Ted Haberfield - MZ Group George Chu - Chief Operating Officer.

Analysts:.

Good day, and welcome to the ChinaNet Online Holdings Third Quarter 2016 Earnings Conference. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Ted Haberfield of MZ Group. Please go ahead sir..

Thank you. And welcome everyone to today's conference call for ChinaNet Online Holdings. This call will cover ChinaNet's financial and operating results for the third quarter of 2016. The earnings press release accompanying this conference call went to the wire early this morning or actually yesterday. On our call today is ChinaNet's COO, Mr.

George Chu, IR Senior Management [Maggie Won and Jack Lee] (Ph). Before we get started, I will read a disclaimer about forward-looking statements. This conference call may contain, in addition to historical information, forward-looking statements within the meaning of the federal securities laws regarding ChinaNet Online Holdings.

Forward-looking statements includes statements about plans, objectives, goals, strategies, future events or performance and underlying assumptions and other statements that are different than historical facts.

These forward-looking statements are based on current management expectations and are subject to risks and uncertainties that may result in expectations not being realized and may cause actual outcomes to differ materially from expectations reflected in these forward-looking statements.

Potential risks and uncertainties include change in demand for the Company's services, the impact of competition and government regulation, and other risks contained in the statements filed from time-to-time with the SEC.

All such forward-looking statements whether written or oral made on behalf of the Company are expressly to qualified by these cautionary statements, and such forward-looking statements are subject to risks and uncertainties, and we caution you not to place undue reliance on these. At this time, I would like to turn the call over to Mr.

Chu, who will make some brief opening remarks. Mr. Jack Lee will provide translation and be your main host for today’s call. Mr. Chu..

Thanks, Ted and thank you everyone for joining us today. In the first nine-months of 2016, ChinaNet has continue to evolve into an Internet and Data service Company focusing on the business value created from the massive amount of transaction data generated from our customers.

To this end, we have launched and are continuing to develop our business intelligent marketing data service system with CloudX. A soft marketing cloud platform, which has become the foundation for the ecosystem of products and service that will serve any business important early stage of their business cycle with a one-stop solution.

This ecosystem contains a digital brand promotion, store management, advertising and marketing service and membership service. CloudX enables ChinaNet to now manage and collect data from online business development to offline sales channels.

The overall system is based on CloudX technology and consist of three components, a store management system including a stock and sales system, and intelligent point of sale system, and a multi-functional app with an online retail store membership point exchanging.

The store managing system collects and analyze product sales numbers from stores in real-time and its analyzed by ChinaNet for adjustment to produce stock and inventory to improve customer sale. By utilizing CloudX in stores, ChinaNet can provide owner accurate and more precise digital marketing plans.

With the data from sales analysis report the system can be installed on either PC or mobile terminals. We are very excited to be ramping up this transition to become a premier internet and data service Company, which is now driving revenue and growth for us along with our full suite of digital marketing products.

As such switch is also seeing year-over-year growth. Our result over the first nine-months of 2016 are encouraging as we consider them within the context of the overall Chinese economy, which has challenged our business margins and bottom-line during the year.

Our business outlook into 2017 remains confident despite the fact that we do not see a turnaround in momentum for the China economy in the near-term.

In fact, our core customer base of small and medium size businesses will continue to seek out more [Indiscernible] technologies and opportunities for their sales and advertising program while the microenvironment challenges them.

Looking ahead to the medium to long-term, together with our partners, entrepreneurs and franchise owners, we remain confident in our ability to bring meaningful results to our shareholders.

Despite the challenging economic climate, ChinaNet has a strong commitment to the ongoing development of our technology to deliver cutting edge products and service to our customers and preserve our competitive advantage.

Our position also allowed us to adopt our successful path to reconstructing our business to reduce low margin television advertising business and instead focus on a research and development of our data service system.

Growth has been strongest this quarter in our search engine marketing services, while we continue to focus on the full transition to digital market and integrating and upgrading our internet advertising and data service to SME clients and investing in developing new service modules for client.

And believe that the launch of new service in the future will help to increase market penetration and recurring revenues. During the third quarter, we also turned our attention to our shareholder. We successfully execute a one for 2.5 reverse stock split of our issued and outstanding shares of common stock.

The reverse stock split will intend what intended to increase the per share trading price of our common stock to satisfy the $1 minimum bid price requirement for continued listing on a NASDAQ capital market. In September, we announced that we had regained compliance continue the listing of ChinaNet common stock.

In closing, I would like to thanks to our employees for their commitment to ChinaNet and our shareholders. We will continue to innovate and seek new opportunity as our economy continues to face challenges.

We believe our strategy to diversify our rapid news and build increasingly stronger partnership will position our Company for growth for the remainder of 2016 and beyond. I would like to introduce Jack Lee (ph), who will now discuss our third quarter 2016 result. Thank you, Jack..

Thank you Mr. Chu. Good morning to investor in the U.S. and good evening to those in Asia. As Mr. Chu mentioned, I will begin with a discussion of our third quarter results before I highlight few recent business development. Please refer to the earnings press release and 10-Q, which filed on Tuesday for more details, regarding our result and operation.

I will close with our outlook and operational initiative. Total revenue for the three months ended September 30, 2016 were $11.9 million compared to $8.5 million during the year of goal period, a 40.1% increase. The quarter was primarily driven by an increase in revenue from search engine marketing services during the period.

Revenue from Internet advertisement and data services was $4.4 million, which decreased 20.1% from $5.5 million in the third quarter of 2015.

Although down for the quarter, we believe our efforts to transition to an Internet and data service Company and the integration and upgrading of these services will begin to build recurring revenue and increase market penetration into 2017.

In fact a 160% increase from $2.9 million in the third quarter of 2015 to $7.5 million in the third quarter of 2016 and search engine marketing service revenue were supported by the CloudX system, which grow more precision marketing and our [Indiscernible] clients.

This enhanced third-party search engine marketing service is designed to help our clients select the effective key words and to prioritize the ranking of the anticipated search engine results, on selected keywords in order to increase the [Indiscernible] rate, our client’s business promotion on both mobile and PC search.

This service has been an effective supplement to the Internet advertising searches provided to our clients and has helped increase the overall satisfaction on our services, thereby increasing recurring revenues and number of clients from online advertising and marketing.

Gross profits were $2 million compared to $1.5 million in the third quarter of 2015. Gross margin was around 17%, compared with 17.1% in the third quarter of 2015, primarily the increase is relative lower margin revenue from search engine marketing service during the period.

Internet advertising and data service gross margin increased to 42% for the third quarter of 2016 from 31% for the third quarter of 2015.

The improvement in gross margin of the Internet advertising and data service was primarily due to optimizing and upgrading of our online promotion analysis and cost control system, which improved the promotion accuracy, advertising [Indiscernible] rate and promotion cost control.

Operating expenses for the three months ended September 30, 2016 were approximately $3.4 million. Sales and marketing expenses decreased to $1.1 million from $1.2 million while we continue to invest in branding expenses for promoting our website service and enhance brand awareness.

Our operating loss for the third quarter was 2016 was $1.4 million compared to $2.6 million in 2015. Net loss attributable to the ChinaNet for the three months ended September 30, 2016, was $1.5 million and a loss per share was $0.13 compared to a net loss of $2.1 million and loss per share of $0.18 in the third quarter of 2015.

Turning to our nine-months result. Revenues for the nine-months ended September 30, 2016, were $25.4 million an increase of 6.7% from $23.8 million for a same period a year-ago. Gross profit and gross profit margin was $6.1 million and $24.1 million respectively for the first nine-months of 2016.

Operating expenses decreased by 5.3% to $9.9 million compared to $10.4 million for the first nine-months of 2015. We were reported an operating loss of $3.8 million in the first nine-months of 2016. Net loss attributable to ChinaNet common shareholders and net loss per share was $2.4 million and $0.36 for the nine-months and September 30, 2016.

The weighted average diluted share outstanding were $11.4 million shares. Turning to our balance sheet, we ended the first nine-months of 2016 with $1.2 million in cash and cash equivalent compared to $5.5 million as of December 31, 2015. We have working capital of $9.8 million compared to $13.7 million as of December 31, 2015.

And a [indiscernible] ratio of 2.3 to 1 compared to 2.9 to one as of December 30, 2015. Total stockholders' equity of ChinaNet was $24.3 million at September 30, 2016 compared to $27.3 million and December 31, 2015.

We have $1.9 million of cash [indiscernible] from operations in a nine-months ended September 30, 2016, compared to $1.3 million of cash inflows in a first nine-months of 2015. Before I discussed our outlook, I would like to summarize a few key development of ChinaNet in the past few months.

In August, we announced [1.215] (Ph) reverse stock split of its issued and outstanding shares of common stock, in order to gain compliance and continue our listing on a NASDAQ capital market, which were certified in the September.

The reverse stock split reduced the number of shares of our common stock outstanding from approximately 30.4 million shares to our common stock pre reverse split to approximately 12.2 million shares of common stock post reverse of stock split. Number of authorized shares of common stock and the PAR value per share remained unchanged.

As a result of the reverse stock split, every 2.5 shares of the Company's pre reverse common stock was combined and reclassified into one share of common stock. The number of outstanding options was adjusted accordingly with outstanding options being reduced from approximately 2.1 million to approximately 835,000.

And now, we will turn the presentation to Mr. Chu to discuss with our outlook..

Thank you, Jack. As initiated by the improvement of gross margin, we have gained some initial success with CloudX. As you can see that the technology would be CloudX - our marketing promotion cost reduced quite tremendously. While the overall Internet resource cost is rising right now. So this is a clear achievement that we have achieved.

And we have been internally tested with our existing clients and our sales and we will officially launch CloudX SaaS marketing cloud to all SMEs in China in December and January.

And that our plan for CloudX that we will be also launching it gradually to the rest of the world and to all of the businesses we ever wish to come into China and to the marketing or advertising plan.

And second thing is that we have been continuing working with Alibaba on creating the efficient marketing data model for precision marketing and faster deal closing. In relation to two way, O2O to online to offline and offline to online.

We are transferring all of our data to Ali cloud and this information will be completed by end of Q1 or early Q2 next year, as we are transferring our past 10 year’s data and we are building a quite large skies of on data structures for future business expansions.

As a result, as we have seen a legal change this and legal change of that and certainly we come out with the CloudX things and that is why the Company - we will be conducting virtual Company presentation on November 29, 2016.

In this presentation, we will connect the past to the future and walk our investors to everything that we have done and our plans for next few years and the starting with the rest of 2016 and 2017. And also there will be an official announcement on this virtual Company presentation next Monday.

So this concludes my prepared remarks, and we will now open the call to any questions you may have for our teams..

Operator:.

Okay. Thank you. So, thank you everyone for participating in this conference call, and we are looking forward to see you again in our Company presentation on the [indiscernible]. Thank you..

And this concludes today's call. Thank you for your participation. You may now disconnect..