as of March 31, 2020 do not include any adjustments that might result from the outcome of these uncertainties. If the Company is unable to continue as a going concern, it may have to liquidate its assets and may receive less than the value at which those assets are carried on the financial statements.

Principles of consolidation

The unaudited condensed consolidated interim financial statements include the accounts of all the subsidiaries and VIEs of the Company. All transactions and balances between the Company and its subsidiaries and VIEs have been eliminated upon consolidation.

Use of estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the related disclosure of contingent assets and liabilities at the date of these consolidated financial statements, and the reported amounts of revenue and expenses during the reporting period. The Company continually evaluates these estimates and assumptions based on the most recently available information, historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates.

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, 2019 December 31, 2018

Balance sheet items, except for equity accounts 6.8747 6.8632
March 31, 2020 December 31, 2019

Balance sheet items, except for equity accounts 7.0851 6.9762

Six Months Ended June 30,
2019 2018

Items in the statements of operations and comprehensive loss, and statements of cash flows 6.7808 6.3711

Three Months Ended June 30,
2019 2018

Items in the statements of operations and comprehensive loss 6.8137 6.3789
Three Months Ended March 31,
2020 2019

Items in the statements of operations and comprehensive loss 6.9790 6.7468

No representation is made that the RMB amounts could have been, or could be converted into US$ at the above rates.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Fair value measurement

Liabilities measured at fair value on a recurring basis by level within the fair value hierarchy as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 are as follows:

Fair value measurement at reporting date using
As of
June 30, 2019 Quoted Prices
in Active Markets
for Identical
Assets/Liabilities
(Level 1) Significant
Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
US$(’000) US$(’000) US$(’000) US$(’000)
(Unaudited)

Warrant liabilities (Note 17) 135 - - 135

Fair value measurement at reporting date using

As of
March 31, 2020

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1) Significant
Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
US$(’000) US$(’000) US$(’000) US$(’000)
(Unaudited)

Warrant liabilities (Note 17) 61 - - 61

Fair value measurement at reporting date using
As of
December 31, 2018 Quoted Prices
in Active Markets
for Identical
Assets/Liabilities
(Level 1) Significant
Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
US$(’000) US$(’000) US$(’000) US$(’000)

Warrant liabilities (Note 17) 606 - - 606

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Fair value measurement at reporting date using

As of
December 31, 2019

Quoted Prices
in Active Markets
for Identical Assets/Liabilities
(Level 1) Significant
Other
Observable Inputs
(Level 2) Significant
Unobservable
Inputs
(Level 3)
US$(’000) US$(’000) US$(’000) US$(’000)

Warrant liabilities (Note 17) 107 - - 107

Revenue recognition

~~All of the Company’s revenues are generated from the PRC.~~ The following tables present the Company’s revenues disaggregated by products and services and timing of revenue recognition:

	Six Months Ended June 30,				Three Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Internet advertising and data service
Internet advertising and related services
--distribution of the right to use search engine marketing service		18,580		25,848		11,855		19,405		1,988		6,725
--online advertising placements		5,406		4,551		3,575		2,954		948		1,831
--sales of effective sales lead information		29		283		23		161		-		6
TV advertising service		-		91		-		-
Others		5		7		-		-
--data and technical services										300		5
Ecommerce O2O advertising and marketing services										503		-
Technical solution services										645		-
Total revenues	$	24,020	$	30,780	$	15,453	$	22,520		4,384		8,567

	Six Months Ended June 30,				Three Months Ended June 30,				Three Months Ended March 31,
	2019		2018		2019		2018		2020		2019
	US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)		US$(’000)
	(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)		(Unaudited)

Revenue recognized over time		23,991		30,497		15,430		22,359		3,739		8,561
Revenue recognized at a point in time		29		283		23		161		645		6
Total revenues	$	24,020	$	30,780	$	15,453	$	22,520		4,384		8,567

		Contract liabilities
	US$(’000)

Balance as of January 1, ~~2019~~2020		~~1,061~~2,006
Exchange translation adjustment		(231	)
Revenue recognized from beginning contract liability ~~balances~~balance		(~~619~~1,146	)
Advances received from customers related to unsatisfied performance obligations		~~2,381~~1,275
Balance as of ~~June 30, 2019~~March 31, 2020 (Unaudited)		~~2,821~~
~~Including:~~
~~--advance from customers~~		~~2,768~~
~~--advance from a customer, related~~		53
~~Total contract liabilities as of June 30, 2019 (Unaudited)~~		~~2,821~~2,104

Three Months Ended March 31,
2020 2019

Operating cash flows used for operating leases - 93
Right-of-use assets obtained in exchange for new lease liabilities - 10
Weighted-average discount rate 6 % 6 %

As of March 31,
2020 2019

Weighted-average remaining lease term (years) 0.96 1.96

~~Operating cash flows used for operating leases (in thousands of U.S. dollars)~~	93
~~Right-of-use assets obtained in exchange for new lease liabilities (in thousands of U.S. dollars)~~	10
~~Weighted-average remaining lease term (years)~~	~~1.71~~
~~Weighted-average discount rate~~	6	%

Prepayments and deposit to suppliers ~~net~~

June 30,
2019 December 31,
2018
US$(’000) US$(’000)
(Unaudited)

Deposits to internet resources providers 656 963
Prepayments to internet resources providers 1,081 727
Other deposits and prepayments 312 464
2,049 2,154

March 31,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

Deposits to advertising resources providers 1,311 1,315
Prepayments to advertising resources providers 2,329 4,361
Prepayment of license fee 796 1,062
Other deposits and prepayments 510 242
4,946 6,980

6.	Due from related parties, net

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)						(Unaudited)

An officer of the Company		-			200
Guohua Shiji (Beijing) Communication Co., Ltd.		175			201
Zhongwang Xiyue Technology (Beijing) Co., Ltd. (“Zhongwang Xiyue”)								51			81
Guohua Shiji (Beijing) Communication Co., Ltd. (“Guohua Shiji”)								169			172
		175			401			220			253
Allowance for doubtful accounts		(175	)		(175	)		(169	)		(172	)
Due from related parties, net		-			226			51			81

7.	Other current assets, net

March 31, 2020 December 31,2019
Gross Allowance for doubtful accounts Net Gross Allowance for doubtful accounts Net
US$(’000) US$(’000) US$(’000) US$(’000) US$(’000) US$(’000)
(Unaudited) (Unaudited) (Unaudited)

Staff advances for business operations 16 - 16 11 - 11
Short-term loan to an unrelated party 815 - 815 - - -
Overdue deposits 706 (706 ) - 717 (717 ) -
Total 1,537 (706 ) 831 728 (717 ) 11

As of ~~June 30, 2019 and December~~March 31, ~~2018,~~2020, other current assets primarily ~~included~~include a ~~short-term~~temporary working capital loan that the Company lent to an unrelated party during the first fiscal quarter of ~~RMB1.0~~2020. This loan is unsecured, interest free and payment on demand.

As of March 31, 2020 and December 31, 2019, other current assets also included an approximately RMB5 million (approximately US$~~0.15 million) lent to a former unconsolidated investee of the Company, and an approximately RMB11 million (approximately US$1.61~~0.7 million) overdue contractual ~~deposits in the aggregate, which were~~deposit related to an advertising resources purchase ~~contracts~~contract that had been completed with no further cooperation. Based on the assessment of the collectability of ~~these~~this overdue ~~deposits~~deposit as of March 31, 2020 and ~~short-term working capital loan,~~December 31, 2019, the Company had provided full allowance to against ~~these~~this doubtful accounts as of June 30, 2019 and December 31, 2018. As of June 30, 2019, the Company charged off the approximately US$0.15 million short-term working capital loan and US$0.85 million overdue deposits receivable against the allowance, respectively, because for this portion of debts, a~~ll means of collection have been exhausted and the potential for recovery is considered remote~~.

~~As of June 30, 2019 and December 31, 2018, the remaining balances of other current assets represented small amounts of staff advances for business operations.~~account.

Long-term investments

As of ~~June 30,~~March 31, 2020 and December 31, 2019, long-term investment of approximately RMB0.25 million (approximately US$~~0.04~~0.03 million) represented the Company’s contribution of its pro-rata share of cash investment to ~~one of its equity ownership investee entities,~~ Local Chain Xi’an Information Technology Co., Ltd. (“Local Chain Xi’an) ~~in January 2019. Local Chain Xi’an was incorporated in October 2018, which is preliminarily engaged in providing technical supports to online advertising and precision marketing.~~. The Company beneficially owns a 4.9% equity interest in ~~this entity.~~Local Chain Xi’an.

The Company measures this investment which do not have readily determinable fair values at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or a similar investment of the Company.

Property and equipment, net

March 31,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

Vehicles 747 758
Office equipment 1,310 1,331
Electronic devices 923 937
Property and equipment, cost 2,980 3,026
Less: accumulated depreciation (2,905 ) (2,948 )
Property and equipment, net 75 78

Depreciation expenses for the three months ended March 31, 2020 and 2019 were approximately US$2,000 and US$33,000, respectively.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~Property and equipment, net~~

June 30,
2019 December 31,
2018
US$(’000) US$(’000)
(Unaudited)

Leasehold improvement 320 321
Vehicles 769 771
Office equipment 1,351 1,353
Electronic devices 951 952
Property and equipment, cost 3,391 3,397
Less: accumulated depreciation (3,292 ) (3,255 )
Property and equipment, net 99 142

Depreciation expenses for the six months ended June 30, 2019 and 2018 were approximately US$43,000 and US$91,000, respectively. Depreciation expenses for the three months ended June 30, 2019 and 2018 were approximately US$10,000 and US$43,000, respectively.

10.

Intangible assets, net

	As of June 30, 2019 (Unaudited)										As of March 31, 2020 (Unaudited)
Items	Gross Carrying Value		Accumulated Amortization			Impairment			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Impairment			Net Carrying Value
	US$(’000)		US$(’000)			US$(’000)			US$(’000)		US$(’000)		US$(’000)			US$(’000)			US$(’000)
Intangible assets not subject to amortization:
Domain name		1,405		-			(1,405	)		-		1,363		-			(1,363	)		-
Intangible assets subject to amortization:
Customer relationship		1,938		(1,938	)		-			-		1,880		(1,880	)		-			-
Non-compete agreements		1,066		(579	)		(487	)		-		1,035		(563	)		(472	)		-
Software technologies		298		(298	)		-			-		289		(289	)		-			-
Cloud compute software technology		1,350		(903	)		(414	)		33
Intelligent marketing data service platform		4,697		(1,903	)		(2,794	)		-		4,557		(1,846	)		(2,711	)		-
Internet safety, information exchange security and data encryption software		1,891		(425	)		(1,466	)		-		1,835		(413	)		(1,422	)		-
Cloud video management system		1,382		(343	)		(1,039	)		-		1,341		(333	)		(1,008	)		-
Cloud compute software technology												1,310		(888	)		(402	)		20
Licensed products use right												1,207		(45	)		-			1,162
Other computer software		114		(111	)		-			3		871		(355	)		-			516
Total	$	14,141	$	(6,500	)	$	(7,605	)	$	36	$	15,688	$	(6,612	)	$	(7,378	)	$	1,698

	As of December 31, 2018										As of December 31, 2019
Items	Gross Carrying Value		Accumulated Amortization			Impairment			Net Carrying Value		Gross Carrying Value		Accumulated Amortization			Impairment			Net Carrying Value
	US$(’000)		US$(’000)			US$(’000)			US$(’000)		US$(’000)		US$(’000)			US$(’000)			US$(’000)
Intangible assets not subject to amortization:
Domain name		1,408		-			(1,408	)		-		1,385		-			(1,385	)		-
Intangible assets subject to amortization:
Customer relationship		1,941		(1,941	)		-			-		1,909		(1,909	)		-			-
Non-compete agreements		1,068		(580	)		(488	)		-		1,051		(571	)		(480	)		-
Software technologies		299		(299	)		-			-		294		(294	)		-			-
Cloud compute software technology		1,353		(896	)		(415	)		42
Intelligent marketing data service platform		4,705		(1,906	)		(2,799	)		-		4,629		(1,876	)		(2,753	)		-
Internet safety, information exchange security and data encryption software		1,894		(426	)		(1,468	)		-		1,863		(419	)		(1,444	)		-
Cloud video management system		1,383		(343	)		(1,040	)		-		1,362		(338	)		(1,024	)		-
Cloud compute software technology												1,331		(898	)		(408	)		25
Licensed products use right												1,202		(15	)		-			1,187
Other computer software		114		(111	)		-			3		872		(185	)		-			687
Total	$	14,165	$	(6,502	)	$	(7,618	)	$	45	$	15,898	$	(6,505	)	$	(7,494	)	$	1,899

11.

Blockchain software application platform development costs

~~In early 2018, the Company announced its expansion into the blockchain industry and the related technology.~~ In February 2018, the Company entered into a technical development contract with an unrelated entity to develop ~~certain~~a blockchain technology-based ~~software~~platform application ~~platform~~ for internal ~~use.~~use by the Company. Total amount of the contract was US$4.5 million. In March 2018, the Company entered into a RMB3.0 million (approximately US$~~0.44~~0.42 million) social network-based software application development contract with another unrelated entity, which software application the Company had further ~~decided to be~~ combined into the current under developing blockchain technology-based ~~application platform, as discussed above.~~platform. These two blockchain technology-based applications are named OMG and Bo!News, respectively. As of ~~June 30,~~March 31, 2020 and December 31, 2019, in accordance with ASC 350-40 “Intangibles-Goodwill and Other-Internal-Use Software”, the Company ~~had~~ capitalized approximately US$~~3.72~~4.18 million ~~software~~and US$3.88 million development costs in the aggregate ~~for~~under these two ~~contracts. In August 2019, after the preliminary testing~~contracts, respectively. As of the ~~beta modules and discussion with potential cooperators,~~date hereof, the Company ~~decided~~is in the process of further developing and adjusting its blockchain-powered applications on the blockchain infrastructure platform to ~~tune and upgrade some functions of the backstage applications of~~make the platform ~~which are within~~a better synergism with the ~~service scope~~current business and client base. The Company had originally scheduled to complete the adjustments and upgrades of Bo!News, to launch the ~~development contracts signed. The complete combined beta version of the upgraded platform is expected to be ready~~OMG for trial by the end of ~~2019.~~May 2020, and to complete the integration of BO!News and OMG for commercial release by the end of 2020. However, due to the COVID-19 outbreak in China during the first fiscal quarter of 2020, the Company currently anticipates that the commercial releasing schedule will likely be postponed for 1 to 2 months.

According to the development contracts the Company signed with the counter parties, the Company will not bear any development risk related loss unless the counter party has no fault during the development and the causes for failure is considered reasonable as ~~consented~~agreed by both parties. In the latter case, the related development loss will be shared by both parties based on further ~~negotiation.~~negotiations. As of the date hereof, the Company ~~does~~has not been aware of any technical risks or other factors that may lead to any failure or partial failure of these development projects.

12.

Long-term prepayments

As of March 31, 2020, long-term prepayments represented a portion of the Company’s prepayments, of which approximately US$1.12 million was paid to one of its advertising resource suppliers and the remaining approximately US$0.22 million was paid to one of its professional service suppliers. The Company recorded these amounts as long-term prepayments because they were not expected to be consumed within one year of March 31, 2020.

13.

Short-term bank loan and credit facility

As of ~~June 30,~~December 31, 2019, the Company had a revolving credit facility of RMB5.0 million (approximately US$0.7 million) for short-term working capital loans granted by a major financial institution in China, which ~~currently is available to the Company until~~expired in January 2020.

As of ~~June 30,~~December 31, 2019, under the revolving credit facility, the Company borrowed RMB3.0 million (approximately US$~~0.44~~0.43 million) short-term bank loan, which ~~will mature in January 2020.~~

As of June 30, 2019, the Company borrowed another RMB3.0 million (approximately US$0.44 million) short-term working capital loan from the same financial institution, of which RMB1.5 million (approximately US$0.22 million) matured and was repaid ~~on July 29, 2019 and the remaining RMB1.5 million (approximately US$0.22 million) will mature~~ in ~~September 2019.~~January 2020.

14.

Accrued payroll and other accruals

March 31,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

Accrued payroll and staff welfare 128 173
Accrued operating expenses 396 318
524 491

~~13.~~15.

~~Advance from a customer, related~~Taxation

As of June 30, 2019, advance from a customer, related represented advance payments received from a customer that one of the Company’s executive officer and director can exercise significant influence, which was related to unsatisfied performance obligations for the use of the Company’s distribution of the right to use search engine marketing service.

~~14.~~

~~Accrued payroll and other accruals~~

June 30,
2019 December 31,
2018
US$(’000) US$(’000)
(Unaudited)

Accrued payroll and staff welfare 185 208
Accrued operating expenses 104 313
289 521

~~15.~~

~~Taxation~~

~~Income tax~~

~~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. Effective from January 1, 2018, the Company is subject to the new GILTI tax rules. The GILTI provisions impose a tax on foreign income in excess of a deemed return on tangible assets of controlled foreign corporations (“CFCs”), subject to the possible use of foreign tax credits and a deduction equal to 50 percent to offset the income tax liability, subject to some limitations. Under U.S. GAAP, the Company has made an accounting policy choice of treating taxes due on future U.S. inclusions in taxable income related to GILTI as a current period expense when incurred. For the six and three months ended June 30, 2019 and 2018, no provision for federal corporate income tax has been made in the financial statements as the Company has no aggregated positive tested income.

ii). China Net BVI and ChinaNet Investment BVI were incorporated in the British Virgin Islands (“BVI”). Under the current law of the BVI, these BVI companies are not subject to tax on income or capital gains. Additionally, upon payments of dividends by these BVI companies to its respective 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. Effective from April 1, 2018, a two-tier corporate income tax system was officially implemented in Hong Kong. The applicable income tax rate is 8.25% for the first HK$2.0 million profits, and the subsequent profits are taxed at 16.5%. No provision for Hong Kong income 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, 2019 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 subsidiaries 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)~~

	•	As approved by the related PRC governmental authorities, Business Opportunity Online continuously qualified as a High and New Technology Enterprise until November 2021, which enabled the entity, as approved by the local tax authorities of Beijing, the PRC, to continue enjoying the preferential EIT rate of 15% until November 2021. Therefore, for the six and three months ended June 30, 2019 and 2018, the applicable EIT rate of Business Opportunity Online was 15%. In accordance with the 2018 Bulletin No. 45 issued by the PRC State Administration of Taxation, which come into effect from January 1, 2018, an enterprise that obtains qualification as or remains as a High and New Technology Enterprise or Small and Medium-sized Tech Enterprise in any time of 2018 and afterwards, is allowed to carry forward all its previous five years’ net operating losses NOLs (starting from NOL of 2013) to up to ten years, compared with the PRC standard NOLs carryforward period of 5 years.

	•	~~The applicable EIT rate for other PRC operating entities of the Company was 25% for the six and three months ended June 30, 2019 and 2018.~~

	•	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, subject to approval from the related PRC tax authorities.

~~Turnover taxes and the relevant surcharges~~

Service revenues provided by the Company’s PRC operating subsidiaries 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, 2019 and 2018, 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 in the aggregate is 12% to 14% of the VAT, depending on which tax jurisdiction the Company’s PRC operating subsidiaries and VIE operate in.

~~As of June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, taxes payable consists of:

June 30,
2019 December 31,
2018
US$(’000) US$(’000)
(Unaudited)

PRC turnover tax and surcharge payable 1,303 1,215
PRC enterprise income tax payable 1,779 1,782
Total taxes payable 3,082 2,997

March 31,
2020

December 31,
2019
US$(’000) US$(’000)
(Unaudited)

Turnover tax and surcharge payable 1,234 1,244
Enterprise income tax payable 2,027 1,970
Total taxes payable 3,261 3,214

For the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the Company’s income tax ~~(expense)/benefit~~expense consisted of:

Six Months Ended June 30, Three Months Ended June 30,
2019 2018 2019 2018
US$(’000) US$(’000) US$(’000) US$(’000)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Current-PRC - - - -
Deferred-PRC (6 ) (689 ) 33 (693 )
Income tax (expense)/benefit (6 ) (689 ) 33 (693 )

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Three Months Ended March 31,
2020 2019
US$(’000) US$(’000)
(Unaudited) (Unaudited)

Current (83 ) -
Deferred 5 (39 )
Income tax expense (78 ) (39 )

The Company’s deferred tax assets as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were as follows:

	June 30, 2019			December 31, 2018			March 31, 2020			December 31, 2019
	US$(’000)			US$(’000)			US$(’000)			US$(’000)
	(Unaudited)						(Unaudited)

Tax effect of net operating losses carried forward		9,601			9,243			9,578			9,160
Bad debts provision		499			1,188			794			743
Valuation allowance		(9,551	)		(9,875	)		(9,666	)		(9,190	)
Deferred tax assets, net		549			556			706			713

16.

Long-term borrowing from a director

Long-term borrowing from a director is a non-interest bearing loan from a director of the Company relating to the original paid-in capital contribution in the Company’s wholly-owned subsidiary Rise King WFOE, which is not expected to be repaid within one year.

17.	Warrant liabilities

~~On January 17, 2018, the~~The Company consummated a registered ~~direct~~director offering ~~of 2,150,001 shares of the Company’s common stock to certain institutional investors at a purchase price of $5.15 per share (“the~~in January 2018 (the “2018 Financing”)~~. As~~, as part of the transaction, the Company ~~also~~ issued to the investors and the placement agent warrants ~~for the~~to purchase of up to 645,000 and 129,000 shares of the Company’s common stock at an exercise price of $6.60 per share, respectively.

The Company accounted for ~~the~~these warrants ~~issuing in the Financing~~ as derivative liabilities, as the strike price of the warrants is dominated in a currency (U.S. dollar) other than the functional currency of the Company (Renminbi or Yuan) and is not considered index to the Company’s own stock.liabilities. As a result, these warrants were remeasured at fair value as of each reporting date with changes in fair value be recorded in earnings in each reporting period.

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Fair value of the warrants

The Company used Binomial model to determine the fair value of the Warrants based on the assumptions summarized as below:

Investors warrants Placement agent warrants
December 31,
2018 March 31,
2019 June 30,
2019 December 31,
2018 March 31,
2019 June 30,
2019

Stock price $ 1.34 $ 1.95 $ 1.35 $ 1.34 $ 1.95 $ 1.35
Years to maturity 1.55 1.30 1.10 2.05 1.80 1.55
Risk-free interest rate 2.50 % 2.27 % 1.73 % 2.50 % 2.27 % 1.73 %
Dividend yield - - - - - -
Expected volatility 199 % 216 % 90 % 176 % 187 % 202 %
Exercise Price $ 6.60 $ 6.60 $ 6.60 $ 6.60 $ 6.60 $ 6.60

Fair value of the warrant $ 0.78 $ 1.23 $ 0.05 $ 0.80 $ 1.26 $ 0.80

Investors warrants Placement agent warrants
January 17,
2018 March 31,
2018 June 30,
2018 January 17,
2018 March 31,
2018 June 30,
2018

Stock price $ 3.98 $ 1.67 $ 2.52 $ 3.98 $ 1.67 $ 2.52
Years to maturity 2.50 2.30 2.10 3.00 2.80 2.55
Risk-free interest rate 2.22 % 2.35 % 2.53 % 2.39 % 2.50 % 2.56 %
Dividend yield - - - - - -
Expected volatility 158 % 164 % 174 % 147 % 152 % 159 %
Exercise Price $ 6.60 $ 6.60 $ 6.60 $ 6.60 $ 6.60 $ 6.60

Fair value of the warrant $ 2.93 $ 1.03 $ 1.71 $ 2.99 $ 1.06 $ 1.74

~~Changes in fair value of warrant liabilities~~

~~Six and Three Months Ended June 30, 2019 (Unaudited)~~

As of As of As of Change in Fair Value (gain)/loss
June 30,
2019 March 31,
2019 December 31,
2018 Six Months Ended
June 30, 2019 Three Months Ended
June 30, 2019
Fair value of the Warrants:
Investor warrants 32 793 503 (471 ) (761 )
Placement agent warrants 103 163 103 - (60 )
Warrant liabilities 135 956 606 (471 ) (821 )

~~Six and Three Months Ended June 30, 2018 (Unaudited)~~

As of As of As of Change in Fair Value (gain)/loss
June 30,
2018 March 31,
2018 January 17,
2018 Six Months Ended
June 30, 2018 Three Months Ended
June 30, 2018
Fair value of the Warrants:
Investor warrants 1,103 664 1,890 (787 ) 439
Placement agent warrants 224 137 385 (161 ) 87
Warrant liabilities 1,327 801 2,275 (948 ) 526
Investors warrants Placement agent warrants
As of
December 31, 2019 As of
March 31, 2020 As of
December 31, 2019 As of
March 31, 2020

Stock price $ 1.17 $ 0.95 $ 1.17 $ 0.95
Years to maturity 0.55 0.30 1.05 0.80
Risk-free interest rate 1.58 % 0.10 % 1.57 % 0.13 %
Dividend yield - - - -
Expected volatility 60 % 99 % 80 % 78 %
Exercise Price * $ 1.4927 $ 1.4927 $ 1.4927 $ 1.4927

Fair value of the warrant $ 0.11 $ 0.07 $ 0.28 $ 0.12

Warrant Liabilities (US$’000) $ 71 $ 45 $ 36 $ 16

Investors warrants Placement agent warrants
As of
December 31, 2018 As of
March 31, 2019 As of
December 31, 2018 As of
March 31, 2019

Stock price $ 1.34 $ 1.95 $ 1.34 $ 1.95
Years to maturity 1.55 1.30 2.05 1.80
Risk-free interest rate 2.50 % 2.27 % 2.50 % 2.27 %
Dividend yield - - - -
Expected volatility 199 % 216 % 176 % 187 %
Exercise Price * $ 6.60 $ 6.60 $ 6.60 $ 6.60

Fair value of the warrant $ 0.78 $ 1.23 $ 0.80 $ 1.26

Warrant Liabilities (US$’000) $ 503 $ 793 $ 103 $ 163

* On September 25, 2019, as a result of the close on the first half of a private placement with a selected group of investors, the exercise price of the warrants issued in the 2018 Financing that contain the “full ratchet” price protection in the event of subsequent issuances below the applicable exercise price (the “Down round feature”) was adjusted to $1.4927.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Changes in fair value of warrant liabilities

Three Months Ended March 31, 2020 (Unaudited)

As of
March 31, 2020

As of
December 31, 2019

Change in Fair Value
(gain)/loss

US$’000 US$’000 US$’000
Fair value of the Warrants:
Investor warrants 45 71 (26 )
Placement agent warrants 16 36 (20 )
Warrant liabilities 61 107 (46 )

Three Months Ended March 31, 2019 (Unaudited)

As of
March 31, 2019

As of
December 31, 2018

Change in Fair Value
(gain)/loss

US$’000 US$’000 US$’000
Fair value of the Warrants:
Investor warrants 793 503 290
Placement agent warrants 163 103 60
Warrant liabilities 956 606 350

Warrants issued and outstanding as of ~~June 30, 2019~~March 31, 2020 and their movements during the ~~six~~three months then ended are as follows:

	Warrant Outstanding						Warrant Exercisable						Warrant Outstanding					Warrant Exercisable
	Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number of underlying shares		Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price			Number of underlying shares	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price		Number of underlying shares	Weighted Average Remaining Contractual Life (Years)		Weighted Average Exercise Price

Balance, January 1, 2019		774,000		1.63	$	6.60		774,000		1.63	$	6.60
Balance, January 1, 2020														774,000	0.63	$	1.4927		774,000	0.63	$	1.4927
Granted/Vested		-						-						-					-
Forfeited		-						-						-					-
Exercised		-						-						-					-
Balance, June 30, 2019 (Unaudited)		774,000		1.13	$	6.60		774,000		1.13	$	6.60
Balance, March 31, 2020 (Unaudited)														774,000	0.38	$	1.4927		774,000	0.38	$	1.4927

18.	Restricted net assets

As substantially all of the Company’s operations are conducted through its PRC subsidiaries and VIEs, the Company’s ability to pay dividends is primarily dependent on receiving distributions of funds from its PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by its PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries and VIEs included in the Company’s consolidated net assets are also non-distributable for dividend purposes.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of the Company’s other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.

~~As a result of~~In accordance with these PRC laws and regulations, the Company’s PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to the Company. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, net assets restricted in the aggregate, which include paid-in capital and statutory reserve funds of the Company’s PRC subsidiaries and VIEs that are included in the Company’s consolidated net assets, were both approximately US$12.0 million.

The current PRC Enterprise Income Tax (“EIT”) Law also ~~imposed~~imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a 5% withholding tax rate, subject to approval from the related PRC tax authorities.

The ability of the Company’s PRC subsidiaries and VIEs to make dividends and other payments to the Company may also be restricted by changes in applicable foreign exchange and other laws and regulations.

Foreign currency exchange regulation in China is primarily governed by the following rules:

~~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.~~

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.

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Although the current Exchange Rules allow the ~~convertibility~~converting of Chinese Renminbi into foreign currency for current account items, conversion of Chinese Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. The Company cannot be sure that it will be able to obtain all required conversion approvals for its operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Chinese Renminbi in the future. Currently, most of the Company’s retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit the Company’s ability to use its retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

19.	Employee defined contribution plan

Full time employees of the Company in the PRC participate in a government mandated defined contribution plan, pursuant to which certain pension benefits, medical care, employee housing fund and other welfare benefits are provided to employees. Chinese labor regulations require that the PRC subsidiaries of the Company make contributions to the government for these benefits based on certain percentages of the employees’ salaries. The employee benefits were expensed as incurred. The Company has no legal obligation for the benefits beyond the contributions made. The total amounts for such employee benefits were approximately US$~~0.17~~0.04 million and US$~~0.18 million for the six months ended June 30, 2019 and 2018, respectively. The total amounts for such employee benefits were approximately US$0.08 million and US$0.10~~0.09 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

20.	Concentration of risk

Credit risk

Financial instruments that potentially subject the Company to significant concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. As of ~~June 30, 2019, 50%~~Mach 31, 2020, 99% of the Company’s cash and cash equivalents were held by major financial institutions located in Mainland and Hong Kong, China, the remaining ~~50%~~1% was held by a financial institution located in the United States of America. The Company believes that these financial institutions located in ~~Mainland~~ China and the United States of America are of high credit quality. For accounts receivable, the Company extends credit based on an evaluation of the customer’s financial condition, generally without requiring collateral or other security. In order to minimize the credit risk, the Company delegated a team responsible for credit approvals and other monitoring procedures to ensure that follow-up action is taken to recover overdue debts. Further, the Company reviews the recoverable amount of each individual receivable at each balance sheet date to ensure that adequate allowances are made for doubtful accounts. In this regard, the Company considers that the Company’s credit risk for accounts receivable ~~and other receivables~~ is significantly reduced.

~~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.

~~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 subsidiaries and VIEs to transfer its net assets, which to the Company through loans, advances or cash dividends.

~~CHINANET ONLINE HOLDINGS, INC.~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

Concentration of customers

The following tables summarized the information about the Company’s concentration of customers for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

	Customer A			Customer B			Customer C			Customer A			Customer B			Customer C			Customer D			Customer E			Customer F

Six Months Ended June 30, 2019
Three Months Ended March 31, 2020
Revenues, customer concentration risk		13	%		-			*			*			*			*			*			15	%		11	%

Three Months Ended June 30, 2019
Three Months Ended March 31, 2019
Revenues, customer concentration risk		11	%		-			-			17	%		*			-			-			-			-

Six Months Ended June 30, 2018
Revenues, customer concentration risk		14	%		14	%		*

Three Months Ended June 30, 2018
Revenues, customer concentration risk		19	%		*			11	%

As of June 30, 2019
As of March 31, 2020
Accounts receivable, customer concentration risk		66	%		-			*			27	%		12	%		24	%		11	%		-			-

As of December 31, 2018
As of December 31, 2019
Accounts receivable, customer concentration risk		74	%		-			12	%		57	%		13	%		12	%		-			-			-

* Less than 10%.

- No transaction incurred for the reporting period/no balance existed as of the reporting date.

Concentration of suppliers

The following tables summarized the information about the Company’s concentration of suppliers for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively:

	Supplier A			Supplier B			Supplier A			Supplier B

Six Months Ended June 30, 2019
Three Months Ended March 31, 2020
Cost of revenues, supplier concentration risk		90	%		*			71	%		11	%

Three Months Ended June 30, 2019
Three Months Ended March 31, 2019
Cost of revenues, supplier concentration risk		91	%		*			89	%		-

Six Months Ended June 30, 2018
Cost of revenues, supplier concentration risk		83	%		13	%

Three Months Ended June 30, 2018
Cost of revenues, supplier concentration risk		87	%		10	%

* Less than 10%.

- No transaction incurred for the reporting period/no balance existed as of the reporting date.

21.	Commitments and contingencies

In 2018, the Company entered into contracts with two unrelated third parties in relation to the development of the Company’s ~~blockchain-powered marketing and advertising application platform.~~blockchain technology-powered platform applications. Total contract amount of these two contracts was approximately US$~~4.94~~4.92 million. As of ~~June 30, 2019,~~March 31, 2020, the Company had paid approximately US$~~3.72~~4.18 million in the aggerate, and the remaining unpaid contract amount is expected to be paid during the year ending December 31, ~~2019.~~2020.

The Company is currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. The Company may from time to time become a party to various legal or administrative proceedings arising in its ordinary course of business.

22.	Segment reporting

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~~

Previously, the Company had four reportable segments, which were Internet advertising and related services, TV advertising service, Blockchain technology and Corporate. From fiscal 2020, the Company has a new reportable segment, which is Ecommerce O2O advertising and marketing services segment. In additional, due to the Company’s TV advertising business gradually became dormant since fiscal 2019, and the remaining general operating expenses, net loss and total assets amounts of the Company’s TV advertising segment were and are expected to continue be immaterial, the Company combines the results of operations of its TV advertising segment and other disclosure information with its new Ecommerce O2O advertising and marketing services segment in fiscal 2020. As a result, the related disclosures for the respective corresponding periods in fiscal 2019 have been reclassified in comfort with the disclosures in fiscal 2020.

Three Months Ended ~~June 30, 2019~~March 31, 2020 (Unaudited)

	Internet Ad. and data service			TV Ad.			Blockchain technology			Corporate			Inter- segment and reconciling item			Total				Internet Ad and related services			Ecommerce O2O Ad and marketing services		Blockchain technology			Corporate			Inter- segment and reconciling item			Total
	US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$(‘000)			US$(‘000)		US$(‘000)			US$(‘000)			US$(‘000)			US$(‘000)

Revenues		24,020			-			-			-			-			24,020			3,236			503		-			645			-			4,384
Cost of revenues		23,212			-			-			-			-			23,212			3,110			375		-			-			-			3,485
Total operating expenses		1,850			36			11			871	(1)		-			2,768			1,022			4		1			2,148	(1)		-			3,175
Depreciation and amortization expense included in total operating expenses		35			-			1			16			-			52			206			-		-			1			-			207
Operating loss		(1,042	)		(36	)		(11	)		(871	)		-			(1,960	)
Operating (loss)/income																				(896	)		124		(1	)		(1,503	)		-			(2,276	)

Change in fair value of warrant liabilities		-			-			-			471			-			471			-			-		-			46			-			46

Net loss		(1,075	)		(36	)		(11	)		(400	)		-			(1,522	)
Net (loss)/income																				(893	)		103		(1	)		(1,519	)		-			(2,310	)

Total assets-June 30, 2019		11,550			229			3,389			16,143			(16,640	)		14,671
Total assets-December 31, 2018		12,756			207			3,396			17,155			(16,546	)		16,968
Expenditure for long-term assets																				-			-		302			-			-			302

Total assets-March 31, 2020																				11,521			2,844		4,180			21,940			(21,991	)		18,494
Total assets-December 31, 2019																				13,332			2,075		3,885			21,338			(22,079	)		18,551

~~(1) Including approximately US$203,000 share-based compensation expenses.~~

(1)

Including approximately US$1,919 thousands share-based compensation expenses.

CHINANET ONLINE HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Three Months Ended ~~June 30,~~March 31, 2019 (Unaudited)

	Internet Ad. and data service			TV Ad.			Blockchain technology			Corporate			Inter- segment and reconciling item		Total			Internet Ad. and related services			Ecommerce O2O Ad and marketing services			Blockchain technology			Corporate			Inter- segment and reconciling item		Total
	US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)		US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)			US$ (‘000)		US$ (‘000)

Revenues		15,453			-			-			-			-		15,453			8,567			-			-			-			-		8,567
Cost of revenues		15,087			-			-			-			-		15,087			8,125			-			-			-			-		8,125
Total operating expenses		1,145			18			6			419	⁽¹⁾		-		1,588			705			18			5			452	(1)		-		1,180
Depreciation and amortization expense included in total operating expenses		12			-			1			1			-		14			23			-			-			15			-		38
Operating loss		(779	)		(18	)		(6	)		(419	)		-		(1,222	)		(263	)		(18	)		(5	)		(452	)		-		(738	)

Change in fair value of warrant liabilities		-			-			-			821			-		821			-			-			-			(350	)		-		(350	)

Net (loss)/income		(760	)		(17	)		(6	)		401			-		(382	)
Net loss																			(315	)		(19	)		(5	)		(801	)		-		(1,140	)

~~(1) Including approximately US$102,000~~
(1) Including approximately US$101 thousands share-based compensation expenses.
~~Six Months Ended June 30, 2018~~
Internet Ad.
and data
service TV Ad. Blockchain
technology Corporate Inter-
segment and
reconciling
item Total
US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000)

Revenues 30,689 91 - 371 (371 ) 30,780
Cost of revenues 29,173 38 - - - 29,211
Total operating expenses 10,388 47 4 1,366 ⁽¹⁾ (371 ) 11,434
Depreciation and amortization expense included in total operating expenses 389 - - 38 - 427
Impairment on goodwill included in total operating expenses 5,412 - - - - 5,412
Impairment on intangible assets included in total operating expenses 1,878 - - - - 1,878
Operating (loss)/income (8,872 ) 6 (4 ) (995 ) - (9,865 )

Impairment on long-term investments - - - (471 ) - (471 )

Change in fair value of warrant liabilities - - - 948 - 948

Net (loss)/income (9,271 ) 6 (4 ) (855 ) - (10,124 )

Expenditure for long-term assets 448 - 3,755 2 - 4,205
~~(1) Including approximately US$151,000 share-based compensation expenses.~~
27
~~CHINANET ONLINE HOLDINGS, INC.~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)~~

~~Three Months Ended June 30, 2018 (Unaudited)~~
Internet Ad.
and data
service TV Ad. Blockchain
technology Corporate Inter-
segment and
reconciling
item Total
US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000) US$
(‘000)

Revenues 22,520 - - - - 22,520
Cost of revenues 21,552 - - - - 21,552
Total operating expenses 8,766 25 4 493 ⁽¹⁾ - 9,288
Depreciation and amortization expense included in total operating expenses 192 - - 19 - 211
Impairment on goodwill included in total operating expenses 5,412 - - - - 5,412
Impairment on intangible assets included in total operating expenses 1,878 - - - - 1,878
Operating loss (7,798 ) (25 ) (4 ) (493 ) - (8,320 )

Change in fair value of warrant liabilities - - - (526 ) - (526 )

Net loss (8,198 ) (14 ) (4 ) (1,338 ) - (9,554 )

Expenditure for long-term assets - - 2,555 1 - 2,556
~~(1) Including approximately US$76,000 share-based compensation expenses.~~
23. Loss per share

Basic and diluted loss per share for each of the periods presented are calculated as follows (All amounts, except number of shares and per share data, are presented in thousands of U.S. dollars):

Three Months Ended March 31,
Six Months Ended June 30, Three Months Ended June 30, 2020 2019
2019 2018 2019 2018 US$(’000) US$(’000)
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)

Net loss attributable to ChinaNet Online Holdings, Inc. (numerator for basic and diluted loss per share) $ (1,517 ) $ (10,069 ) $ (379 ) $ (9,504 ) $ (2,310 ) $ (1,138 )

Weighted average number of common shares outstanding -Basic and diluted 16,411,548 15,676,249 16,412,543 15,866,305 20,397,406 16,410,543

Loss per share-Basic and diluted $ (0.09 ) $ (0.64 ) $ (0.02 ) $ (0.60 )
Loss per share -Basic and diluted $ (0.11 ) $ (0.07 )

23
28
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
For the three months ended March 31, 2020, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 755,216 shares of the Company’s common stock, respectively, because their effect was anti-dilutive, as the Company incurred a loss for the period.

For the ~~six and~~ three months ended ~~June 30,~~March 31, 2019, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 835,216 shares of the Company’s common stock, respectively, because their effect was anti-dilutive, as the Company incurred a ~~net~~ loss for ~~both periods.~~
~~For~~ the six and three months ended June 30, 2018, the diluted loss per share calculation did not include warrants and options to purchase up to 774,000 and 835,216 shares of the Company’s common stock, respectively, and 266,238 shares of unvested restricted common stock before they were vested during the third quarter of 2018, because their effect was anti-dilutive, as the Company incurred a net loss for both periods.period.

24. Share-based compensation expenses

In ~~January 2019,~~February 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued ~~30,000~~in the aggregate of approximately 1.60 million fully-vested shares of the Company’s restricted common stock to its management and employees for their services provided. These shares were valued at the closing bid price of the Company’s common stock on the date of grant, which is US$1.18 per share. Total compensation expenses of approximately US$1.89 million was recorded for the three months ended March 31, 2020.
In March 2020, under its 2015 Omnibus Securities and Incentive Plan, the Company granted and issued 0.03 million fully-vested shares of the Company’s restricted common stock to one of its independent directors in exchange for his services ~~to the Company~~ for the year ending December 31, ~~2019.~~2020. These shares were valued at ~~US$1.77 per share,~~ the closing bid price of the Company’s common stock on the date of ~~grant.~~grant, which is US$1.11 per share. Total compensation ~~expense is~~expenses amortized ~~over~~for the ~~requisite service period. For the six and~~ three months ended ~~June 30, 2019, compensation expense recognized~~March 31, 2020 was approximately US$~~26,000 and US$13,000, respectively.~~0.01 million.

In ~~December 2018,~~March 2020, the Company granted and issued ~~250,000~~430,000 shares of the Company restricted common stock to a management consulting and advisory service provider in exchange for its service for a ~~one-year period. These~~two-year period until February 2022. According to the service agreement, these shares ~~were~~are fully-vested upon issuance at the contract inception and shall not be subject to forfeiture upon termination of the agreement. The Company valued these shares at US$~~1.43~~1.11 per share, the closing bid price of the Company’s common stock on the grant date of ~~grant. The Company~~these shares and recorded the related total cost of approximately US$~~358,000~~0.48 million as a prepayment asset in prepayment and deposit to suppliers account upon grant and issuance of these fully-vested and nonforfeitable shares. Total compensation expenses amortized for the ~~six and~~ three months ended ~~June 30, 2019~~March 31, 2020 was approximately US$~~177,000 and US$89,000, respectively.~~0.02 million.

~~Options issued~~The table below summarized share-based compensation expenses recorded for the three months ended March 31, 2020 and ~~outstanding~~2019, respectively:
Three Months Ended March 31,
2020 2019
US$(’000) US$(’000)
(Unaudited) (Unaudited)

Sales and marketing expenses 122 -
General and administrative expenses 1,651 101
Research and development expenses 146 -
Total 1,919 101
The aggregate unrecognized share-based compensation expenses as of ~~June 30, 2019~~March 31, 2020 was approximately US$0.48 million, of which approximately US$0.20 million will be recognized for the year ending December 31, 2020, approximately US$0.24 million will be recognized for the year ending December 31, 2021 and ~~their movements during~~approximately US$0.04 million will be recognized for 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, January 1, 2019 835,216 2.04 $ 2.49 835,216 2.04 $ 2.49
Granted/Vested - -
Forfeited - -
Exercised - -
Balance, June 30, 2019 (Unaudited) 835,216 1.54 $ 2.49 835,216 1.54 $ 2.49
year ending December 31, 2022.
29
24
CHINANET ONLINE HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

~~The aggregate intrinsic value of the above options was zero~~Options issued and outstanding as of ~~June 30, 2019~~March 31, 2020 and ~~December 31, 2018, as~~ their ~~respective exercise prices were all higher than~~movements during the ~~Company’s closing stock price on the last trading day of each reporting period.~~
~~The table below summarized share-based compensation expenses recorded for the six and~~ three months then ended ~~June 30, 2019 and 2018, respectively:~~are as follows:

Six Months Ended June 30, Three Months Ended June 30,
2019 2018 2019 2018
US$(’000) US$(’000) US$(’000) US$(’000)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)

Sales and marketing expenses - 27 - 14
General and administrative expenses 203 102 102 51
Research and development expenses - 22 - 11
Total 203 151 102 76
Option Outstanding Option Exercisable
Number of underlying shares Weighted
Average
Remaining
Contractual
Life (Years) Weighted
Average
Exercise
Price Number of underlying shares Weighted
Average
Remaining
Contractual
Life (Years) Weighted
Average
Exercise
Price

Balance, January 1, 2020 755,216 1.15 $ 2.43 755,216 1.15 $ 2.43
Granted/Vested - -
Forfeited - -
Exercised - -
Balance, March 31, 2020 (Unaudited) 755,216 0.90 $ 2.43 755,216 0.90 $ 2.43

The aggregate unrecognized share-based compensation expenses as of June 30, 2019 and December 31, 2018 was approximately US$0.19 million and US$0.34 million, respectively. All unrecognized share-based compensation expenses as of June 30, 2019 will be recognized for the year ending December 31, 2019.

25. Subsequent event

In May 2020, one of the Company’s consolidated VIEs, Business Opportunity Online Hubei incorporated a new wholly-owned subsidiary, ChinaNet Online (Guangdong) Technology Co., Ltd. (“ChinaNet Online Guangdong”). ChinaNet Online Guangdong was established for the Company to expand its corporate business and technology headquarters to Southern China. ChinaNet Online Guangdong is currently in its setup period.
The Company ~~has performed an evaluation of subsequent events through the date the financial statements were issued and has determined that there are no events that would have required adjustment or disclosure~~primarily conducts its operations in the PRC. In January 2020, an outbreak of a novel coronavirus (COVID-19) surfaced in Wuhan City, Hubei province of the PRC, and spread all over the country during the first fiscal quarter of 2020. The outbreak caused the Chinese government to require businesses to close, people to quarantine, and also to restrict certain travel within the country. The spread of COVID-19 has resulted in the World Health Organization declaring the outbreak of COVID-19 as a global pandemic. In cooperation with the government authorities, the Company’s operating offices (especially that in Xiaogan City, Hubei province) were shut down for approximately one to two months after the Chinese New Year Holiday and were unable to reopen until mid-March or early-April in 2020. The Company’s principle business activity is to provide online advertising and marketing services to small and medium enterprises in the PRC, which is particularly sensitive to changes in general economic conditions. The pandemic of COVID-19 in the PRC had caused decreases in or delays in advertising spending and had negatively impacted the Company’s short-term ability to grow revenues. While the COVID-19 pandemic is still in developing stages worldwide, international stock markets have begun to reflect the uncertainty associated with the slow-down in the global economy and the reduced levels of international travel experienced since the beginning of January, large declines in oil prices and the significant decline in the Dow Industrial Average at the end of February and beginning of March 2020 was largely attributed to the effects of COVID-19. Although the Chinese government have declared the COVID-19 outbreak largely under control within its border, the Company will continue to assess its financial ~~statements, except~~impacts for ~~those have discussed~~the remainder of the year. There can be no assurance that this assessment will enable the Company to avoid part or all of any impact from the spread of COVID-19 or its consequences, including downturns in ~~Note 3(b) and Note 12.~~business sentiment generally or in the Company’s sector in particular.

30

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, ~~2018.~~2019. Readers are cautioned not to place undue reliance on these forward-looking statements.

~~Overview~~
Overview

Our company iswas incorporated in the State of Texas in April 2006 and re-domiciled to become a Nevada corporation in October 2006. As a result of a share exchange transaction we consummated with China Net BVI in June 2009, we are now a holding company, which through certain contractual arrangements with operating companies in the PRC, is engaged in providing advertising, precision marketing, online to offline sales channel expansion and the related data and technical services to ~~small and medium enterprises~~SMEs in the PRC.

Through our PRC operating subsidiaries and VIEs, we primarily operate a one-stop services for our clients on our Omni-channel advertising, precision marketing and data analysis management system. We offer a variety channels of advertising and marketing services through this system, which primarily include distribution of the right to use search engine marketing services we purchased from key search engines, provision of online advertising placements on our web portals, sales of effective sale lead information as well as ~~sell~~ provision of ~~TV advertising service~~other related value-added data and technical services to maximize market exposure and effectiveness for our clients.
To enhance the reliability of our future blockchain services and optimize location for client proximity, we incorporated a new wholly-owned subsidiary, ChinaNet Online (Guangdong) Technology Co., Ltd. (“ChinaNet Online Guangdong”) in May 2020 as we are in the process of expanding our corporate business and technology headquarters to the city of Guangzhou in Southern China. We expect to officially open our new Guangzhou headquarters in July 2020.

Basis of presentation, management estimates and critical accounting policies

Our unaudited condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“U.S. GAAP”) and include the accounts of our company, and all of our subsidiaries and VIEs. We prepare financial statements in conformity with U.S. GAAP, which requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities on the date of the financial statements and the reported amounts of revenues and expenses during the financial reporting period. We continually evaluate these estimates and assumptions based on the most recently available information, our own historical experience and various other assumptions that we believe to be reasonable under the circumstances. Since the use of estimates is an integral component of the financial reporting process, actual results could differ from those estimates. Some of our accounting policies require higher degrees of judgment than others in their application. In order to understand the significant accounting policies that we adopted for the preparation of our condensed consolidated interim financial statements, readers should refer to the information set forth in Note 3 “Summary of significant accounting policies” to our audited financial statements in our ~~2018~~2019 Form 10-K. Please refer to Note 3 to the unaudited condensed consolidated interim financial statements for the discussion of the newly adopted lease accounting policy and the impact of other recently issued accounting standards.

A.       RESULTS OF OPERATIONS FOR THE ~~SIX AND~~ THREE MONTHS ENDED ~~JUNE 30,~~MARCH 31, 2020 AND 2019 ~~AND 2018~~

The following table sets forth a summary, for the periods indicated, of our consolidated results of operations. Our historical results presented below are not necessarily indicative of the results that may be expected for any future period. All amounts, except number of shares and per share data, are presented in thousands of U.S. dollars.

Three Months Ended March 31,
2020 2019
(US $) (US $)
(Unaudited) (Unaudited)

Revenues
From unrelated parties $ 4,371 $ 8,560
From related parties 13 7
Total revenues 4,384 8,567
Cost of revenues 3,485 8,125
Gross profit 899 442

Operating expenses
Sales and marketing expenses 165 169
General and administrative expenses 2,796 810
Research and development expenses 214 201
Total operating expenses 3,175 1,180

Loss from operations (2,276 ) (738 )

Other income/(expenses)
Interest expense, net (1 ) (11 )
Other expenses (1 ) (2 )
Change in fair value of warrant liabilities 46 (350 )
Total other income/(expenses) 44 (363 )

Loss before income tax expense and noncontrolling interests (2,232 ) (1,101 )
Income tax expense (78 ) (39 )
Net loss (2,310 ) (1,140 )
Net loss attributable to noncontrolling interests - 2
Net loss attributable to ChinaNet Online Holdings, Inc. $ (2,310 ) $ (1,138 )
31 Revenues
Six Months Ended June 30, Three Months Ended June 30,
2019 2018 2019 2018
(US $) (US $) (US $) (US $)
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
Revenues
From unrelated parties $ 23,912 $ 30,780 $ 15,352 $ 22,520
From a related party 108 - 101 -
Total revenues 24,020 30,780 15,453 22,520
Cost of revenues 23,212 29,211 15,087 21,552
Gross profit 808 1,569 366 968

Operating expenses
Sales and marketing expenses 350 844 181 280
General and administrative expenses 2,058 2,842 1,248 1,478
Research and development expenses 360 458 159 240
Impairment on intangible assets - 1,878 - 1,878
Impairment on goodwill - 5,412 - 5,412
Total operating expenses 2,768 11,434 1,588 9,288

Loss from operations (1,960 ) (9,865 ) (1,222 ) (8,320 )

Other income (expenses)
Impairment on long-term investments - (471 ) - -
Interest expense, net (23 ) (19 ) (12 ) (9 )
Other expenses (4 ) (28 ) (2 ) (6 )
Change in fair value of warrant liabilities 471 948 821 (526 )
Total other income/(expenses) 444 430 807 (541 )

Loss before income tax (expense)/benefit and noncontrolling interests (1,516 ) (9,435 ) (415 ) (8,861 )
Income tax (expense)/benefit (6 ) (689 ) 33 (693 )
Net loss (1,522 ) (10,124 ) (382 ) (9,554 )
Net loss attributable to noncontrolling interests 5 55 3 50
Net loss attributable to ChinaNet Online Holdings, Inc. $ (1,517 ) $ (10,069 ) $ (379 ) $ (9,504 )
~~Revenues~~

The following tables set forth a breakdown of our total revenues, disaggregated by type of services for the periods indicated, with inter-company transactions eliminated:

Six Months Ended June 30,
2019 2018
Revenue type (Amounts expressed in thousands of US dollars, except percentages)

-Internet advertising and data service $ 5,435 22.6 % $ 4,834 15.7 %
-Distribution of the right to use search engine marketing service 18,580 77.4 % 25,848 84.0 %
-Technical and other services 5 - 7 -
Internet advertising and related data services 24,020 100 % 30,689 99.7 %
TV advertising service - - 91 0.3 %
Total $ 24,020 100 % $ 30,780 100 %
Three Months Ended June 30,
2019 2018
Revenue type (Amounts expressed in thousands of US dollars, except percentages)

-Internet advertising and data service $ 3,598 23.3 % $ 3,115 13.8 %
-Distribution of the right to use search engine marketing service 11,855 76.7 % 19,405 86.2 %
Internet advertising and related data services 15,453 100 % 22,520 100 %
TV advertising service - - - -
Total $ 15,453 100 % $ 22,520 100 %
32
Three Months Ended March 31,
2020 2019
Revenue type (Amounts expressed in thousands of US dollars, except percentages)

-Internet advertising and related data service $ 948 21.6 % $ 1,837 21.4 %
-Distribution of the right to use search engine marketing service 1,988 45.4 % 6,725 78.5 %
-Data and technical services 300 6.8 % 5 0.1 %
Internet advertising and related services 3,236 73.8 % 8,567 100 %
Ecommerce O2O advertising and marketing services 503 11.5 % - -
Technical solution services 645 14.7 % - -
Total $ 4,384 100.0 % $ 8,567 100.0 %

Total Revenues: Our total revenues decreased to US$~~24.02 million and US$15.45~~4.38 million for the ~~six and~~ three months ended ~~June 30, 2019, respectively,~~March 31, 2020 from US$~~30.78 million and US$22.52~~8.57 million for the same ~~periods~~period last year, ~~respectively,~~ which was primarily due to decrease in revenues from distribution of the right to use the search engine marketing service we purchased from key search engines in the second fiscal quarter of 2019, compared with that in the same period last year.
We derive the majority of our advertising and data service revenues from distribution of the right to use the search engine marketing (“SEM”) services, sale of advertising space on our internet ad portals and sales of effective sales lead information, all of which management considers as one aggregate business operation and relies upon the consolidated results of all operations in this business unit to make decisions about allocating resources and evaluating performance.
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 customers. For the six and three ended December 31, 2019, service revenue from related parties was less than 1% of the total revenue for each respective reporting period.
• Internet advertising revenues for the six and three months ended June 30, 2019 was approximately US$5.44 million and US$3.60 million, respectively, compared with US$4.83 million and US$3.12 million for the six and three months ended June 30, 2018, respectively. Due to increase in other new form of self-media advertising channels, our clients continued tightening their investment budget on advertising and marketing activities through traditional ad portal platforms, and focused more on new interactive advertising channels, and singular ad, cheaper advertising channel, e.g. search engine marketing, which brings customers with direct internet traffic flow through clicks. As a result, we experienced decline in revenues from this business category from fiscal 2017. In order to maintain the customer base for our ad portals and maintain our overall industry competitive position, we increased our investment in cost consumption for effective sale lead generation to improve the ad effectiveness and increase customers’ satisfaction. As a result of this investment, revenues from this service increased by approximately 12% and 16% for the six and three months ended June 30, 2019, respectively, compared with that in the same periods last year, respectively. In future periods, we intend to optimize our cost control mechanism for our ad portals, which aiming to help our ad portals to achieve more accurate advertising and marketing results that will lead to increasing sales lead conversion rate for our customers with more acceptable and lower costs, and thereby improve the gross profit margin of this business category.
Revenue generated from distribution of the right to use search engine marketing service provided by key search engines for the six and three months ended June 30, 2019 was approximately US$18.58 million and US$11.86 million, respectively, compared with approximately US$25.85 million and US$19.41 million, respectively. Customers use this third-party search engine marketing service to increasing exposure through attracting more visits to their websites and achieve higher sales lead conversion rate, through bidding selected effective key words on different search engines. As discussed in the above paragraph, in recent years, our customers turn to choose more economic and singular marketing channel with more direct feedbacks and results, e.g. search engine marketing service, given our penetration in the advertising industry, solid partnership relations with key search engines and relative large amount of purchase, we were able to offer our customers with search engine resource at relatively lower rate compared with the market, as a result, since fiscal 2017, our revenue from distribution of right to use search engine market service provided by key search engines contributed more than 70% of our total revenues for each of our reporting period. The decrease in our revenues from this business category in the second fiscal quarter of 2019, compared with that in the second fiscal quarter of 2018 was primarily due to that as compared with the same period last year, the key suppliers of ours tightened their credit policies to us, more working capital was required for the same volume of search engine resource compared with last year, on the other hand, our collection of the accounts receivables did not improve significantly compared with previous quarters, and the profitability of our core business and working capital available during the period were limited, all of which decrease the volume of search engine resource that we purchased and redistributed to our customers during the period, as compared with the same period last year. In response, we have started to require our customers to pay more in advances, further strengthen our account receivables management and actively negotiating with our key suppliers for more favorite credit policies. We expect the decrease in revenues from ~~this~~our Internet advertising and related services business ~~category was temporary and~~segment, as a result of the ~~situation will improve in~~COVID-19 outbreak during the ~~second half~~first fiscal quarter of ~~2019.~~2020.
l Revenues from our core businesses, Internet advertising and distribution of the right to use search engine marketing service for the three months ended March 31, 2020 decreased significantly to US$0.95 million and US$1.99 million, respectively, compared with US$1.84 million and US$6.73 million for the three months ended March 31, 2019, respectively. The decreases were directly attributable to the COVID-19 outbreak during the first fiscal quarter of 2020 in China, which caused our operating offices, along with most of our customers and suppliers’ remain closed after the Chinese New Year holiday in February and March 2020, resulted from the epidemic control measures imposed by the local governments.

l For the three months ended March 31, 2020, we generated an approximately US$0.30 million Internet advertising related data and technical service revenue from distribution of the right to access a data analysis and management system we purchased from a third party.

33 l For the three months ended March 31, 2020, we also generated an approximately US$0.50 million Ecommerce O2O advertising and marketing service revenues from distribution of the advertising spaces in outdoor billboards we purchased from a third party; and an approximately US$0.65 million revenue from providing E-commence website technical design service.

Cost of revenues

Our cost of revenues consisted of costs directly related to the offering of our online advertising, precision marketing and related data and technical services, and cost related to our TVEcommerce O2O advertising and marketing service. The following table sets forth our cost of revenues, disaggregated by type of services, by amount and gross profit ratio for the periods indicated, with inter-company transactions eliminated:

Six Months Ended June 30,
2019 2018
(Amounts expressed in thousands of US dollars, except percentages)
Revenue Cost GP ratio Revenue Cost GP ratio

-Internet advertising and data service $ 5,435 5,218 4 % $ 4,834 4,207 13 %
-Distribution of the right to use search engine marketing service 18,580 17,989 3 % 25,848 24,966 3 %
-Technical and other services 5 5 - 7 - 100 %
Internet advertising and related data services 24,020 23,212 3 % 30,689 29,173 5 %
TV advertising service - - - 91 38 58 %
Total $ 24,020 $ 23,212 3 % $ 30,780 $ 29,211 5 %
Three Months Ended June 30,
2019 2018
(Amounts expressed in thousands of US dollars, except percentages)
Revenue Cost GP ratio Revenue Cost GP ratio

-Internet advertising and data service $ 3,598 3,484 3 % $ 3,115 2,732 12 %
-Distribution of the right to use search engine marketing service 11,855 11,598 2 % 19,405 18,820 3 %
-Technical and other services - 5 - - - -
Internet advertising and related data services 15,453 15,087 2 % 22,520 21,552 4 %
TV advertising service - - - - - -
Total $ 15,453 $ 15,087 2 % $ 22,520 $ 21,552 4 %
Three Months Ended March 31,
2020 2019
(Amounts expressed in thousands of US dollars, except percentages)
Revenue Cost GP ratio Revenue Cost GP ratio

-Internet advertising and related data service $ 948 834 12 % $ 1,837 1,734 6 %
-Distribution of the right to use search engine marketing service 1,988 2,011 -1 % 6,725 6,391 5 %
-Data and technical services 300 265 12 % 5 - 100 %
Internet advertising and related services 3,236 3,110 4 %
Ecommerce O2O advertising and marketing services 503 375 25 % - - -
Technical solution services 645 - 100 % - - -
Total $ 4,384 $ 3,485 21 % $ 8,567 $ 8,125 5 %

Cost of revenues: our total cost of revenues decreased to US$~~23.21 million and US$15.09~~3.49 million for the ~~six and~~ three months ended ~~June 30, 2019, respectively,~~March 31, 2020 from US$~~29.21 million and US$21.55~~8.13 million for the ~~six and~~ three months ended ~~June 30, 2018, respectively.~~March 31, 2019. Our cost of revenues primarily consists of search engine marketing resources purchased from key search engines, cost of outdoor advertising resource, license fee paid for providing date and technical services, ~~purchased~~ and other direct costs associated with providing ~~the~~our services. The decrease in our total cost of revenues for the ~~six and~~ three months ended ~~June 30, 2019~~March 31, 2020 was primarily due to the decrease in costs associated with distribution of the right to use search engine marketing service we purchased from key search engines and cost related to providing Internet advertising services on our ad portals, which was in line with the decrease in the related revenues as discussed above, which was partially offset by an increase in cost of online advertising placements service on our own ad portals, as a result of increase in the related service revenues and cost investments to maintain customer base and competitive advantage through improve the customers’ satisfaction of its ad placements on our own ad portals during the periods.above.

l Costs for internet advertising and data service primarily consist of cost of internet traffic flow and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to promote business opportunity advertisements placed on our own ad portals. For the three months ended March 31, 2020, our total cost of revenues for Internet advertising and data service decreased significantly to US$0.83 million from approximately US$1.73 million for the three months ended March 31, 2019, which was in line with the revenues decrease as a result of the COVID-19 outbreak during the period. The gross margin rate of our internet advertising and data service was 12% for the three months ended March 31, 2020, compared with 6% for the three months ended March 31, 2019. Along with our enhancement of data analysis capabilities and optimization of cost control mechanism, the gross profit margin of this business started to improve from the second half of 2019. However, as the business activities of this business for the three months ended March 31, 2020 was significantly affected by the COVID-19 outbreak during the period, the performance of this business for the three months ended March 31, 2020 in terms of revenue volume and related cost consumption may not be indicative for the full fiscal year or any future periods, or comparable to any historical reporting periods.
l Costs for search engine marketing service was direct search engine resource costs consumed for the right to use search engine marketing service we purchased from key search engines and distributed to our customers. We purchased these search engine resources from well-known search engines in China, for example, Baidu, Qihu 360 and Sohu (Sogou) etc. We purchased the resource in relatively large amounts under our own name at a relatively lower rate compared to the market. We charged our clients the actual cost they consumed on search engines for the use of this service and a premium at certain percentage of that actual consumed cost. For the three months ended March 31, 2020, our total cost of revenues for distribution of the right to use search engine marketing service decreased significantly to US$2.01 million from approximately US$6.39 million for the three months ended March 31, 2019, which was in line with the decrease in revenues as a result of the COVID-19 outbreak during the period. Gross margin rate of this service decreased to -1% for the three months ended March 31, 2020, as we had to sell the resource pre-purchased from key search engines with no profit to meet our working capital needs under the COVID-19 outbreak circumstance. As stated above, due to the COVID-19 outbreak impacts during the first fiscal quarter of 2020, the performance of this business for the three months ended March 31, 2020 in terms of revenue volume and related cost consumption may not be indicative for the full fiscal year or any future periods, or comparable to any historical reporting periods.
Costs for internet advertising and data service were primarily consist of cost of internet traffic flow and technical services we purchased from other portals and technical suppliers for obtaining effective sales lead generation to promote business opportunity advertisements placed on our own ad portals. For the six and three months ended June 30, 2019, our total cost of revenues for internet advertising and data service was approximately US$5.22 million and US$3.48 million, respectively, compared with approximately US$4.21 million and US$2.73 million for the six and three months ended June 30, 2018, respectively. The gross margin rate of our internet advertising and data service revenues decreased to 4% and 3%, respectively, for the six and three months ended June 30, 2019, compared with 13% and 12% for the six and three months ended June 30, 2018, respectively. As stated in previous quarters, the decrease in our gross margin rate of this business category was primarily due to the fact that in order to retain the customer base of our ad portals under the recent downturn economy environment in China and intense market competition in the internet ad industry with new interactive advertising channels as discussed in the revenue section above, we had to invest aggressively to obtain more valid and active sales lead generations for the improvement of the effectiveness and efficiency of ad placements for our customers.
l For the three months ended March 31, 2020, cost for our Internet advertising related data and technical service revenue of approximately US$0.27 million was the amortized licensee fee for the use of the related data analysis and management system during the period.

34 l For the three months ended March 31, 2020, cost for our Ecommerce O2O advertising and marketing service revenues of approximately US$0.38 million was the amortized cost for the related outdoor billboards ad spaces we pre-purchased.
Costs for search engine marketing service was direct search engine resource costs consumed for the right to use search engine marketing service we purchased from key search engines and distributed to our customers. We purchased these search engine resources from well-known search engines in China, for example, Baidu, Qihu 360 and Sohu (Sogou) etc. The purchase of the resource in relatively large amounts under our own name allowed us to get it at a relatively low rate compared to the market. We charge our clients the actual cost they consumed on search engines for the use of this service and a premium at certain percentage of that actual consumed cost. Gross margin rates of this service for the six and three months ended June 30, 2019 was approximately 3% and 2%, respectively, compared with approximately 3% for both the six and three months ended June 30, 2018.

Gross Profit

As a result of the foregoing, our gross profit was approximately US$~~0.81~~0.90 million and US$~~0.37~~0.44 million for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively, compared with approximately US$1.57 million and US$0.97 million for the six and three months ended June 30, 2018,~~ respectively. Our overall gross margin ~~decreased to 3%~~was 21% and 2%5% for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively, compared with 5% and 4% for~~respectively. As stated above, as the ~~same periods last year, respectively. The decrease in our gross profit and overall gross margin rate were primarily due to (1) the decrease in gross profit margin~~business activities of our ~~internet advertising and data service, which was 4% and 3%~~core businesses for the ~~six and~~ three months ended ~~June 30, 2019, respectively, compared with 13% and 12%~~March 31, 2020 were significantly affected by the COVID-19 outbreak during the period, our financial performance for the ~~six and~~ three months ended ~~June 30, 2018;~~March 31, 2020 in terms of revenue streams, revenue volume and ~~(2)~~related cost consumption may not be indicative for the ~~decrease in sales volume from our distribution of the right~~full fiscal year or any future periods, or comparable to ~~use search engine marketing service during the second fiscal quarter of 2019, as discussed above.~~any historical reporting periods.

Operating Expenses

Our operating expenses consist of sales and marketing expenses, general and administrative expenses and research and development expenses. The following tables set forth our operating expenses, divided into their major categories by amount and as a percentage of our total revenues for the periods indicated.

Six Months Ended June 30,
2019 2018
(Amounts expressed in thousands of US dollars, except percentages)
Amount % of total
revenue Amount % of total
revenue

Total Revenues $ 24,020 100 % $ 30,780 100 %
Gross Profit 808 3 % 1,569 5 %
Sales and marketing expenses 350 1 % 844 3 %
General and administrative expenses 2,058 9 % 2,842 9 %
Research and development expenses 360 2 % 458 1 %
Impairment on intangible assets - - 1,878 6 %
Impairment on goodwill - - 5,412 18 %
Total operating expenses $ 2,768 12 % $ 11,434 37 %
35
Three Months Ended June 30, Three Months Ended March 31,
2019 2018 2020 2019
(Amounts expressed in thousands of US dollars, except percentages) (Amounts expressed in thousands of US dollars, except percentages)
Amount % of total
revenue Amount % of total
revenue Amount % of total revenue Amount % of total revenue

Total Revenues $ 15,453 100 % $ 22,520 100 % $ 4,384 100 % $ 8,567 100 %
Gross Profit 366 2 % 968 4 % 899 21 % 442 5 %
Sales and marketing expenses 181 1 % 280 1 % 165 4 % 169 2 %
General and administrative expenses 1,248 8 % 1,478 7 % 2,796 64 % 810 10 %
Research and development expenses 159 1 % 240 1 % 214 5 % 201 2 %
Impairment on intangible assets - - 1,878 8 %
Impairment on goodwill - - 5,412 24 %
Total operating expenses $ 1,588 10 % $ 9,288 41 % $ 3,175 73 % $ 1,180 14 %

Operating Expenses: Our total operating expenses was approximately US$~~2.77~~3.18 million and US$~~1.59~~1.18 million for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively, compared with approximately US$11.43 million and US$9.29 million~~respectively. The increase was primarily attribute to the increase in share-based compensation expenses for the ~~six~~issuance of restricted shares to our employees under our 2015 Omnibus Securities and Incentive Plan during the three months ended ~~June 30, 2018, respectively.~~March 31, 2020.

•l Sales and marketing expenses: Sales and marketing expenses ~~decreased to~~was both US$~~0.35 million and US$0.18~~0.17 million for the ~~six and~~ three months ended ~~June 30, 2019, respectively, compared with approximately US$0.84 million~~March 31, 2020 and ~~US$0.28 million for the six and three months ended June 30, 2018, respectively.~~2019. Our sales and marketing expenses primarily consist of advertising expenses for brand development that we pay to different media outlets for the promotion and marketing of our advertising web portals and our services, other advertising and promotional expenses, staff salaries, staff benefits, performance bonuses, travelling expenses, communication expenses and other general office expenses of our sales department. Due to certain aspects of our business nature, the fluctuation of our sales and marketing expenses usually does not have a direct linear relationship with the fluctuation of our net revenues. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the ~~decrease~~changes in our sales and marketing expenses was primarily due to the following reasons: (1) general departmental expenses decreased by approximately US$0.13 million, due to the ~~decrease~~COVID-19 outbreak during the first fiscal quarter of 2020 in ~~advertising~~China, which caused our operating offices closure after the Chinese New Year holiday in February and March 2020, resulted from the epidemic control measures imposed by the local governments where we operate; and (2) the increase in share-based compensation expenses ~~for our own brand development~~ of approximately US$~~0.41 million;~~0.12 million, related to restricted shares granted and (2) the decrease in approximately US$0.08 million staff salary and benefit expenses and other general departmental expenses, as a result of cost reduction plan executed by management. For the three months ended June 30, 2019, the decrease inissued to our sales ~~and marketing expenses was primarily due to decrease in~~ staff ~~salary and benefit expenses and other general departmental expenses, as a result~~during the first fiscal quarter of ~~cost reduction plan executed by management.~~
2020.

•l General and administrative expenses: General and administrative expenses ~~decreased~~increased to US$~~2.06 million and US$1.25~~2.80 million for the ~~six and~~ three months ended ~~June 30, 2019, respectively, compared with~~March 31, 2020 from US$~~2.84 million and US$1.48~~0.81 million for the ~~six and three months ended June 30, 2018, respectively.~~same period in 2019. Our general and administrative expenses primarily consist of salaries and benefits of management, accounting and administrative personnel, office rentals, depreciation of office equipment, allowance for doubtful accounts, professional service fees, maintenance, utilities and other office expenses. For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, the change in our general and administrative expenses was primarily due to the following reasons: (1) the ~~decrease~~increase in ~~general administrative expenses, such as: professional service expenses, salary and benefit expenses and other general office~~share-based compensation expenses of approximately US$~~0.55~~1.55 million, due to ~~cost reduction plan executed by management;~~restricted shares granted and issued in the first fiscal quarter of 2020; (2) the ~~decrease~~increase in allowance for doubtful accounts of approximately US$~~0.33~~0.22 million; and (3) the increase in ~~share-based compensation~~professional service fees and intangible assets amortization expenses of approximately US$0.10 million. For the three months ended June 30, 2019, the change in our general and administrative expenses was primarily due to the following reasons: (1) the decrease in general administrative expenses, such as: professional service expenses, salary and benefit expenses and other general office expenses of approximately US$0.23 million, due to cost reduction plan executed by management; (2) the decrease in allowance for doubtful accounts of approximately US$0.05 million; and (3) the increase in share-based compensation expenses of approximately US$0.050.22 million.

•l Research and development expenses: Research and development expenses ~~was approximately~~were US$~~0.36~~0.21 million and US$~~0.16~~0.20 million for the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, ~~respectively, compared with approximately US$0.46 million and US$0.24 million for the six and three months ended June 30, 2018,~~ respectively. Our research and development expenses primarily consist of salaries and benefits of our research and development staff, equipment depreciation expenses, and office utilities and supplies allocated to our research and development department etc. ~~The decrease~~For the three months ended March 31, 2020, the changes in our research and development expenses ~~for the six and three months ended June 30, 2019, compared with that in the respectively same period last year,~~ was primarily due to the ~~cost reduction plan executed~~following reasons: (1) general departmental expenses decreased by ~~management.~~
• ~~Impairment on intangible assets: For the six and three months ended June 30, 2018, we recognized an~~ approximately US$~~1.88~~0.13 million, ~~impairment loss on intangible assets,~~due to the same reason related to the COVID-19 outbreak as ~~these intangible assets are not expected~~discussed above; and (2) the increase in share-based compensation expenses of approximately US$0.15 million, related to ~~be able~~restricted shares granted and issued to ~~generate economic benefit for~~our R&D staff during the ~~Company in future periods.~~first fiscal quarter of 2020.
36
Impairment on goodwill: Due to decrease in overall gross profit margin and continued operating losses incurred from our internet advertising and data services reporting unit, we performed interim goodwill impairment test as of June 30, 2018. As a result, for the six and three months ended June 30, 2018, we recognized an approximately US$5.41 million impairment loss on goodwill, by comparing the fair value of the reporting unit with its carrying value.

Loss from operations: As a result of the foregoing, we incurred a loss from operations of approximately US$~~1.96~~2.28 million and US$~~9.87~~0.74 million for the six months ended June 30, 2019 and 2018, respectively. For the three months ended June 30, 2019 and 2018, we incurred a loss from operations of approximately US$1.22 million and US$8.32 million respectively.
~~Impairment on long-term investments:~~ we recognized an approximately US$0.47 million other-than temporary impairment on our long-term investment to ChinaNet Chuang Tou for the six months ended June 30, 2018, representing the amount we expected not recoverable upon termination of the company.
~~Interest expense, net:~~ For the six and three months ended June 30, 2019 and 2018, interest income was immaterial. For the six months ended June 30, 2019 and 2018, interest expense of both approximately US$0.02 million incurred, and for the three months ended ~~June 30,~~March 31, 2020 and 2019, and 2018, interest expense of both approximately US$0.01 million incurred were all related to the short-term bank loans we borrowed from major financial institutions in the PRC to supplement our short-term working capital needs.respectively.
Change in fair value of warrant liabilities: we issued warrants in our Financing consummated in January 2018, which we determined that should be accounted for as derivative liabilities, as the warrants are dominated in a currency (U.S. dollar) other than our functional currency (Renminbi or Yuan). As a result, a gain of change in fair value of these warrant liabilities of approximately US$~~0.47~~0.05 million ~~and US$0.82 million were~~was recorded for the ~~six and~~ three months ended ~~June 30, 2019, respectively,~~March 31, 2020, compared with ~~a gain of change in fair value of approximately US$0.95 million and~~ a loss of change in fair value of these warrant liabilities of approximately US$~~0.53~~0.35 million recorded for the ~~six and~~ three months ended ~~June 30, 2018, respectively.~~March 31, 2019.
Loss before income tax ~~(expense)/benefit~~expense and noncontrolling interests: As a result of the foregoing, our loss before income tax ~~(expense)/benefit~~expense and noncontrolling interest was approximately US$~~1.52~~2.23 million and US$~~9.44 million for the six months ended June 30, 2019 and 2018, respectively. our loss before income tax (expense)/benefit and noncontrolling interest was approximately US$0.42 million and US$8.86~~1.10 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.

Income Tax ~~(expense)/benefit:~~expense: For the ~~six~~three months ended ~~June 30,~~March 31, 2020, we recognized an approximately US$0.08 million income tax expense in relation to net income generated by one of our operating subsidiaries for the period, which amount was partially offset by an approximately US$0.01 million income tax benefit recognized in relation to the net operating loss incurred by another operating VIE of ours for the period, which we consider likely to be utilized with respect to future earnings of this entity. For the three months ended March 31, 2019, we recognized an approximately US$~~6 thousand~~0.06 million income tax expense in relation to utilization of previously recognized deferred tax assets by one of our ~~PRC~~ operating VIEs for the ~~period. For the three months ended June 30, 2019, we reversed~~period, which amount was partially offset by an approximately US$~~0.03~~0.02 million income tax ~~expenses~~benefit recognized in relation to ~~utilization of previously recognized deferred tax assets by one of our PRC~~the net operating ~~VIEs during the first fiscal quarter of 2019, due to further net~~ loss incurred ~~during~~by another operating VIE of ours for the ~~second fiscal quarter~~period, which we consider likely to be utilized with respect to future earnings of ~~2019, which resulted in a less amount of utilization of the previously recognized deferred tax assets.~~ For the six and three months ended June 30, 2018, we recognized a deferred income tax expense of approximately US$0.69 million for both periods, which was primarily related to the additional deferred tax assets valuation allowance provided during the periods.this entity.

Net loss: As a result of the foregoing, for the ~~six~~three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ we incurred a total net loss of approximately US$~~1.52~~2.31 million and US$~~10.12 million, respectively. For the three months ended June 30, 2019 and 2018, we incurred a total net loss of approximately US$0.38 million and US$9.55~~1.14 million, respectively.

Net loss attributable to noncontrolling interest: ~~Beijing Chuang Fu Tian Xia was 51% owned by Business Opportunity Online upon incorporation until we purchased the remaining 49% equity interest in it in May 2018.~~ In May 2018, we incorporated a ~~new~~ majority-owned subsidiary, Business Opportunity Chain and beneficially ~~owned~~owns 51% equity interest in it. For the ~~six and~~ three months ended ~~June 30,~~March 31, 2020 and 2019, net loss allocated to the noncontrolling interest of Business Opportunity Chain was approximately US$~~5 thousand~~nil and US$3 thousand, respectively. For the six and three months ended June 30, 2018, net loss allocated to the noncontrolling interests of Beijing Chuang Fu Tian Xia and Business Opportunity Chain was approximately US$0.06 million and US$0.050.002 million, respectively.

Net loss attributable to ChinaNet Online Holdings, Inc.: Total net loss as adjusted by net loss attributable to the noncontrolling interest shareholders as discussed above yields the net loss attributable to ChinaNet Online Holdings, Inc. Net loss attributable to ChinaNet Online Holdings, Inc. was US$~~1.52~~2.31 million and US$~~10.07 million for the six months ended June 30, 2019 and 2018, respectively. Net loss attributable to ChinaNet Online Holdings, Inc. was approximately US$0.38 million and US$9.50~~1.14 million for the three months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ respectively.
37

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, 2019,~~March 31, 2020, we had cash and cash equivalents of approximately US$~~1.4~~1.56 million.

Our liquidity needs include (i) net cash used in operating activities that consists of (a) cash required to fund the initial build-out, continued expansion of our network and new services and (b) our working capital needs, which include deposits and advance payments ~~for~~to search engine resource and other advertising resource providers, payment of our operating expenses and financing of our accounts receivable; and (ii) net cash used in investing activities that consist of the investment ~~in software technologies~~ to expand technologies related to our ~~blockchain technology related~~existing and future business activities, investment to enhance the functionality of our current advertising portals for providing advertising, marketing and data services and to secure the safety of our general ~~network, and investment in other general office equipment.~~network. To date, we have financed our liquidity need primarily through proceeds we generated from financing activities.

As discussed in Note 3(b) to our unaudited condensed consolidated financial statements, ~~we expect~~there is substantial doubt about our ability to ~~consummate an approximately US$4.8 million PIPE transaction in August 2019.~~continue as a going concern within one year after the date that the financial statements are issued. We intend to improve our cashflow status through improving gross profit margin, strengthening receivables collection management, negotiating with vendors for more favorable payment terms and obtaining more credit facilities from banks or other form of financing.

The following table provides detailed information about our net cash flow for the periods indicated:

Six Months Ended June 30,
2019 2018
Amounts in thousands of US dollars

Net cash used in operating activities $ (2,325 ) $ (4,321 )
Net cash used in investing activities (36 ) (2,825 )
Net cash provided by financing activities - 9,306
Effect of foreign currency exchange rate changes on cash, cash equivalents, and restricted cash 23 (26 )
Net (decrease)/increase in cash, cash equivalents, and restricted cash $ (2,338 ) $ 2,134
Three Months Ended March 31,
2020 2019
Amounts in thousands of US dollars

Net cash provided by/(used in) operating activities $ 1,518 $ (2,270 )
Net cash used in investing activities (1,117 ) (36 )
Net cash used in financing activities (430 ) -
Effect of foreign currency exchange rate changes on cash and cash equivalents (19 ) 47
Net decrease in cash and cash equivalents $ (48 ) $ (2,259 )

Net cash provided by/(used inin) operating activities

For the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, our net cash ~~used in~~provided by operating activities of approximately US$~~2.33~~1.52 million were primarily attributable to:

(1) net loss excluding approximately US$~~0.05~~0.21 million of non-cash expenses of depreciation and amortizations; approximately US$~~0.09 million amortization of operating lease right-of-use assets; approximately US$0.20~~1.92 million share-based compensation; approximately US$~~0.46~~0.41 million allowance for doubtful accounts; approximately US$~~0.47~~0.05 million gain from change in fair value of warrant liabilities and approximately US$~~0.01~~0.005 million deferred tax ~~expense,~~benefit, yielded the non-cash items excluded net ~~loss~~income of approximately US$~~1.18~~0.18 million.
(2) the receipt of cash from operations from changes in operating assets and liabilities such as:
- prepayment and deposit to suppliers decreased by approximately US$2.24 million, primarily due to utilization of the prepayment made to suppliers in fiscal 2019 through Ad resource and other services received from suppliers during the first fiscal quarter of 2020;
- advance from customers ~~and a related party~~ increased by approximately US$~~1.79~~0.12 million, ~~in the aggregate,~~ primarily due to new advance payments received ~~that related to unsatisfied service performance obligations~~from customers during the first ~~half~~fiscal quarter of ~~2019,~~2020, which was partially offset by recognition of revenue from opening contract liabilities during the period;
- due from related parties decreased by approximately US$~~0.23~~0.03 million, ~~primarily~~ due to collection of ~~US$0.2 million~~advertising service fee from ~~an officer of our company and a portion of a~~ related ~~party loan of approximately US$0.03 million (Note 6);~~
parties;
- ~~unpaid lease payments related to a short-term lease we entered into during the second fiscal quarter of 2019 increased by approximately US$0.12 million,~~
38

- ~~taxes payable~~accruals, tax payables, short-term lease payment payables and other current liabilities increased by approximately US$~~0.09 million;~~0.48 million in the aggregate, primarily due to temporary delay of some payments during the COVID-19 outbreak in the first fiscal quarter of 2020 and
some of the payments were not due until later periods.
- ~~other current assets decreased by approximately US$0.01 million.~~

(3) offset by the use from operations from changes in operating assets and liabilities such as:
- accounts receivable increased by approximately US$~~0.87~~0.26 million;
- accounts payable decreased by approximately US$~~2.15~~0.15 million; and
- long-term prepayment increased by approximately US$1.13 million, which prepayment was made for the purchase of ad resource during the first fiscal quarter of 2020, and this amount was not expected to be consumed within one year of March 31, 2020.
For the three months ended March 31, 2019, our net cash used in operating activities of approximately US$2.27 million were primarily attributable to:
(1) net loss excluding approximately US$0.04 million of non-cash expenses of depreciation and amortizations; approximately US$0.08 million amortization of operating lease right-of-use assets; approximately US$0.10 million share-based compensation; approximately US$0.19 million allowance for doubtful accounts; approximately US$0.35 million loss from change in fair value of warrant liabilities and approximately US$0.04 million deferred tax expense, yielded the non-cash items excluded net loss of approximately US$0.34 million.
(2) the receipt of cash from operations from changes in operating assets and liabilities such as:
- advance from customers increased by approximately US$0.56 million, primarily due to new advance payments received from customers during the first fiscal quarter of 2019, which was partially offset by recognition of revenue from opening contract liabilities during the period;
- taxes payable increased by approximately US$0.07 million;
- other current assets decreased by approximately US$0.01 million;
- loan to a related party of the Company decreased by approximately US$0.03 million due to repayment received during the period; and
- prepayment to suppliers decreased by approximately US$0.02 million.
(3) offset by the use from operations from changes in operating assets and liabilities such as:
- accounts receivable increased by approximately US$0.55 million;
- accounts payable decreased by approximately US$1.83 million, due to settlement with major suppliers of search engine resource in the first ~~half~~fiscal quarter of 2019;
- accruals and other current liabilities decreased by approximately US$~~0.27~~0.23 million in the aggregate, due to settlement of these operational liabilities and payment for operating lease liabilities during the first ~~half~~fiscal quarter of 2019;
and
- ~~Prepayment and deposit to suppliers increased by approximately US$0.08 million; and~~
- we also prepaid approximately US$0.01 million lease payment during the period.

~~For the six months ended June 30, 2018, our net cash used in operating activities of approximately US$4.32 million were primarily attributable to~~:
~~(1)~~ net loss excluding approximately US$0.43 million of non-cash expenses of depreciation and amortizations; approximately US$0.15 million share-based compensation; approximately US$0.79 million allowance for doubtful accounts; approximately US$0.47 million impairment on long-term investments; approximately US$1.88 million impairment on intangible assets; approximately US$5.41 million impairment on goodwill; approximately US$0.95 million gain from change in fair value of warrant liabilities and approximately US$0.69 million deferred tax expense, yielded the non-cash items excluded net loss of approximately US$1.25 million.
~~(2)~~ ~~the receipt of cash from operations from changes in operating assets and liabilities such as:~~
- deposit and prepayment to suppliers decreased by approximately US$1.50 million, primarily due to utilize the prepayments made in previous period and refund of contract deposit due to expiration/termination of supplier contracts.
~~(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$0.23 million, primarily due to increase in search engine marketing and data service revenues during the period;
- accounts payable decreased by approximately US$1.40 million, due to subsequent settlement with the major suppliers during the period, which payments were temporarily delayed due to working capital deficit we suffered before our financing in January 2018;
- ~~advance from customers decreased by approximately US$2.20 million, primarily due to recognizing revenues from beginning contract liabilities during the period~~;
- ~~accruals and other payables decreased by approximately US$0.65 million, due to settlement of these operational liabilities after the financing in January 2018;~~
- ~~other receivables increased by approximately US$0.02 million; and~~
- ~~tax payables decreased by approximately US$0.08 million.~~
Net cash used in investing activities

For the ~~six~~three months ended ~~June 30,~~March 31, 2020, (1) we made an additional payment of approximately US$0.30 million for the development of our blockchain technology-based platform applications and (2) we lent to an unrelated third party a short-term loan of approximately US$0.82 million. In the aggregate, these transactions resulted in a cash outflow from investing activities of approximately US$1.12 million for the three months ended March 31, 2020.
For the three months ended March 31, 2019, we contributed our pro-rata share of cash investment of approximately US$0.04 million to an ownership investee company incorporated in October 2018, which transaction was recorded as a cash outflow from investing activities during the period.
39

~~For the six months ended June 30, 2018, (1)~~ ~~we paid approximately US$6 thousand for the purchase of general office equipment; (2) w~~e lent an unrelated party short-term loan of approximately US$2.0 million during the first fiscal quarter of 2018 and another unrelated entity short-term loan of approximately US$0.11 million during the second fiscal quarter of 2018; ~~(3)~~ we collected the approximately US$2.67 million short-term loan lent to an unrelated entity in the third quarter of 2017, and in the second fiscal quarter of 2018, we also collected the approximately US$2.0 million short-term loan lent during the first fiscal quarter of 2018~~; (4)~~ ~~we paid approximately US$1.18 million for the acquisition of the 49% noncontrolling interest in a majority-owned subsidiary of ours; and (5)~~ we prepaid approximately US$3.75 million in the aggregate, for the development of certain blockchain technology based applications, and paid approximately US$0.45 million to settle the remaining balance of an intangible assets purchased in the four fiscal quarter of 2016~~. In the aggregate, these transactions resulted in a net cash outflow from investing activities of approximately US$2.83 million for the six months ended June 30, 2018.~~
Net cash ~~provided by~~used in financing activities

For the ~~six~~three months ended ~~June 30,~~March 31, 2020, we repaid an approximately US$0.43 million short-term bank loan matured in January 2020.
For the three months ended March 31, 2019, we repaid approximately US$~~0.44~~0.45 million short-term bank loan matured in the first fiscal quarter of 2019, which we re-borrowed with the same amount during the same period.

For the six months ended June 30, 2018, (1) we consummated a registered direct offering of 2,150,001 shares of our common stock to certain institutional investors at a purchase price of $5.15 per share. We received net proceeds of approximately $10.26 million, after deduction of approximately US$0.81 million direct financing cost paid in cash; and (2) Due to termination of security purchase agreements in May 2016, we repaid our previous investors in the aggregate of approximately US$0.96 million guarantee payment and prepayment received upon entering the agreements during the first half of 2018. In the aggregate, these transactions resulted in a net cash inflow from financing activities of approximately US$9.31 million for the six months ended June 30, 2018.
Restricted Net Assets

As substantially all of our operations are conducted through our PRC subsidiaries and VIEs, our ability to pay dividends is primarily dependent on receiving distributions of funds from our PRC subsidiaries and VIEs. Relevant PRC statutory laws and regulations permit payments of dividends by our PRC subsidiaries and VIEs only out of their retained earnings, if any, as determined in accordance with PRC accounting standards and regulations and after it has met the PRC requirements for appropriation to statutory reserves. Paid in capital of the PRC subsidiaries and VIEs included in our consolidated net assets are also not distributable for dividend purposes.

In accordance with the PRC regulations on Enterprises with Foreign Investment, a WFOE established in the PRC is required to provide certain statutory reserves, namely general reserve fund, the enterprise expansion fund and staff welfare and bonus fund which are appropriated from net profit as reported in the enterprise’s PRC statutory accounts. A WFOE is required to allocate at least 10% of its annual after-tax profit to the general reserve until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. Appropriations to the enterprise expansion fund and staff welfare and bonus fund are at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. Rise King WFOE is subject to the above mandated restrictions on distributable profits. Additionally, in accordance with the Company Law of the PRC, a domestic enterprise is required to provide a statutory common reserve of at least 10% of its annual after-tax profit until such reserve has reached 50% of its registered capital based on the enterprise’s PRC statutory accounts. A domestic enterprise is also required to provide for a discretionary surplus reserve, at the discretion of the board of directors. The aforementioned reserves can only be used for specific purposes and are not distributable as cash dividends. All of our other PRC subsidiaries and PRC VIEs are subject to the above mandated restrictions on distributable profits.

~~As a result of~~In accordance with these PRC laws and regulations, our PRC subsidiaries and VIEs are restricted in their ability to transfer a portion of their net assets to us. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, net assets restricted in the aggregate, which includes paid-in capital and statutory reserve funds of our PRC subsidiaries and VIEs that are included in our consolidated net assets were both approximately US$12.0 million.

The current PRC Enterprise Income Tax (“EIT”) Law also ~~imposed~~imposes a 10% withholding income tax for dividends distributed by a foreign invested enterprise to its immediate holding company outside China, which were exempted under the previous EIT law. A lower withholding tax rate will be applied if there is a tax treaty arrangement between mainland China and the jurisdiction of the foreign holding company. Holding companies in Hong Kong, for example, will be subject to a 5% rate, subject to approval from the related PRC tax authorities.

40
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.
~~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~~converting of Renminbi into foreign currency for current account items, conversion of Renminbi into foreign exchange for capital items, such as foreign direct investment, loans or securities, requires the approval of SAFE, which is under the authority of the People’s Bank of China. These approvals, however, do not guarantee the availability of foreign currency conversion. We cannot be sure that it will be able to obtain all required conversion approvals for our operations or the Chinese regulatory authorities will not impose greater restrictions on the convertibility of Renminbi in the future. Currently, most of our retained earnings are generated in Renminbi. Any future restrictions on currency exchanges may limit our ability to use retained earnings generated in Renminbi to make dividends or other payments in U.S. dollars or fund possible business activities outside China.

C.       OFF-BALANCE SHEET ARRANGEMENTS

None.

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, 2019,~~March 31, 2020, 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.

41
Changes in Internal Control over Financial Reporting

On July 8, 2019, Zhige Zhang resigned as the Company’s Chief Financial Officer. Mr. Zhang’s resignation did not result from any disagreement with the Company. On that same day, Mark Li was appointed as the Company’s new Chief Financial Officer. Other than this change, thereThere was no change in our internal control over financial reporting that occurred during the ~~second~~first fiscal quarter of ~~2019~~2020 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

We are currently not a party to any legal or administrative proceedings and are not aware of any pending or threatened legal or administrative proceedings against us in all material aspects. We may from time to time become a party to various legal or administrative proceedings arising in the ordinary course of our business.

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.~~Not applicable.

Item 5. Other Information

None.

42

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

43

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 19, 2019~~June 29, 2020 By: /s/ Handong Cheng

Name: Handong Cheng

Title: Chief Executive Officer
(Principal Executive Officer)

By:
/s/ Mark Li
Name: Mark Li

Title: Chief Financial Officer
(Principal Accounting and Financial Officer)

44

Nevada	20-4672080
(State or other jurisdiction of incorporation or organization)	~~(I.R.S.~~(I.R.S. Employer Identification No.)

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock, par value $0.001		CNET		Nasdaq Capital Market

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☐

~~Title of each class~~		~~Trading Symbol(s)~~		~~Name of each exchange on which registered~~
~~$0.001 Common Stock~~		~~CNET~~		~~Nasdaq Capital Market~~

PART I. FINANCIAL INFORMATION		PAGE

Item 1. Interim Financial Statements

	Condensed Consolidated Balance Sheets as of ~~June 30, 2019~~March 31, 2020 (Unaudited) and December 31, ~~2018~~2019	1-2

	Condensed Consolidated Statements of Operations and Comprehensive Loss for the ~~Six and~~ Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	3-4

	Condensed Consolidated Statements of Cash Flows for the ~~Six~~Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	5-6

	Condensed Consolidated Statements of Changes in Equity for the ~~Six and~~ Three Months Ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (Unaudited)	~~7-8~~7

	Notes to Condensed Consolidated Financial Statements (Unaudited)	~~9-30~~8-25

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		~~31-41~~26-34

Item 3. Quantitative and Qualitative Disclosures About Market Risk		4134

Item 4. Controls and Procedures		4134

PART II. OTHER INFORMATION

Item 1. Legal Proceedings		4234

Item 1A. Risk Factors		4234

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		4234

Item 3. Defaults Upon Senior Securities		4235

Item 4. Mine Safety Disclosures		4235

Item 5. Other Information		4235

Item 6. Exhibits		4336

Signatures		4437

	June 30, 2019		December 31, 2018
	(US $)		(US $)
	(Unaudited)
Assets
Current assets:
Cash and cash equivalents	$	1,379	$	3,717
Term deposit, restricted		25		25
Accounts receivable, net of allowance for doubtful accounts of $1,373 and $3,393, respectively		6,749		6,359
Prepayment and deposit to suppliers, net		2,049		2,154
Due from related parties, net		-		226
Other current assets, net		8		19
Total current assets		10,210		12,500

Long-term investments		36		-
Property and equipment, net		99		142
Intangible assets, net		36		45
Operating lease right-of-use assets		17		-
Blockchain application platform development costs		3,724		3,725
Deferred tax assets, net		549		556
Total Assets	$	14,671	$	16,968

Liabilities and Equity
Current liabilities:
Short-term bank loan *	$	873	$	874
Accounts payable *		742		2,869
Advance from customers *		2,768		1,061
Advance from a customer, related *		53		-
Accrued payroll and other accruals *		289		521
Taxes payable *		3,082		2,997
Lease payment liability related to a short-term lease *		118		-
Other current liabilities *		162		118
Warrant liabilities		135		606
Total current liabilities		8,222		9,046

	Common stock				Additional paid-in capital		Statutory reserves		Accumulated deficit			Accumulated other comprehensive income			Noncontrolling interests			Total equity
	Number of shares		Amount
			(US $)		(US $)		(US $)		(US $)			(US $)			(US $)			(US $)

Balance, January 1, 2019		16,382,543	$	16	$	38,275	$	2,607	$	(34,512	)	$	1,457		$	(49	)	$	7,794
Share-based compensation		30,000		-		13		-		-			-			-			13
Net loss for the period		-		-		-		-		(1,138	)		-			(2	)		(1,140	)
Foreign currency translation adjustment		-		-		-		-		-			(35	)		(1	)		(36	)
Balance, March 31, 2019 (unaudited)		16,412,543		16		38,288		2,607		(35,650	)		1,422			(52	)		6,631
Share-based compensation		-		-		13		-		-			-			-			13
Net loss for the period		-		-		-		-		(379	)		-			(3	)		(382	)
Foreign currency translation adjustment		-		-		-		-		-			59			1			60
Balance, June 30, 2019 (Unaudited)		16,412,543	$	16	$	38,301	$	2,607	$	(36,029	)	$	1,481		$	(54	)	$	6,322

	Common stock					Additional paid-in capital		Statutory reserves		Accumulated deficit			Accumulated other comprehensive income (loss)		Noncontrolling interests			Total equity
	Number of shares		Amount
			(US $)		(US $)		(US $)		(US $)			(US $)		(US $)			(US $)

Balance, January 1, 2020		19,629,403	$	20	$	43,111	$	2,607	$	(35,773	)	$	1,505	$	(57	)	$	11,413
Share-based compensation in exchange for services from nonemployees		430,000		-		477		-		-			-		-			477
Share-based compensation in exchange for services from employees and directors		1,632,523		2		1,897		-		-			-		-			1,899
Net loss for the period		-		-		-		-		(2,310	)		-		-			(2,310	)
Foreign currency translation adjustment		-		-		-		-		-			71		1			72
Balance, March 31, 2020 (unaudited)		21,691,926	$	22	$	45,485	$	2,607	$	(38,083	)	$	1,576	$	(56	)	$	11,551

	June 30, 2019		December 31, 2018

Balance sheet items, except for equity accounts		6.8747		6.8632

	March 31, 2020		December 31, 2019

Balance sheet items, except for equity accounts		7.0851		6.9762

	As of March 31,
	2020		2019

Weighted-average remaining lease term (years)		0.96		1.96

	March 31, 2020							December 31,2019
		Gross		Allowance for doubtful accounts			Net		Gross		Allowance for doubtful accounts			Net
	US$(’000)		US$(’000)			US$(’000)		US$(’000)		US$(’000)			US$(’000)
	(Unaudited)		(Unaudited)			(Unaudited)

Staff advances for business operations		16		-			16		11		-			11
Short-term loan to an unrelated party		815		-			815		-		-			-
Overdue deposits		706		(706	)		-		717		(717	)		-
Total		1,537		(706	)		831		728		(717	)		11

	Investors warrants									Placement agent warrants
	December 31, 2018			March 31, 2019			June 30, 2019			December 31, 2018			March 31, 2019			June 30, 2019

Stock price	$	1.34		$	1.95		$	1.35		$	1.34		$	1.95		$	1.35
Years to maturity		1.55			1.30			1.10			2.05			1.80			1.55
Risk-free interest rate		2.50	%		2.27	%		1.73	%		2.50	%		2.27	%		1.73	%
Dividend yield		-			-			-			-			-			-
Expected volatility		199	%		216	%		90	%		176	%		187	%		202	%
Exercise Price	$	6.60		$	6.60		$	6.60		$	6.60		$	6.60		$	6.60

Fair value of the warrant	$	0.78		$	1.23		$	0.05		$	0.80		$	1.26		$	0.80

	Investors warrants									Placement agent warrants
	January 17, 2018			March 31, 2018			June 30, 2018			January 17, 2018			March 31, 2018			June 30, 2018

Stock price	$	3.98		$	1.67		$	2.52		$	3.98		$	1.67		$	2.52
Years to maturity		2.50			2.30			2.10			3.00			2.80			2.55
Risk-free interest rate		2.22	%		2.35	%		2.53	%		2.39	%		2.50	%		2.56	%
Dividend yield		-			-			-			-			-			-
Expected volatility		158	%		164	%		174	%		147	%		152	%		159	%
Exercise Price	$	6.60		$	6.60		$	6.60		$	6.60		$	6.60		$	6.60

Fair value of the warrant	$	2.93		$	1.03		$	1.71		$	2.99		$	1.06		$	1.74

	As of		As of		As of		Change in Fair Value (gain)/loss
	June 30, 2019		March 31, 2019		December 31, 2018		Six Months Ended June 30, 2019			Three Months Ended June 30, 2019
Fair value of the Warrants:
Investor warrants		32		793		503		(471	)		(761	)
Placement agent warrants		103		163		103		-			(60	)
Warrant liabilities		135		956		606		(471	)		(821	)

	Investors warrants						Placement agent warrants
		As of December 31, 2019			As of March 31, 2020			As of December 31, 2019			As of March 31, 2020

Stock price	$	1.17		$	0.95		$	1.17		$	0.95
Years to maturity		0.55			0.30			1.05			0.80
Risk-free interest rate		1.58	%		0.10	%		1.57	%		0.13	%
Dividend yield		-			-			-			-
Expected volatility		60	%		99	%		80	%		78	%
Exercise Price *	$	1.4927		$	1.4927		$	1.4927		$	1.4927

Fair value of the warrant	$	0.11		$	0.07		$	0.28		$	0.12

Warrant Liabilities (US$’000)	$	71		$	45		$	36		$	16

	Investors warrants						Placement agent warrants
		As of December 31, 2018			As of March 31, 2019			As of December 31, 2018			As of March 31, 2019

Stock price	$	1.34		$	1.95		$	1.34		$	1.95
Years to maturity		1.55			1.30			2.05			1.80
Risk-free interest rate		2.50	%		2.27	%		2.50	%		2.27	%
Dividend yield		-			-			-			-
Expected volatility		199	%		216	%		176	%		187	%
Exercise Price *	$	6.60		$	6.60		$	6.60		$	6.60

Fair value of the warrant	$	0.78		$	1.23		$	0.80		$	1.26

Warrant Liabilities (US$’000)	$	503		$	793		$	103		$	163

		As of March 31, 2020		As of December 31, 2019		Change in Fair Value (gain)/loss
	US$’000		US$’000		US$’000
Fair value of the Warrants:
Investor warrants		45		71		(26	)
Placement agent warrants		16		36		(20	)
Warrant liabilities		61		107		(46	)