Gregg Davis - MZ Group Investor Relations George Chu - Chief Operating Officer Kelly Lee - Investor Relations

Good day, ladies and gentlemen. And welcome to the ChinaNet Online Holdings’ Second Quarter 2017 Earnings Call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Mr. Gregg Davis, MZ Group Investor Relations firm. Please go ahead sir.

Thank you. And welcome everyone to today’s conference call for ChinaNet Online Holdings Inc. This call will cover ChinaNet’s financial and operating results for the second quarter of 2017. The earnings press release accompanying this conference call went to the wire on August 15th. On our call today is ChinaNet’s Chief Operating Officer, George Chu, and from the Investor Relations team Maggie Won and Kelly Lee. 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 Inc. Forward-looking statements include 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 these 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’d like to turn the call over to Mr. Chu, who will be the main host for today’s call.

Thanks, Gregg. And thank you everyone for joining us today. In the first six months of 2017, ChinaNet, we have continued involved into an Internet and data service company. Focusing on the value created on the massive amount of advertising and marketing and transaction data generated from customers. Our business outlook for the remainder of 2017 remains positive despite the fact that we do not see a turnaround in momentum for the China economy in the near-term. We in fact believe that our core customer base of small and medium size businesses will be more proactive to seek more cost effective technologies and opportunities for their sales and advertising programs, while the microeconomic environment challenges them; a positive sign is that our portfolio of international partnerships continue to expand, creating a diversified revenue stream and [indiscernible] our future partnership opportunities. Looking ahead to the medium to long-term. Together with our partner, entrepreneur and business owners, we remain confident in our strategy to bring meaningful results to our shareholders. We experienced a decrease in our Internet advertising data service revenues, which we consider to be temporary as we transition our business and concentrate our technology development. During the past few years, we have optimized on our Internet market analytics and cost control systems to provide more accurate results in most [indiscernible] feedback to our clients, which is especially helping to our larger clients. We have optimized our online promotion tactics, improved cost efficiency, which led to the foundation of the framework of CloudX. The process of development offset lowering margins of our Internet marketing tactics has helped the Company and our economy to more accurate advertising marketing results with low cost regions to increasing sales and condition rates from leads to action and sales results. The technical improvement in the potential advertising marketing technology breakthroughs will further help increase our market penetration in the SME segment, and potentially expand into the new customer segments; thereby, continue to increase our recurring revenues and improving our profitability in future periods. The overall system on CloudX technology, which constitute of three components; precision targeting and omnichannel digital advertising marketing management system, which allow anyone to advertise or market new sales in the simplest test with artificial intelligence recognition. Second is an encouraging point of sales system, which includes a sparkling sales system and the ability to multi-functional app within online retail store membership point exchange. Our current focus is on the precision targeting, which collects and analyze product and service sales from both online and offline lead and SaaS data in real time, and is analyzed by clients for adjustment to improve customer sell-through. By utilizing CloudX with both online and offline SaaSdata, ChinaNet can provide -- create more precise digital marketing strategies with the data analysis from SaaS reports. The system is cloud based and can be installed on Windows or Linux based OS system at this point, while before the same is coverage based and sales expect. We already started to be working on this transaction to become a premier Internet data service company in China, especially for the businesses, which is now driving revenue and growth for us along with our full suite of digital marketing products. Our results over the first six months of 2016 are encouraging as we perceive them in the context of the overall Chinese economy, which challenge our business margin and bottom-line for the year. Growth has been strong this year in our search engine marketing and data service by integrating our Internet advertising data service to SME clients, and investing and developing in new service modules for clients. We continue to believe that the launch of the new service feature would help to increase market penetration and recurring revenues. In closing, I would like to thank to our employees for their commitments to ChinaNet and our shareholders. We will continue to innovate and seek new opportunities as our economy continues to face challenges. We believe our strategies are based on our revenue and build increasingly stronger partnership with [indiscernible] will position our Company for growth for the remainder of 2017 and beyond. And in addition to that, as our further investments and further development on our technologies, we believe that our marketing system and the overall CloudX will becomes larger and more efficient to help the Company to grow in both revenue and profits. And now, I will turn to Kelly to discuss our six month 2017 results. Thank you.

Please refer to the earnings press release on the 10-Q we filed yesterday, August 15, 2017 and Monday August 14, 2017. For more details regarding our results and operations and up close with our outlook and operational initiatives. For the three months ended June 30, 2017, total revenues increased to $10.5 million from $8.4 million in the prior year, primarily due to the increase from search engine marketing and data service revenue during the quarter. During the quarter, revenues from Internet advertising and data service was $2.5 million, which decreased 56.7% from $5.7 million in the second quarter of 2016. This decline was offset by an increase in search engine marketing and data service revenues of 188.5% from $2.8 million in the second quarter of 2016 to $8 million in the second quarter of 2017. Gross profit for the quarter was $1.7 million compared to $2.5 million in the second quarter of 2016, a decrease of 31.9%. Gross margin was 16.2%, down from 29.6% in 2016, primarily due to the increase in related lower margin revenues from search engine marketing and data service during the quarter. Internet advertising and data service gross margin remained 43% in the second quarter of 2017 as in 2016. Operating expenses decreased by 39.1% to $2.1 million during the quarter. Sales and marketing expenses decreased by 22.4% to $0.8 million. General and administrative expenses decreased by 45.9% to $1 million. Loss from operations was $0.4 million in the second quarter of 2017, an improvement of 57.3% compared to a loss of $1 million in the second quarter of 2016. Net loss attributable to ChinaNet during the quarter was $0.8 million and loss per share from continuing operations was $0.07 compared to a net loss of $1.3 million and the loss per share from continuing operations of $0.11 in the second quarter of 2016. Turning to our six months results. Revenues for the six months ended June 30, 2017 were $17.8 million, an increase of 31.6% from $13.5 million for the same period a year ago, which was primarily an increase in search engine marketing and data service revenue. Gross profit was $3 million, a decrease of 27.5% for the first six months of 2017, and gross profit margin of 16.7% compared to 30.4% in 2016. Operating expenses decreased by 31.6% to $4.4 million compared to $6.5 million for the first six months of 2016.

Looks like that line, Ms. Lee’s line disconnected. Okay, and I’ll let you know once that line has been re-established.

Thank you. So just continue from what Kelly just mentioned. The operating expenses decreased by 31.6% to $4.4 million compared to $6.5 million for the first six months of 2016. The Company reported an operating loss of $1.5 million in the first half of 2017 compared to an operating loss of $2.4 million in the first half of 2016. Net loss attributable to ChinaNet common shareholders and net loss per share was $1.9 million and $0.16 for the six months of 2017. Turning to our balance sheet. The Company had $1.8 million in cash and cash equivalents as of June 30, 2017 compared to $3 million as of December 31, 2016; working capital of $6.3 million compared to $6.9 million as of December 31, 2016, and a current ratio of 1.7 to 1, compared 1.9 to 1 as of December 31, 2016. Total shareholder equity of ChinaNet was $21.2 million at June 30, 2017 compared to $22.2 million at December 31, 2016. The Company generated approximately $1.3 million of cash outflows from operations versus six months compared to $0.3 million of cash inflows in 2016. This concludes our prepared remarks. We will now open the call to any questions you may have for ChinaNet.

Thank you everyone for participating in the call tonight. And if you have any further questions, please feel free to email us or let us know. You can reach us by our newly renovated corporate Web site. Thank you everyone.

And ladies and gentlemen, that does conclude today’s conference. I’d like to thank everyone for their participation. You may now disconnect.